Kathmandu, January 9
In a blow to palm oil exporters, India has stopped importing refined palm oil from Nepal, the country’s top export item, generating fears that the already burgeoning trade deficit could widen further.
India’s Directorate General of Foreign Trade yesterday issued a notification stating a complete restriction on import of refined bleached deodorised palm oil and refined bleached deodorised palmolein. The restriction was aimed at taming Malaysia, whose Prime Minister Mahathir Mohamad had recently criticised the Indian government’s actions in the Kashmir region and its new citizenship law. This restriction also affects Nepal, which had exported refined palm oil worth Rs 8.36 billion to India in the first four months of this fiscal, making it the country’s largest export item.
“Indian customs office today prevented Nepali traders from exporting the product to India citing directive from higher authorities,” said Nabaraj Dhakal, joint secretary and spokesperson for the Ministry of Industry, Commerce and Supplies.
If the restriction continues, Nepal’s trade deficit, which has already reached an alarming level, will widen further, hitting current account and balance of payments. Nepal’s trade deficit stood at Rs 414.02 billion in the first four months of this fiscal, according to Nepal Rastra Bank. This pushed the current account to a negative of Rs 37.3 billion in the aforementioned period. A widening current account deficit causes the foreign exchange reserves to shrink, leaving a net importing country like Nepal with fewer foreign currencies to finance imports.
“We have already discussed this matter with Indian officials over phone. They are positive about exempting Nepal. Meanwhile, Indian officials said they would discuss the issue in detail with Nepal after getting the notification from DGFT and studying it,” said Dhakal, urging Nepali exporters of palm oil ‘not to worry’.
“The restriction targets Malaysia and it shouldn’t affect Nepal.”
KS Dhatwalia, director general of the Press Information Bureau of India, had also told THT on Wednesday that the restriction would not affect Nepal. But THT’s attempts to get comments from India’s DGFT today failed.
Nepali officials hope that India will soon allow Nepali traders to export palm oil, as they say the move was aimed at preventing bulk exporters of palm oil from dispatching the product to India.
“We’re not bulk exporters. Nepal exports palm oil in packages ranging from one kg to 15 kg, which are widely used by Indian households. Our palm oil exports account for a mere one per cent of Indian imports of the commodity,” Dhakal added.
Nepal’s exports of palm oil to India had started raising eyebrows since the end of last fiscal year when it became the top export item. Nepal had exported palm oil worth Rs 10.3 billion in the last fiscal from ‘zero’ export of the commodity a year before that. This jump took many by surprise because Nepal does not produce palm oil on its own.
Nepali traders import crude palm oil from Malaysia and Indonesia, process and package it here, before sending it to India. More and more traders were lured towards this business as India had imposed a duty of 40 per cent on imports of palm oil from Malaysia and Indonesia, two largest producers of palm oil in the world. Nepal’s palm oil, on the other hand, was subject to a duty of just six per cent in India.
Although Nepal’s palm oil was subject to lower duty than that of Malaysia and Indonesia, the difference had further widened after India introduced Goods and Services Tax on 1 July 2017. Nepali traders took advantage of this Indian policy decision and ramped up exports of palm oil to India. Nepal never had competitive or comparative advantage in exporting palm oil to India but was simply reaping benefits from duty difference.
Posh Raj Pandey, a trade economist, said halt in export of refined palm oil from Nepal following India’s blanket restriction on import of the product should teach Nepal and Nepali investors a lesson that investments made by exploiting the policy/tariff difference is not sustainable. “Nepal never had competitive or comparative advantage in exporting palm oil to India as it involved no domestic raw materials and other resources,” said Pandey.
Nepali officials know that this kind of export is not sustainable in the long run. “But what is to be noted is Nepali traders are adding at least 30 per cent value to crude palm oil before exporting the refined product. Since minimum value required by the Indian government has been added, export of palm oil should not draw controversy,” added Dhakal.
A version of this article appears in print on January 10, 2020 of The Himalayan Times.