New Vistas in India-Nepal Trade Relations

India still possess the tag of “Solitaire” in Nepal’s international trade domain as it’s maintain the strategic proportion of sixty one percent of Nepal’s total trade and accounts nearly sixty seven percent of total exports as per the various data suggested in 2008. Although these two friendly neighboring countries share a good deal of trade relations but they still have to tap many improved goals, so further India and Nepal should expand the scope of the existing trade agreements and engage in a more meaningful economic relationship that will aimed with the long-term benefits.
Indeed most of trade treaties in past have been limited to tariff concessions, such benefit are transitory in nature and do not contribute to long-term growth of Nepal’s economy or to sustainable trade between the two countries.

So, there is immediate need of rationalization in crucial trade treaties between these two countries with suitability to modern requirements; some timely taken and conducive approach on policy level with consistency of co-operation from both the economies would be very imperative. Here it’s worthwhile to mention that parity in trade relation between India and Nepal must be soughted even though on partial extant,because for a positive outlook in international trade at least it’s very essential to have healthy contributions from both the side.
In no manner theirs contribution should be misjudged in terms of equal partnership from both the side albeit it requires a positive contribution corresponding to their own economies.

At present Nepal runs a burgeoning trade deficit with India, which increased from $167 million in year 2000 to $1.3 billion in 2008. Nepal’s GDP growth during 2002-03 and 2007-08 was only 3.9 percent. Manufacturing grew the slowest at 1.6 percent indicating that growth in the Nepalese economy occurred with virtually no industrialization. Data suggests the feeble state of affairs in Nepalese economy which is quite below from its actual potential in different sectors.Causes of such inertia in Nepal’s economic development explicit as the under utilized performances of businesses.
For sustaining in modern business and achieving a higher growth Nepal will have to make its economic environment more conducive to the development of entrepreneurship and foreign investments. There is tremendous scope for trade in services like… Tourism, Water Resources, Financial Services, Entertainment etc; foremost area among these are water resources that is most strategic slice where India and Nepal could build numerous high level ties to share the vast hydropower potential of Nepal.

Nepal has huge hydro-power potential of 44,000 MW, which is economically feasible, yet its power deficient and a net importer of power from India; till now very few initiatives have made much progress in this area. Hydro-power would play the catalyst role in drawing the attention of Indian business community because its utmost viability for both the side; so there is immediate need for radical concrete advancement in co-operation between these two countries on water management.
Further the co-operation in this area would leave positive effects on the perennial tragedy of disastrous floods in Terai region of Nepal and adjacent areas of cross border in Indian side (North Bihar, Mithila region) as it’s hampering any large scale entrepreneurial activities in these region due to relentless approaching challenges of nature and its bad human management.

Tourism is another sector where Nepal could have bigger edge than what’s it availing in present time through its abundantly entrusted natural landscapes and historically rich tradition of hospitality.
Today tourism looks for a constructive revival inside the Nepal as its growth badly jeopardized by the decade long civil strife and unstable political situation in country; between 1999 and 2006, the number of tourists declined from 4.92 lakh to 3.84 lakh.A reversal in trend was seen only last year when the number of tourists increased to five lakh. Sharing a long stretch of border and closer ties Indian side likely remains very active in closer enhancement of tourism in Nepal.

India accounts for nearly twenty one percent of total proportion of tourism in Nepal, so its importance could be understood.In his recent visit to India, Nepalese Prime Minister Mr. Madhav Kumar Nepal stressed on the need for closer co-operation in the seven fields including of Telecommunication and financial services are foremost which is very vital for the prospect of India’s more active collaboration in this regard.
As Indian banks and financial institutions are in the upswing mood of diversification such positive invitation from highest political authority of Nepal would inevitably enhanced the prospect of new chapter in financial sectors expansion in Nepal.

Even though some of Indian financial entities has been already functioning there and infusing considerable proportion of businesses. According to Federation of Nepalese Chambers of Commerce and Industry (FNCCI) in year 2007(August}.
Indian companies like SBI (Nepal SBI Bank Ltd, share 50%), PNB (Everest Bank Ltd, share 20%), Alpic Finance Ltd( Alpic Everest Finance Ltd, share 55%), National insurance and Oriental insurance company Ltd having solid base inside the financial sector of Nepal.Albeit it’s should not be a matter of complacency for business leaders of both the side as its quite low from India’s investment potential.

Most of existing Indian financial entities in Nepal hail from Public Sector even till now very few Public Sector players are involved in full swing. So, there persists huge hope for investments in Nepal from both the Indian Public sector and competent Private Sector financial institutions.
Nepal is a formidable terrain for India in every manner and any Indian business venture in this land would be very boosting in trade relationships of these two countries. In recent time numbers of joint ventures business with India ( April 2008, FNCCI) has been considerably increased as 120 companies are operating, 33 are in under construction, 37 are waiting for license and 142 have received approval for businesses.

So some causes are being visible to be sanguine on this development but India-Nepal co-operation must expand to new horizons.To tackling the growing deficit in international trade, Nepal must check its exorbitant taxes on imported goods from India to fostering consumption and production cycle to ultimately improving the rudimentary facilities.
In same manner Nepalese leadership should ensure spurting motivation for export businesses by rationalizing many statutory hurdles as its already availing numerous concessions from Indian side.

Nepal is endowed with finest natural resources and human resources and if found a stable political condition and good law and order situation than there is no reason that it wouldn’t fetch attention for business and investment from outside.
Today for Nepal, it would be very compatible to be more realistic with their interest and must strive for home grown businesses than being an importer nation. With easiest reach and low cost of operation India would be equally benefited from expanding its commercial ties with Nepal. Policy makers should ready for exploring this opportunity with meticulous state of mind.

Atul Kumar Thakur
26th August2009, New Delhi
atul_mdb@rediffmail.com