India, the world’s largest importer of edible oils, finds its domestic market increasingly perturbed by a dramatic surge in refined edible oil imports from neighbouring Nepal. This influx, which saw a staggering 17-fold increase to 804,000 tonnes in 2025 from just 47,295 tonnes in 2023, and continued at 284,976 tonnes in the first five months of 2026, is raising significant alarm bells across the Indian vegetable oil industry. While seemingly a matter of trade flow, this phenomenon has far-reaching implications for India’s economic strategy, agricultural policy, and regional trade agreements, challenging the delicate balance between consumer interests, domestic industrial protection, and food security.
The primary mechanism enabling this surge is the preferential trade treatment extended under the South Asian Free Trade Area (SAFTA) agreement. SAFTA allows member countries to export eligible goods at concessional or zero customs duty, provided they adhere to stipulated rules of origin. For India, this means refined edible oils from Nepal can enter its vast market without the substantial tariffs typically levied on imports from other nations. Currently, India imposes an import duty of 16.5% on crude edible oils and a higher 35.75% on refined oils when sourced via the Most Favoured Nation (MFN) route. This differential duty structure is a deliberate policy tool designed to encourage the import of crude oils for domestic refining, thereby fostering local value addition, generating employment, and stimulating investment within India’s processing sector. The sheer volume of duty-free refined oil from Nepal, however, is fundamentally disrupting this established policy framework, creating an uneven playing field that heavily disadvantages Indian refiners.
The impact on India’s domestic refining industry is profound and multi-faceted. India relies on overseas supplies for approximately 60% of its annual edible oil consumption, which typically ranges between 24 million and 25 million tonnes. The remaining 40% is met by domestic production. Historically, India’s strategy has been to import crude oils like palm, soybean, and sunflower, which are then processed in its extensive network of domestic refineries before reaching consumers. This approach supports a robust local refining capacity, creates substantial employment opportunities across the value chain – from processing plant operations to packaging and logistics – and attracts significant capital investment. The influx of refined oils from Nepal directly undermines this strategy. Indian refineries face reduced capacity utilization, diminished profitability, and a disincentive for future investments. Industry estimates suggest that the rising volume of duty-free imports could lead to an annual customs revenue loss of ₹2,000 crore to ₹2,500 crore, further straining government coffers.
Beyond the refining sector, the ripple effects extend to India’s agricultural backbone – its oilseed farmers. Domestic refining operations are crucial for creating demand for locally produced oilseeds such as soybean and mustard. These crops are vital for millions of farmers, particularly in key producing states like Madhya Pradesh, Maharashtra, and Rajasthan. If Indian refiners lose market share to cheaper, duty-free refined imports, the demand for domestically grown oilseeds will inevitably decline. This reduction in crushing and refining activity exerts downward pressure on farm-gate prices, directly impacting farmer incomes and livelihoods. This scenario runs counter to the objectives of critical government initiatives like the National Mission on Edible Oils and minimum support price (MSP) operations, which aim to bolster domestic oilseed production and farmer welfare. It also weakens the broader vision of ‘Atmanirbhar Bharat’ (Self-Reliant India) by eroding the strength of the domestic oilseed value chain, ultimately posing a threat to long-term food security and agricultural resilience.
A significant point of contention revolves around the ‘rules of origin’ under the SAFTA agreement. These rules are designed to prevent trade deflection, ensuring that preferential tariffs are granted only to goods that have undergone sufficient value addition or processing within the exporting member country. The concern articulated by Indian industry experts and policymakers is that Nepal has very limited domestic production of primary crude oils like palm and soybean. This raises critical questions about how Nepal is able to export such enormous volumes of refined edible oils. The suspicion is that crude oils from non-SAFTA countries might be imported into Nepal, undergo minimal processing, and then be re-exported to India, effectively circumventing India’s higher MFN duties. This practice, if confirmed, would not only violate the spirit of SAFTA but also represent a significant leakage in India’s tariff regime. Verifying whether these refined oils truly meet the prescribed origin requirements is paramount to maintaining the integrity of India’s preferential trade agreements.
The industry has formally urged the Indian government for a comprehensive policy review to address this escalating issue. Sudhakar Desai, president of the Indian Vegetable Oil Producers’ Association, representing India’s vegetable oil refining and processing industry, emphasized the need for action. "The extraordinary pace and scale of duty-free refined edible oil imports call for a comprehensive policy review to ensure that preferential trade arrangements continue to promote genuine regional value addition while safeguarding the competitiveness of India’s domestic refining industry," Desai stated. The proposed measures include stricter implementation of rules of origin, thorough verification processes to confirm that imports from Nepal genuinely qualify for preferential treatment, and a review of the current tariff structure. The objective is not to impede legitimate trade with Nepal, a valued neighbour and trade partner, but rather to protect India’s domestic industrial base and ensure fair competition.
From a broader economic perspective, India’s vulnerability to global edible oil price volatility underscores the strategic importance of a robust domestic industry. Global commodity markets, particularly for palm oil which constitutes a significant portion of India’s edible oil imports, have experienced considerable price fluctuations driven by factors such as geopolitical tensions, climate events, and supply chain disruptions. Relying heavily on refined imports, even from a SAFTA partner, reduces India’s ability to absorb these shocks, potentially leading to higher consumer prices and increased inflationary pressures. Strengthening domestic refining and oilseed production capacity is thus not just an industrial policy, but a critical component of national economic stability and food security.
The situation also presents a diplomatic challenge within the SAFTA framework. India’s "neighbourhood first" policy prioritizes strong, cooperative ties with its South Asian partners. Resolving this trade imbalance requires careful diplomatic engagement with Nepal to ensure mutual benefit while addressing India’s legitimate concerns. A collaborative approach could involve joint verification mechanisms for rules of origin, technical assistance to enhance Nepal’s genuine value addition capabilities, and a clear understanding of trade flows to prevent unintended consequences. The goal must be to preserve the integrity of regional trade agreements and foster sustainable economic development across the SAARC region, rather than creating avenues for arbitrage that undermine the economic interests of member states.
Ultimately, the surge in duty-free refined edible oil imports from Nepal necessitates a multi-pronged approach by the Indian government. This includes a robust enforcement mechanism for trade rules, a flexible tariff policy that adapts to market realities, and sustained investment in domestic oilseed research and development to boost yields and production. Balancing the benefits of regional trade agreements with the imperative of protecting domestic industry and ensuring food security will be crucial for navigating this complex challenge and safeguarding India’s long-term economic interests in the edible oil sector.
