India’s Policy Sparks Surge in Illegal Sugar Smuggling into Nepal, Over Doubled in One Month

Summary: Following India’s ban on sugar exports, illegal sugar smuggling at Nepal’s border points has escalated sharply. The Armed Police recovered 10,502 kilograms of illicit sugar in the month of Ashad, more than double the amount seized during Jestha. Consumer rights activist Madhav Timalsina alleges that such large-scale smuggling is impossible without coordination between customs and security agencies.

Kathmandu, 18 Shrawan – The sweet sugar used daily in kitchens is becoming an increasing challenge and threat to security forces and the economy due to rampant illegal trading along Nepal’s borders. On Shrawan 11, the Armed Police Force patrol team seized 32 bags of sugar worth NPR 112,000 from Kali Jhodar, Arjundhara Municipality-11, Jhapa, intercepting the consignment en route without customs clearance.

Two weeks earlier, on Ashad 30, based on a special tip-off, the Armed Police in Dhanusha held a truck and confiscated 420 bags of illegal sugar. Valued in the millions of rupees, this haul indicates that smugglers are now using trucks rather than small parcels to move sugar into Nepal. These are just the recent publicly disclosed cases.

Statistics from the Armed Police Force for Jestha and Ashad show daily smuggling activity. Nepal’s 1,800-kilometer open border, stretching east from Ilam and Jhapa to western Kanchanpur, remains largely under smugglers’ control. More concerning is that smuggling has more than doubled within just one month.

In Jestha, the Armed Police seized 4,111 kilograms of sugar from 15 border districts including Jhapa, Morang, and Kanchanpur, with a customs declared value of NPR 284,870. The highest seizures were recorded in Dhanusha (1,390 kg), Morang (763 kg), and Sunsari (340 kg).

The situation intensified significantly in Ashad. According to Deputy Inspector General and central spokesperson of the Armed Police, Netrabahadur Karki, 10,502 kilograms (10.5 tons) of illegal sugar were seized from 14 districts, with customs clearance value reaching NPR 780,255. “The quantity seized in Ashad was more than two and a half times that of Jestha,” he stated.

Smugglers have made Sunsari their main hub during Ashad. Over the month, 7,276 kilograms of sugar worth over NPR 513,000 were confiscated there. Other seizures occurred across the country, including 500 kilograms in Ilam, 645 kilograms in West Nawalparasi, and 450 kilograms in Banke, reflecting a nationwide active smuggling network.

Why has sugar smuggling suddenly increased in Nepal? Stakeholders attribute the surge to India’s complete ban on sugar exports from 31 Baisakh 2083. India placed sugar in the ‘prohibited’ category until September 30, 2026, to control rising domestic prices and ensure adequate supply. The massive smuggling coincides precisely with the months of Jestha and Ashad, indicating more than mere coincidence.

India is the world’s second-largest sugar producer. Previously, India had permitted the export of 1.59 million tons of sugar this season, but policy changes were made due to two main factors: weather and fuel.

First, production drops occurred in key sugarcane producing states such as Maharashtra and Karnataka due to the effects of the El Niño phenomenon and unpredictable monsoon, forecasted to result in a second consecutive year of reduced output.

Second, India’s ethanol production policy requires mandatory blending of 20% ethanol into petrol to reduce fuel import dependency as crude oil prices rise internationally. Since ethanol is produced from sugarcane, India has shifted focus from sugar production towards ethanol for fuel.

Additionally, the depreciation of the Indian rupee against the dollar has raised fears of food inflation, prompting India to halt sugar exports.

Retail sugar prices increased to NPR 15-20 per kilogram after India’s export ban, now reaching NPR 115-120 per kilogram in the market. Producers claim factory prices remain around NPR 85, and including 13% VAT and transportation, prices should not exceed NPR 105 in Kathmandu.

Traders blame producers for price hikes, while producers hold dealers and retailers responsible. Shashikant Agrawal, president of the Nepal Sugar Producers Association, stated that factory prices are controlled by producers. “We have not significantly raised factory prices; market or downstream prices are beyond our control,” he said. Price fluctuations of 1-2 rupees are natural due to demand and supply variations.

Smugglers active with state collusion at border points: Following India’s export ban, consumer rights activists allege the abnormal increase in smuggling involves direct complicity from Nepal’s customs and security agencies. Madhav Timalsina claims trucks could not enter Nepal overnight without a ‘green signal’ from these authorities. “Smugglers cannot bring goods without the cooperation of the Armed Police and customs,” he noted.

He also accused domestic producers of creating an unnatural syndicate by supplying sugar to a limited group of merchants, who maintain artificially high prices. Producers reportedly pressured the government to keep customs duties at 40%, but smuggling has flooded the market, pushing prices higher. “Immediately after the ban, our producers began providing office space and support to select merchants working with smugglers, causing retail sugar prices to surge to NPR 120 per kilo,” he alleged.

Quarantine bypassed for smuggled sugar: Timalsina warned that sugar entering kitchens through illicit channels has not passed any food quarantine or plant inspections, posing serious public health risks. Smugglers are accused of deceiving authorities with fake bills and repeatedly using the same documentation to cross borders, transferring sugar from Indian sacks into Nepali bags to evade detection. He urged the Revenue Investigation and Ministry of Finance to conduct a thorough investigation.

According to Timalsina, with festivals approaching, smugglers are stockpiling sugar in warehouses to sell at inflated prices, exploiting government loopholes.

Rising sugar imports: According to the Sugar Producers Association, Nepal’s sugar production is increasing. Last year, Nepal produced 180,000 tons of sugar, with existing industry stocks around 80,000 tons. Nevertheless, sugar imports are rising despite claims of increased domestic production and stocks.

Fiscal year 2081/82 imposed a 30% duty on sugar imports, resulting in limited imports. However, in the budget speech of Jestha 15, 2082, former Finance Minister Bishnu Poudel halved the sugar import duty from 30% to 15%, after which import volumes markedly increased.

Customs data shows that sugar imports doubled in 2082/83. NPR 348 million worth of 51,485 tons of sugar were imported, nearly double the previous year’s volume.

Government data estimates Nepal’s annual sugar demand at approximately 300,000 tons. While average monthly demand ranges from 20,000 to 25,000 tons, demand increases to over 30,000 tons monthly during major festivals like Dashain, Tihar, and Chhath.

Domestic sugar mills produce about 200,000 tons annually, creating a yearly deficit of around 100,000 tons. To fill this gap, Nepal must import sugar from India and other third countries.

Food Management Company plans 1,000-ton sugar import: To meet shortages, the government-owned Food Management and Trading Company (FMTC) plans to import 1,000 tons of sugar from India through a government-to-government (G2G) arrangement. FMTC spokesperson Madhav Mishra confirmed the preparations to bring sugar within the quota allotted by India.

“We intend to import 1,000 tons initially through G2G. Based on market demand and consumption, additional imports can be considered,” Mishra said.

Currently, the company is selling sugar to consumers at prices between NPR 100 and 105 per kilogram.