Several ghee manufacturers in Nepal have already gone out of business

Sudeshna Sarkar | 13 May, 2008
Nepal's ghee industry, largely dependent on its giant neighbour India for its market, is on the verge of closure after the Indian government slashed the import duty on ingredients and enabled its own industry to reduce prices.

Several manufacturers in Nepal have already gone out of business while the remaining 16 are frantically searching for other options.

The crisis was triggered after India reduced import duty on palm oil, soybean and other oils used to manufacture vegetable ghee in a bid to curb inflation.

The move boosted the Indian ghee industry, helping it to reduce prices.

"In Nepal, we, on the other hand, are handicapped by several taxes," said Atmaram Murarka, immediate past president of the Nepal Gheu Tel Utpadak Sangh, the umbrella association for the industry in Nepal.

Nepali manufacturers are levied a four percent export tax, nearly two percent local taxes as well as VAT, which, though refundable, is returned after more than a year.

In addition, they also have to shoulder transport costs to send their product to India, which adds about six percent more to the price, making Nepali ghee dearer than the Indian product by nearly Rs.18 per kg.

India allows Nepal to export 100,000 metric tonnes of ghee per year. However, this year, the Nepali despatch is less than 10,000 metric tonnes.

"We are asking Nepal to request India to scrap the state quota system," said Murarka. "It's unreasonable as well as superfluous now that India has done away with import duty on oils."

Nepali ghee finds a responsive market in the neighbouring Indian states of West Bengal, Bihar, Jharkhand, and Uttar Pradesh with customers also in Rajasthan and Chhattisgarh. The transport cost is also not too high.

But India has a quota for different states.

"It is absurd to fix a quota for states like Jammu and Kashmir or Gujarat," said Murarka. "There's not much consumption of ghee in these states and given the distance, the transport costs are astronomical."

The association is also lobbying for an end to the dealer system.

India has appointed its State Trading Corporation to deal with the Nepali sellers and for each kg that is sold, manufacturers have to pay an additional Rs.1.50 per kg, which adds to the cost.

"We are asking to be able to sell directly," Murarka said. "We don't blame the Indian government for the policies it has drawn up to protect its own interests but they affect us badly."

Only about 15-20 percent of the ghee manufactured by the Nepali companies is consumed domestically; the rest is exported to India.

Nepali manufacturers point out that both India and Nepal are losing revenue as due to the disparity in price, ghee from India is being smuggled to Nepal across the porous border, flooding the Himalayan nation's border towns.

At present, none of the factories in Nepal are manufacturing to their optimum capacity and a frantic search is on to look for other markets to switch over to the making of other edible oils.

However, Murarka says the industry can be saved if India scraps the state-wise quota and stops involving the STC while the Nepal government scraps export and customs duty and reduces VAT.