Trade Volume Between Nepal and India Upsurges

Nepal’s side of trade relations with India have suffered recently, with the country struggling to make decent exports.

Despite the fact that trade volume between Nepal and India has risen rapidly in recent years, it seems to be weakening with the rising trade deficit on the Nepali side of trade. Skyrocketing imports and decreasing exports due to sluggish industrial output have contributed a lot in generating the negative trade balance for Nepal. Increasing load shedding, higher costs of production, low labor productivity, political instability, and poor labor relations in the industrial sector have contributed to a huge chunk in the deficit portion. Every year the productive capacity of Nepali industries is decreasing and there are very few export-based industries in the country. This has been the major reason for increasing deficit, says a trade expert. In addition to that, various barriers in the form of non-tariffs from India has also been a fire-igniting factor for increasing deficit, adds the expert.

A report from the Trade and Export Promotion Centre (TEPC) shows that the deficit increased by Rs 64.99 billion during the first 11 months in the fiscal year of 2013-14, and hit the mark of Rs 379.64 billion. The deficit was Rs 47.96 billion in 2003-04 which, in a decade, rose to Rs 379.64 billion. In 2008-09, the figure was Rs 121.54 billion. With the increasing trade between these countries, the deficit will go up if Nepal does not increase its competitive advantage and exports. Nepal does two thirds of its trade with India alone. Petroleum has been one of the major imports for Nepal and it has a major impact on the trade balance. Last year alone, Nepal imported around Rs 100 billion worth of petroleum from India – about double the total value of Nepal total exports. Major imports from India were petroleum, vehicles, machinery parts and steel products.

An economic survey of 2013-14 reflects that the percentage of the deficit with the nation’s gross domestic product (GDP) has also increased in the last decade. The percentage of deficit to GDP was 15.3% in the last decade, which has now reached 32.1%, says the economic survey report.

As the number of youths going abroad for jobs is increasing, this has substantially increased the remittance inflow in the country, thereby increasing the purchasing power of the people and increasing demands. This increased demand has been fulfilled by the imports mainly from India as Nepal lacks a productive facility of high end user products.

According to Purushottam Ojha, former commerce secretary, “Nepal lacks industries for those luxury products whose demand is increasing. In the recent years demands for small vehicles are increasing, demands for modern household products are increasing. But we lack industries to produce them. So, we have no other option to import them from abroad.”

“Almost all Nepali products, excluding tobacco and alcoholic drinks has been provided duty free access to India, Nepal due to its low competitiveness is unable to take advantage of it,” Ojha continued. “After India got liberalised and open to rest of the world, Nepal is gaining difficulties to capitalise the Indian market as we do not have competitive and comparative advantage in most of the products to compete in the Indian market where products from all over the world come. Moreover, India’s quota policy on our high exporting products like zinc, vegetable ghee, and acrylic yarn has been one of the reasons for low exports from our side.”

Not only does the Government of Nepal have dissatisfaction with trade relations that exist between these two countries, private sectors have even louder complaints. One private sector in Nepal complains of India’s frequent action of imposing countervailing duty on Nepali ready-made garments, and utensils made of copper against the trade treaty. This leads these products to lose their competitive strength in the Indian market. India creates a barrier in agricultural products in the name of poor quality as India gives no value and acceptance to quality certificates issued by the Nepali side.

In addition to these, the government has not taken any serious steps to facilitate the trade procedures with India. Private sectors are also responsible for this situation as they ignore exporting to the Indian market because the government provides incentives for exporting goods to third countries.

It’s a time to take a serious step before it is too late for Nepal to rise in the trade relation with India. If this situation persists, then one day there might be a situation when the GDP of the country will be largely supporting the deficit of Nepal. Both private and government sector must think about the issue seriously and take some serious steps to bring Nepal out of this deep hole of darkness.