Nepal's merchandise exports hit a record NPR 315.29 billion in fiscal year 2025-26, ending mid-July, according to annual foreign trade statistics released by the Department of Customs this week. Yet beneath the 13.8 per cent year-on-year growth lies a structural vulnerability: the country's export earnings are increasingly concentrated in a single product category — edible oils — and a single market — India.

Edible Oils Dominate Nepal's Export Basket

Refined soybean oil alone generated NPR 128.74 billion, accounting for 40.8 per cent of total merchandise exports. When all animal and vegetable fats and oils are included, the category climbed to NPR 148.98 billion — or 47.3 per cent of Nepal's total export earnings. In effect, nearly one in every two export rupees earned by Nepal came from edible oils, almost all of which were sold in the Indian market.

Nepal's refined cooking oil industry is built on imported crude edible oil, primarily sourced from Argentina and other South American countries. The crude oil is processed domestically and re-exported to India as refined product. Since Nepal lacks large-scale commercial soybean farming, the country's single-largest export industry is structurally reliant on imported raw materials — a model that raises questions about the depth of domestic value addition.

India's Outsized Role in Nepal's Trade

Nepal's exports to India reached NPR 258.65 billion in fiscal year 2025-26, representing 82 per cent of total merchandise exports. India was simultaneously Nepal's largest import source, with imports totalling NPR 1.210 trillion out of Nepal's overall import bill of NPR 2.096 trillion.

Trade expert Rabin Sainju cautioned that this concentration carries real risk. 'Such a concentration of products and markets is definitely a risk for Nepal's export industry,' he said. 'Nepal's exports basically depend on Indian government policy.'

Indian Industry Pushes Back on Duty-Free Imports

The dependence on India is increasingly precarious. The Indian Vegetable Oil Producers' Association (IVPA) this week called on the Indian government to act against what it described as an 'unprecedented surge' in duty-free refined edible oil imports from Nepal under the South Asian Free Trade Area (SAFTA) framework. Under SAFTA, eligible Nepali products enter the Indian market without import duties.

The IVPA argued that the surge represented a significant structural shift in India's edible oil trade and urged the government to verify whether Nepal's exports comply with SAFTA's Rules of Origin provisions — citing Nepal's limited domestic production of soybean and palm oil. The association said trade, tariff, and domestic value-addition objectives needed to remain aligned.

According to the Department of Customs, Nepal imported NPR 132.77 billion worth of crude soybean oil during the fiscal year before processing and re-exporting the refined product, primarily to India. Sainju noted that Nepal must increase domestic value addition to ensure the long-term sustainability of its edible oil industry.

Electricity, China Trade, and Other Trends

Beyond edible oils, Nepal exported electricity worth NPR 29.32 billion to India and Bangladesh, though Bangladesh accounted for only a minor share. Meanwhile, exports to China fell 28 per cent to just NPR 1.89 billion, even as imports from China surged 24.7 per cent to NPR 425.25 billion, widening Nepal's trade deficit with China to NPR 423.35 billion. For every NPR 1 Nepal exported to China, it imported approximately NPR 225 worth of Chinese goods. Trade with the United Arab Emirates also weakened as imports of gold and other precious metals increased sharply.

What Comes Next

If India responds to IVPA pressure by tightening SAFTA Rules of Origin enforcement or imposing non-tariff barriers, Nepal's record export performance could unravel rapidly. The structural question — whether Nepal can diversify both its product basket and its export markets — will define the country's trade trajectory in the years ahead.