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Indian import restriction threatens to worsen Nepal’s trade position

January 10, 2020

My Republica, January 10, 2020

KATHMANDU: Nepal’s export is likely to take a hit with the Indian government’s decision to impose restriction on the import of palm oil.

Palm oil has emerged as one of the major contributors to the nation’s exports, helping the government to reduce the ballooning trade deficit to some extent. Nepal, for the past few months, has been elated by the rising export earnings mainly due to the whopping rise in export of palm oil. Data compiled by the Trade and Export Promotion Centre shows that the country exported palm oil worth Rs 11.5 billion over the first five months of the current fiscal year – nearly eight times that the country had shipped in the same period last year.

However, the Indian government on Wednesday imposed a restriction on the import of palm oil by making amendment to its law. The decision is likely to hit the country’s exports as Nepal had exported palm oil worth Rs 10.33 billion, over 10% of its total export earnings, to India in Fiscal Year 2018/19.

As Nepal itself does not farm palm for oil, a sudden rise in the exports of palm oil in the last fiscal year caught many by surprise. Last year, Nepal spent Rs 11.86 billion to purchase crude palm oil from abroad.

Talking to Republica, Navaraj Dhakal, the spokesperson for the Ministry of Industry, Commerce and Supplies, said that the ministry had started enquiry with the Indian Embassy in Kathmandu to ascertain the status of imports from Nepal. According to him, the ministry is not sure whether the new law has enforced complete restriction or fixed quota for imports. “Even the officials at the embassy have expressed their dilemma on the nature of restriction,” said Dhakal, adding that the embassy officials had assured to inform the Nepali side after confirming the provision in the new law.

Dhakal said the ministry on Thursday held discussion with private sector leaders on the possible impact of the new rule to the Nepali side. He claimed that traders have been exporting palm oil having value addition of more than 30% in context of taking benefit of duty free access provided under the clause of the South Asian Free Trade Area (SAFTA).

As the SAFTA agreement provisions zero tariff on goods exported from underdeveloped countries like Nepal, Nepali traders have been importing crude palm oil from other countries paying minimum tariffs and then exporting the finished product to India utilizing zero tariff facility. Indian traders, who were paying high price for palm oil imported from third countries, started importing cheaper Nepali palm oil. 

According to the ministry, the Indian customs official at the Nepal-India borders enforced the new rule restricting the palm oil exported from Nepal from Thursday itself. “We will soon write to the Indian side to sit for bilateral talk to resolve the issue,” Dhakal said.

An official of the Nepal Rastra Bank, however, said the new rule of the Indian government does not make significant impact on trade position of Nepal. According to the official, traders who have huge palm oil stocks will be affected the most. “As traders were receiving some margin out of the import and export of palm oil, it will only hit profit margin of few traders,” Gunakar Bhatta, the spokesperson for the central bank, said.

Bhatta also stressed the need to export goods having high comparative advantage to make the export sustainable.

Source: https://myrepublica.nagariknetwork.com/news/indian-import-restriction-threatens-to-worsen-nepal-s-trade-position/