July 12: Investment in Nepal's cooking oil industry increased exponentially after India raised the import duty on edible oil to 40 per cent some time ago. The existing industries expanded their capacity to take advantage of India's policy on oil imports. In the meantime, new industries were also opened.
According to the entrepreneurs, the investment in this sector has reached Rs 15 billion. The amount has been invested in 30 industries that produce cooking oil.
However, the investment made in Nepal's oil industry is now in crisis after India slashed the tariffs on import of edible oil. Until some time ago, the cooking oil industries of Nepal used to import semi-refined oil from Ukraine, Indonesia and Malaysia and then exports it to India after refining the product. At present, the export of edible oil to India has almost stopped.
The semi-refined oil imports in Nepal are subject to 10 per cent customs duty and 13 per cent value-added tax. The amount is refunded after the refined oil is exported from the country.
Nepal used to export a significant amount of refined oil to India when the import duty was 40 percent because the importers in India had to pay only 5 per cent customs duty for importing oil from Nepal under the South Asia Free Trade Agreement (SAFTA).
Oil export from Nepal topped the list of export items in recent years due to the policy adopted by the Indian government.
Massive amount of oil exports also resulted in Nepal’s total annual export crossing the mark of Rs 100 billion for the first time in the Fiscal Year (FY 2077/78). Goods worth more than Rs 141 billion were exported that year. According to the Department of Customs, the share of soybean oil in the total exports last year was more than Rs 53.65 billion. As of May this year, edible oil worth more than Rs 85 billion have been exported to India.
However, businessmen say that its export will be halted from next year. Director of Birgunj-based OCB Food Suresh Rungata said that he has not been able to export even one truck of oil in the last one month.
The prospect of oil export is now over. There is no alternative than to compete in the domestic market, Rungata told New Business Age.
India is taking several measures to ease food pressure due to the Covid-19 pandemic and Russia-Ukraine war. New Delhi has taken steps ranging from curbing exports of food grains and sugar to reducing import duties and taxes. As India is Nepal's largest trading partner, it has made a direct impact on Nepal’s domestic industries and foreign.
India's high tariff on oil imports has been gradually reduced to 2.5 per cent.
India has completely waived agriculture infrastructure development tax on 2 million metric tons of semi-refined soybean and sunflower oil in the current fiscal year 2022/23 and next fiscal year 2023/24. In these two years, 8 million tons of semi-refined oil will enter India without import duty.
The edible oil production capacity of Nepal's industry is about 2.5 million tons. Nikhil Chachan, the operator of Narayani Oil Refinery, said that about 500,000 tonnes of oil was sold in the domestic market in the past, and the rest was exported to India. He said that after the export to India was stopped, domestic industries started operating only for 4/5 days a month.