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Informist, Tuesday, Jun. 17, 2025

 

By Taniva Singha Roy

 

MUMBAI – India's refined oil imports from Nepal are set to fall significantly as the duty differential between crude and refined edible oils has risen substantially with the Centre slashing the basic customs duty on crude edible oils. This would bring much-awaited relief to domestic oil refiners and consumers, as it will lead to rise in profit margins for the former and cheaper prices for the latter, said market experts.

 

IGrain India director Rahul Chauhan expects refined edible oil imports from Nepal to fall by over 30% due to the rise in duty differential between crude and refined edible oils. Lower import duty on crude oils would reduce the cost advantage Nepal had under South Asian Free Trade Area's zero-duty provision, experts said.

 

Effective May 31, the basic customs duty on crude edible oils was lowered to 10% from the previous 20%. Including the Agriculture Infrastructure and Development Cess, the total import duty now stands at 16.5%, down from 27.5% earlier. However, the duty on refined edible oils remains unchanged at 35.75%, thus widening the gap from 8.25% to 19.25%.

 

After the government slashed the duty on crude edible oils, domestic prices fell by INR 80-INR 90 per 10 grams, but they recovered later tracking higher global prices. However, prices are likely to fall in the coming months, as imports from Nepal will likely fall in July or August, said Rajesh Patel, managing partner of GGN Research.

 

But the imports from Nepal are unlikely to stop completely as under SAFTA, which is a free trade agreement among the member countries of the South Asian Association for Regional Cooperation or SAARC, the India government has to promote and enhance trade and economic cooperation among the member countries, Patel added.

 

Under SAFTA, edible oil is allowed to be imported from member countries of SAARC at zero duty. The member countries of SAFTA are Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.

 

The Solvent Extractors' Association of India had earlier urged the government to find a balanced solution that honours commitments under SAFTA while protecting domestic farmers and refiners. The association had said cheap edible oil imports from Nepal into India under the SAFTA agreement were threatening the viability of domestic refineries.

 

In September 2024, the Indian government increased the duty on crude edible oils, after which refiners in Nepal started importing crude edible oil and exporting refined edible oil to India under the SAFTA agreement at zero duty. This, the association said, was affecting the domestic oil refining industries in north, east and central India. Between Oct. 15 and Apr. 15, Nepal imported around 580,000 tonnes of crude edible oil and exported 350,000 tonnes of refined edible oil to India, the association said.

 

Traders said the import of edible oils from Nepal resulted in loss of revenue to the exchequer and adversely affected the domestic refining industry in eastern and northern India. Increasing the import duty on refined edible oils while keeping it lower on crude edible oils can help lower overall edible oil prices for consumers by encouraging domestic refining and reducing the import of cheaper refined products. This shift incentivises local refiners, utilising their capacity and potentially leading to lower retail prices as domestic refining costs are factored in, the traders said.

 

"The recent duty revision acts as a timely and prudent policy intervention aimed at moderating inflationary pressures while bolstering the competitiveness of domestic refiners. The increased duty differential is expected to enhance gross refining margins and boost capacity utilisation in the near term. Additionally, the reduced landed costs will likely result in a price correction over the near term, ultimately benefiting retail consumers," Rajan Sukhija, associate director, CareEdge Ratings, said in a note.  End

 

Edited by Ashish Shirke

 

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