New Delhi, June 12 (Dow Jones) - The Indian government has allowedstate-owned trading house State Trading Corporation to import vanaspatioil from Nepal at zero duty, according to announcement released Thursdayby the Directorate General of Foreign Trade.

Earlier, only state-owned trading agency Central Warehousing Corporationwas allowed to import the oil at zero duty from Nepal.

The Indo-Nepal treaty of 2002 allows the import of 100,000 metric tons ofvanaspati oil each year from Nepal by government-designated Indian statetrading houses.

Vanaspati, a hydrogenated edible oil, is a popular Indian cooking mediumwhich is similar to margarine.

India is expected to produce around 1.3 million tons of vanaspati in thecurrent oil marketing year, which runs from November 2002 to October 2003.

"India doesn't need to import vanaspati oil at all. The country'svanaspati industry is using only around 30% of the existing productioncapacity in the country. But the government is allowing the zero dutyimports from Nepal as a friendly gesture to the neighboring country," saidI R Mehra, executive director of the Indian Vanaspati ProducersAssociation.

The vanaspati oil industry in India is a major importer of crude palm oilfrom Malaysia. The crude palm oil is refined, bleached, deodorized andhydrogenated to manufacture vanaspati oil. However, some Indian importersimport RBD palm olein directly and sell it in India.

-By Prasenjit Bhattacharya, Dow Jones Newswires, 91-11-2307-4025prasenjit.bhattacharya@dowjones.com