01/12/2012  (Republica) - Six out of eight large vegetable ghee factories based in Sunsari-Morang industrial corridor have shut down their productions over the past half decade after India plugged gap on duty that existed on palm oil, the major raw material used in vegetable ghee, between the two countries.

Arun Banaspati, Manakamana, Narayan Vegetable, Shreeram Refinery, Quality and Baba Vegetarian that largely depended on Indian market for survival have shut down operations after their products failed to compete with the Indian productions.

As the factories remained closed, promoters said large machineries that they acquired when vegetable ghee export was at its peak were rusting. With entrepreneurs in no mood to resume operations, even as vegetable ghee has ample local and Tibetan market to cater to, machinery and spare parts worth more than a billion rupees are fast becoming useless.

"If the government did not pledge special support to revive the industry, the valuable machineries will turn into scrap soon,” said Pradeep Murarka, promoter of Pashupati Ghee Industry. "If machines remain unused for five years, it is difficult if not impossible to bring them back into operation.”

Vegetable ghee industry had flourished in Nepal mainly after 1996 when India under the bilateral trade treaty provided duty free market access to all Nepali manufacturing goods, barring few items in negative list like arms, cigarette and perfume.

During that time, India then had imposed 125 percent tariff on crude palm oil, while its import duty in Nepal was meager 25 percent. Owing to this difference, vegetable ghee produced in Nepal enjoyed price competitiveness in the Indian market, enabling investors make instant money.

As the arrangement worked well for the industry, export of vegetable ghee soon jumped to as high as Rs 4 billion a year, becoming largest Nepali export to India.

During the period, the industries used to produce 100 to 150 tons of vegetable ghee every day and export them to numerous Indian cities. However, they faced a jolt when India in 2001 imposed quota (of 100,000 tons) on duty free entry facility. The situation turned worse when India itself lowered tariff on crude palm oil import, which eventually ate away competitiveness of Nepali vegetable ghee.

"Export to India has become financially unviable, but the industry still can serve Nepali and overseas market," said Dinesh Golchha, president of Morang Industry Association and promoter of Arun Vanaspati Ghee. However, he blamed the government for not taking any initiative to create friendly environment for those closed industrial units to resume productions.

Entrepreneurs said Swastik Oil and Pashupati Refinery Oil -- two other industries still in operations in the corridor -- too are on the verge of closure.

"Increasing power cuts and inappropriate taxation on palm oil has made it difficult for Nepali products to compete with Indian productions," said Murarka, adding that even the two existing industries of the corridor are operating at very low capacity utilization. Both industries are producing just 50 tons of vegetable ghee a day.

Entrepreneurs attributed the dismal situation to 2.5 percent custom duty and 13 percent VAT imposed on import of palm oil.

"In India, no custom is charged on palm oil. No wonder, our products are failing to compete in the Indian market," said Murarka, urging the government to revise the existing duty structure.