Nepal’s goods exports rose tremendously in fiscal year 2024–25. Prime Minister Khadga Prasad Sharma Oli shared posters on social media with the triumphant message that Nepal’s economy is moving in the right direction. But with a single good, soybean oil, driving this growth, it is not underpinned by strong fundamentals, only reflecting a temporary windfall.
Nepal’s domestic economy is under stress, but its external sector indicators are robust, particularly due to remittance receipts. Until mid-June 2025, the country had US$18.65 billion in gross foreign exchange reserves. Its exports reached over US$1.8 billion in the first 11 months of FY 2024–25. This is 78 per cent higher than in the corresponding period in FY 2023–24 and 24 per cent higher than the country’s previous annual export record. A rise in exports shows progress on trade, but Nepal’s merchandise import bill of US$12 billion against its US$1.8 billion of exports means it still faces a large trade deficit.
But at a time when the world is grappling with falling trade and economic uncertainty, a significant rise in Nepal’s exports is a notable achievement.
Yet Nepal’s unprecedented rise in exports has been driven primarily by one commodity — soybean oil, which constituted around 38 per cent of Nepal’s total exports in the first 11 months of FY 2024–25. This was driven by a more than 10,000 per cent increase in soybean oil exports in this period compared to the corresponding period in the previous fiscal year. India is the sole destination for these exports.
Exporting soybean oil is not Kathmandu’s policy choice. Nepal does not produce sufficient soybeans to produce these quantities of oil. Nepal’s industrialists and traders mostly import crude soybean oil from countries such as Argentina and Brazil and process and package the oil before exporting it to India. The Agreement on South Asian Free Trade Area (SAFTA) exempts Nepal’s soybean oil exports from India’s soybean oil tariffs, which New Delhi increased for countries outside the South Asian Association for Regional Cooperation in September 2024, driving the surge in Nepal’s soybean oil exports to India.
While Nepal and India’s bilateral trade treaty also affords Nepal preferential trade treatment, the SAFTA Agreement’s eligibility criteria for Nepal’s soybean oil exporters are easier to meet. Under both agreements, Nepal can export refined soybean oil to India duty-free if at least 30 per cent of the product’s value is added in Nepal and it meets the requirement for a change in product classification. But the latter condition is less stringent in SAFTA than in the bilateral treaty.
Edible oil processors in India have claimed that soybean oil exports from Nepal do not meet SAFTA preferential treatment conditions. They view Nepal’s exports as illegitimate and have requested that New Delhi take measures to curb the massive imports from Nepal. But New Delhi has not yet taken strong measures on this matter.
Nepal does not need to curtail its soybean oil exports to India if they are not flouting the SAFTA Agreement’s conditions and are being exported legitimately. But Kathmandu should arm itself with strong evidence that its soybean oil exports meet the necessary rules for preferential treatment.
The significant rise in Nepal’s goods exports driven by this considerable growth in soybean oil exports is not a cause for celebration. Nepal’s soybean oil exports do not have strong backward and forward linkages with the country’s economy and society. They do not contribute significantly to the economy at large and do not generate substantial employment opportunities. These kinds of exports based on a trading partner’s sudden policy changes — and not on the exporting country’s domestic capability or competitiveness — are not sustainable. Nepal’s soybean oil exports have experienced turbulence in the past.
Nepal’s Prime Minister Oli has rightly questioned Nepal’s rising export figures, remarking in January 2025 that Nepal’s trade statistics based on import and re-export were ‘fake’. His comments primarily hinted at Nepal’s ballooned soybean oil exports. His later celebration of the historic rise in Nepal’s exports — the reasons for which remain the same — contradicts his earlier views. His initial comments were correct. Nepal’s significant rise in exports backed by weak fundamentals is not something to be jubilant about.
The official document that guides Nepal’s international trade is the Nepal Trade Integration Strategy 2023, which identified several products with export potential and sufficiently strong backward and forward linkages. Soybean oil was not one of them. The government should focus on meaningfully implementing the Nepal Trade Integration Strategy and promoting the export of the products it identified. A significant rise in the export of these products would certainly be a cause for celebration.
Puspa Sharma is Visiting Senior Research Fellow at the Institute of South Asian Studies, National University of Singapore.
Nepal’s considerable export growth in FY 2024–25, driven mainly by a massive surge in soybean oil exports to India, masks underlying weaknesses and risks for the growth’s sustainability. This rise was fuelled by tariff advantages under the South Asian Free Trade Area agreement. Despite celebration from Kathmandu, this export boom does not reflect genuine economic progress. Nepal should instead focus on diversifying exports based on its Trade Integration Strategy to achieve sustainable and meaningful growth.