In the first two months of the fiscal year, Nepal's exports grew 61.9% to Rs 76.59 billion. The figures come from the Nepal Rastra Bank report on the country's current macroeconomic and financial situation, published on October 15. Read one line deeper and the miracle shrinks. The single largest export item was refined soybean oil at Rs 36.04 billion. That oil did not come from Nepali fields. Nepal imported it as crude from South America, refined it, and sent it across the border to India.
Almost half of the celebrated export boom, 47% of it by value, is a product that entered the country as an import first. Strip that loop out and the export story looks a lot more ordinary. This is not fraud and it is not a data error. It is the structure of Nepal's trade, and it explains why a 62% export jump left the trade deficit 26% wider than it was.
The biggest export was imported first
Nepal grows a negligible amount of the raw material behind its largest export. The country imports crude soybean, sunflower, and palm oil from Argentina, Brazil, Indonesia, Malaysia, and Ukraine, refines it domestically, and re-exports the finished product to India. Of the Rs 76.59 billion exported in Shrawan and Bhadra, Rs 36.04 billion was re-exported soybean oil. The next-largest export items, polyester yarn and thread, palm oil, zinc sheets, and particle board, trail far behind.
On the import side of the same report, crude soybean oil sits among the biggest drivers of the 31.6% import surge, alongside petroleum products, chemical fertiliser, edible oil, and vehicles and transport equipment. The loop is visible on both sides of the ledger: crude in, refined out. The full-year picture is even starker. In fiscal year 2025/26, Nepal exported 704,844 tonnes of refined edible oils worth Rs 146 billion to India, nearly half of the country's total exports of Rs 315.29 billion. Refined soybean oil alone now accounts for more than a twelfth of everything India imports of that oil, up from almost nothing two years ago.
A 22-point tariff gap built this trade
The loop exists because of a gap between two tariff schedules, not because of any advantage in producing oil. In September 2024, India raised its import duty on refined soybean oil from 13.75% to 35.75%. But goods from Nepal enter India duty-free under the South Asian Free Trade Area. Nepali refiners buy crude soybean oil on the world market, refine it at home, and sell the finished product into India at a price Indian refiners cannot match because they pay duty on their own inputs.
Industry data makes the mechanism plain. In the first eleven months of the 2025/26 oil year, Nepal exported 6.82 lakh tonnes of refined oils to India, including 6.05 lakh tonnes of refined soybean oil, and India's total edible oil imports from all sources stood at 151.64 lakh tonnes. Indian vegetable oil producers have not been quiet about it. The Indian Vegetable Oil Producers' Association wrote to Commerce Minister Piyush Goyal warning that the surge in duty-free refined oil from Nepal exposed a hole in India's preferential trade arrangements, and argued that Nepal enjoys almost no real domestic value addition on the trade.
That last charge is the uncomfortable part. There is genuine refining activity in Nepal, and it employs people. But the value added is the processing margin on a product whose main ingredient was bought abroad. One analyst summary put it more bluntly, calling the trade a classic case of rent-seeking on a tariff differential rather than genuine domestic value creation. When the differential narrows, the exports shrink with it. An export engine that runs on someone else's tax schedule is a fragile one.
Why the deficit widened anyway
Export growth of 61.9% sounds like it should have closed the trade gap. It did not because Nepal imports Rs 5.24 of goods for every rupee of exports, down from Rs 6.45 a year ago, which is still a ratio of more than five to one. Imports rose 31.6% to Rs 401.52 billion in the same two months, powered by petroleum products, fertiliser, and, notably, crude soybean oil, the raw material of the export boom itself. The trade deficit expanded 26% to Rs 324.93 billion.
There is a second asymmetry that matters for the foreign exchange account. Nepal pays for the crude oil in dollars and gets paid for the refined product largely in Indian rupees. The loop adds to dollar-denominated imports while the export earnings arrive in a currency that is pegged to the rupee. That is still useful for a country with a fixed peg to the Indian rupee, but it does not build dollar reserves the way the headline export number suggests.
Price changes did some of the heavy lifting on both sides. Global crude soybean oil prices were about 11% higher in September 2026 than a year earlier, and a weaker rupee inflates rupee-denominated figures on both sides of the ledger. Part of the 61.9% export jump and part of the 31.6% import jump is the same oil getting more expensive, counted twice, once coming in and once going out.
Two months is a short window
A single two-month reading can be noisy, and export growth this concentrated deserves the caveat stated plainly. Last year's numbers show the same concentration: refined edible oils were nearly half of all exports in fiscal year 2025/26 as well. This is not a one-off spike, it is the structure of the export basket, and structures change slowly until policy changes them. The export-import ratio did improve, from 15.5% to 19.1%, which is real progress on paper. But when nearly half of exports are a tariff play, the ratio flatters the underlying position.
Export destinations tell a supporting story. Exports to India grew 70.6% in the two months, to China 137.6%, and to other countries 22.7%. The China growth looks dramatic, but it comes off a small base; the India number is the one that moves the total, and most of it is edible oil. Nepal has, in effect, built a processing industry whose main customer is its southern neighbor's grocery shelves, running on a duty gap that New Delhi did not design for Nepali refiners.
None of this means the numbers are fake. Refining is real economic activity, the jobs are real, and the export earnings do support the balance of payments. But export figures describe what crossed the border, not what the country produced. A 62% export jump that leaves the deficit wider and depends on a tariff schedule written in another country is not an export boom in the sense that matters. It is a clever trade on a price gap, and like all such trades, its future is decided by whoever controls the gap.
This article is published for research and education purposes only. It is not investment advice, and nothing here should be read as a recommendation to buy, sell, or hold any security. Figures cited reflect publicly reported information at the time of writing and may be revised.