Nepal's trade linkages
Republica has in the past four months been consistently highlighting the urgent need to diversify Nepal's trade away from India. We believe it is in Nepal's interest to reduce its dependence on India with which the country now conducts 75 percent of its trade. In this direction, the nine road links with China's Tibet need to be urgently upgraded, especially the narrow 115-km two-lane Arniko Highway. Nepal must also make a strong pitch for extension of the Lhasa-Shigatse rail line up to the border with Nepal and, eventually, to Kathmandu. The country should at the same time be looking to expand trade with other South Asian countries, and, beyond that, with Europe and the Americas. The US, for instance, has decided to allow duty-free access to readymade garments from Nepal. This should help Nepal compete against other low-cost garment producers like Bangladesh and Cambodia for a share of the US 225-billion a year American apparel market. The EU already allows duty-free access to Nepali garments, as do Canada, Australia, Japan and Turkey. But Nepal has not been able to capitalize on this wonderful opportunity as prolonged political uncertainty and an acute power-shortage have ravaged Nepali garment industries and made Nepali products uncompetitive.This is not to suggest that Nepal should stop trading with India or that some other country can take India's place as Nepal's main trade partner. Yes, we should look to expand our trade with China and with the rest of the world as a matter of principle. But the hard reality is that it will cost us a lot less to do business with India—given the ease of access to the main Indian markets through our open and flat borders. In fact, even when dealing with third-countries, it will be much cheaper for Nepali manufacturers to use Indian ports for exports than to route goods through China's Tibet. When emotions over the current Indian blockades subside, economics will invariably triumph. Our political parties, therefore, have to be more serious about resolving the Tarai crisis and reopening the border points with India at the earliest. But that is not enough. We should also be exporting a lot more to India. Nepal's trade deficit rose by a troubling 10.8 percent, to Rs 689 billion in the fiscal 2014-15 over the corresponding figure for 2013-14—75 percent of this deficit was with India. If Nepal could for instance improve the quality of its textiles (the country's top export to India), the Indian market is potentially boundless.
Given Nepal's geopolitical limitations, there is only so much Nepal can do in its bid to reach out to the wider world. Much will again depend on India: whether it is ready to open its market for more Nepali products, whether it will ease the movement of third-country goods to and from Nepal via its ports. But what India does will matter only when Nepal first takes care of its own problems. The reason there has historically been such a big trade deficit with India has as much to do with the lukewarm attitude of our political leaders to promoting export-oriented industries in Nepal as it has to do with the colonial mindset of contemporary Indian rulers.