In the complex world of global trade, sometimes the route matters more than the origin. That’s precisely what India’s edible oil manufacturers are now grappling with. A rising tide of refined cooking oil—allegedly making its way into India through Nepal—is setting off alarms across the industry. But the real issue isn’t just oil. It’s a gaping loophole in India’s free trade policy.
India recently increased import duties on a range of edible oils to support local farmers and reduce dependency on foreign supplies. However, industry insiders allege that traders are side-stepping these high tariffs by using Nepal as a backdoor. The method is simple, yet cunning: import oil from countries like Brazil and Argentina into Nepal, then re-export it duty-free to India under the South Asia Free Trade Agreement (SAFTA).
The result? India loses revenue, domestic refiners feel the heat, and Nepal’s oil trade statistics start raising eyebrows.
The Numbers That Don’t Add Up
Between October 15, 2024, and January 15, 2025, Nepal imported 1,94,974 tonnes of edible oil—mainly crude soybean and sunflower oil. In the same period, it exported 1,07,425 tonnes of cooking oil to India. But here’s the catch: Nepal’s own edible oil demand for that quarter is barely 35,000 tonnes.
Even more curious is the sudden surge in tin plate imports from India into Nepal—materials used for packaging edible oil in tins. Coincidentally or not, this spike matches the timeline of Nepal’s oil exports to India.
“It’s a clever but damaging workaround,” said a senior official from the Indian Vegetable Oil Producers’ Association (IVPA). “This isn’t trade—it’s transit disguised as local export.”
Why This Matters for India
India is the world’s largest importer of edible oils, meeting over 55% of its domestic demand through foreign suppliers. In September 2024, the government increased import duties on crude and refined edible oils, pushing the effective tariff on refined varieties to over 35%. The move was aimed at encouraging local processing and stabilizing prices for farmers.
But now, with duty-free oil entering via Nepal, local refiners are losing business while the government forfeits crucial tariff revenues.
“This kind of circumvention hurts not just industry but national interest,” said an official from the Solvent Extractors’ Association of India (SEA). “We’ve flagged this issue to the Prime Minister’s Office and key ministries.”
What the Law Says—and Doesn’t
Under the South Asia Free Trade Area (SAFTA) agreement, India doesn’t impose customs duties on imports from Nepal. While Nepal is allowed to re-export commodities, the original source matters. The re-routing of oil from non-SAFTA countries via Nepal, if proven, could constitute a violation of trade rules and bilateral norms.
In fact, the Indian Embassy in Kathmandu has acknowledged concerns of tariff evasion. Officials say the issue is now being studied through inter-ministerial consultations involving the commerce and external affairs ministries.
Policy Blind Spot or Strategic Gap?
Trade experts believe that while free trade agreements are important tools for regional cooperation, they require robust safeguards to prevent misuse. Nepal, with its relatively modest oil production capacity, is unlikely to be the original source of such large volumes.
“If Nepal is acting as a conduit rather than a contributor, then this is a structural loophole,” said trade analyst Arunabh Sen. “And like any loophole, it will be exploited until it’s fixed.”
Fixing the Faultline
Industry bodies are demanding tighter scrutiny of oil shipments entering from Nepal, particularly in terms of country of origin documentation. Calls are also growing for revisiting trade clauses that allow such loopholes to exist unchecked.
As the government investigates further, one thing is clear: India’s trade policies must be as refined as the oils they regulate. Because when economic boundaries get blurred, it’s not just oil that slips through—it’s trust.