India, the world’s largest importer of edible oils, is witnessing a sharp and sustained rise in duty-free refined oil shipments from Nepal that is increasingly worrying domestic refiners and oilseed farmers. What began as a relatively small trade flow has transformed into a major structural issue, with imports of refined edible oils from the Himalayan neighbour jumping more than 17-fold in just two years. Industry bodies argue that this preferential trade, enabled by regional free-trade arrangements, is distorting the domestic market, undercutting local value addition, and undermining efforts to strengthen India’s oilseed economy.
According to data highlighted by the Indian Vegetable Oil Producers’ Association (IVPA), refined edible oil imports from Nepal rose from 47,295 tonnes in 2023 to 124,056 tonnes in 2024 before surging to over 804,000 tonnes in 2025. Early 2026 figures show the trend continuing, with nearly 285,000 tonnes entering in the first five months alone. Projections suggest annual volumes could approach or exceed one million tonnes, potentially making Nepal one of India’s largest suppliers of refined oils. This rapid escalation has occurred even as overall edible oil imports grew modestly, with duty-free shipments from Nepal accounting for a significant portion of the increase.
The trade benefits from zero customs duty under the South Asian Free Trade Area (SAFTA) agreement and the India-Nepal Trade Treaty. These arrangements allow eligible goods from member countries to enter India at concessional or nil rates, provided they satisfy prescribed rules of origin. In contrast, refined edible oils imported through the most-favoured-nation route face substantially higher duties—around 35.75 percent—while crude oils attract a lower rate of about 16.5 percent (after recent adjustments that include the Agriculture Infrastructure and Development Cess). India’s deliberate duty differential between crude and refined oils is designed to encourage domestic refining, generate employment, support allied industries such as packaging and logistics, and create demand for locally grown oilseeds.
Nepal, however, has limited domestic production of oilseeds such as soybean and palm. It imports large quantities of crude oils—primarily soybean from countries including Argentina, Brazil and others—and either refines or repackages them before exporting the finished product duty-free to India. Value addition in this process is relatively modest, often estimated in the range of 5–7 percent. The resulting cost advantage allows Nepalese suppliers to offer refined oil at prices lower than those of Indian refiners who must pay duties on their crude imports. Industry observers describe this as a classic case of tariff arbitrage that has grown far beyond normal market fluctuations.
The consequences for India’s refining sector are becoming clear. Domestic refiners have long operated on the model of importing crude oils and processing them within the country. The influx of ready-to-use refined oil from Nepal reduces capacity utilisation at Indian plants, squeezes margins, and discourages fresh investment. Northern and eastern markets, which account for a substantial share of national demand, have felt the impact most acutely, though the effects are spreading. Industry estimates place the annual loss in customs revenue in the range of ₹2,000–2,500 crore. Beyond immediate financial implications, the shift weakens the broader ecosystem of employment and ancillary businesses that depend on active domestic refining.
Oilseed farmers stand to lose as well. India currently meets only about 40 percent of its edible oil requirement through domestic production and relies on imports for the remaining 60 percent of its annual consumption of roughly 24–25 million tonnes. Domestic crushing and refining create steady demand for soybeans, mustard and other oilseeds grown by millions of farmers, particularly in states such as Madhya Pradesh, Maharashtra and Rajasthan. When refiners lose market share to imported refined oil, demand for Indian oilseeds softens, exerting downward pressure on farm-gate prices. This runs counter to the objectives of the National Mission on Edible Oils, minimum support price mechanisms, and the larger policy goal of Atmanirbhar Bharat in the edible oil sector.
A central point of contention is whether these exports fully comply with rules of origin under SAFTA and the bilateral trade treaty. Preferential duty-free access is intended for goods that undergo sufficient value addition in the exporting country, not for products that are essentially re-exported with minimal processing. Given Nepal’s limited oilseed cultivation and the scale of crude oil imports into the country, Indian industry bodies have repeatedly questioned the genuineness of the origin claims. Some reports suggest that in certain cases the process may involve little more than repackaging, falling short of the value-addition thresholds required under the agreements. The Solvent Extractors’ Association of India (SEA) and IVPA have both called for stricter verification, including the use of “proof of origin” rather than simple certificates, to prevent misuse of the preferential regime.
In response, the IVPA has written to the Union Commerce Minister seeking an urgent policy review. The association has emphasised that it supports the broader goals of regional economic integration under SAFTA but argues that the current trajectory risks undermining the competitiveness of India’s refining industry and the welfare of oilseed farmers. Suggestions have included tighter enforcement of rules of origin, possible adjustments to the tariff structure or cess rates on refined oils, and other safeguards such as quotas similar to those previously applied to certain products. The SEA has similarly flagged the issue and urged the government to regulate the inflow to protect domestic capacity and revenue.
The situation highlights a broader tension in India’s trade and agricultural policy. On one hand, preferential agreements with neighbours promote regional cooperation and can benefit consumers through lower prices. On the other, when such arrangements create large-scale arbitrage opportunities that bypass domestic value chains, they can erode the very industrial and farming base the higher tariffs were meant to protect. India’s edible oil sector remains structurally import-dependent, and any policy that weakens incentives for domestic refining and oilseed cultivation carries long-term implications for food security, farmer incomes and foreign exchange outflows.
As volumes continue to climb, the pressure on policymakers is intensifying. A calibrated response that preserves legitimate regional trade while closing loopholes and restoring a level playing field for Indian producers appears increasingly necessary. Without timely intervention, the duty-free route through Nepal risks becoming a permanent feature that reshapes India’s edible oil landscape in ways that could prove difficult to reverse. The coming months will test whether the government can balance the competing demands of regional diplomacy, consumer interests, industrial competitiveness and agricultural livelihoods.
About The Author
