Nepal-India Trade Ties

Nepal is a country located between two economic powerhouses of the world – India and China - which have been growing by leaps and bounds. The trade between the two countries amounts to over US$ 60 billion. And leaders of all the political parties and government ministers and officials never get tired of saying that Nepal is an ideal location for large investments from these and other countries across the globe. Ironically, Nepal has not been able to draw foreign direct invest as anticipated and augment its trade with these neighboring countries and other nations. In fact, Nepal’s export has been shrinking over the years while the import is growing like anything; according to records maintained by the Trade and Export Promotion Centre, Nepal’s export: import ratio stands at around 1:15, meaning the total import is 15 times higher than total export; up from 1:13.2 a year earlier. Experts have been raising concerns about the widening trade deficit and asking the concerned bodies to take steps to increase export from the country. This is, however, easier said than done. Why is Nepal’s export shrinking over the years rather than increasing? There are several reasons, political instability, energy deficiency and labour issues being the key ones. Lately the country has regained political stability and there is marked improvement in the supply of energy while the labour laws are being improved to encourage investment in the industrial sector. Yet, the country is not doing well in the export sector, because the manufacturers in Nepal are unable to compete with their Indian counterparts, let alone the barriers imposed frequently by the southern neighbour. Over 80 per cent of Nepal’s trade occurs with India, but it is unmanageably dominated by imports. This is because Nepali traders are facing problems in export of all sorts of goods ranging from ginger to medicines resulting in soaring trade deficit.

In this context, the Nepali business community has demanded with the government to revise the Nepal-India trade treaty signed a decade ago. They have maintained that the treaty has hampered the growth of industry in Nepal and asked the government to revise it in such a way that it encourages investment in the industrial sector and promotes employment and export. For example, the treaty requires value addition by 30 per cent for any Nepali product to qualify for export to India, which the business community wants to be cut to 20 per cent. Meanwhile, officials from the two countries have agreed to review the treaty; following discussions on various aspects of the treaty during a two-day meeting in Pokhara, delegates representing the commerce ministries of Nepal and India have in principle agreed to revise some provisions of the treaty so as to promote bilateral trade. A news report in this daily stated that the Indian side is positive about Nepal’s concern in regard to unhindered export of agricultural items and the construction of physical infrastructure to expand trade between the two countries. India is also positive about amending some provisions in the treaty including a ban on the purchase and sale of industrial raw materials and life-saving drugs. If India actually agrees to make these amendments, the revised treaty will have a favourable impact on Nepal’s export. 

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