Non-tariff barriers imposed by India on Nepali exports under different pretexts and names had basically trampled the spirit of the Trade Treaty. Nepal felt unfairly treated by India also because it provided preferential treatment to Indian goods as provisioned in the treaty. The net effect of these uneven treatments provided by India and Nepal against each other was that Nepal´s trade deficit with India, which has now reached over 16 percent of the Gross Domestic Product, worsened at an unsustainable rate. India must realize that a widening trade deficit with a poor neighbor is inherently unsustainable.
When Nepal and India signed a landmark Trade Treaty in 1996 with an automatic renewal provision of the treaty and zero tariff rates on Nepali goods, one of the main assumptions and expectations was that it would narrow the trade gap between India and Nepal. In due course of time it only widened, defeating the major objectives of the treaty. Many a time businessmen and investors have complained that whenever export of any commodity to India rose significantly the southern neighbor found an excuse, however illegitimate, to obstruct it. This should change now. We may not be able to match export to India with import form there in the foreseeable feature, but any further widening of the trade deficit should be unacceptable and corrective measures should be put in place immediately should our trade imbalance move in that direction.
Nepal should also learn lessons from the past mistakes and make serious effort to promote genuine export and discourage re-export businesses that contribute little, if any, to the national economy and only irritates India. Promoting re-export business may have earned a few million rupees of revenue but the damage it has caused to the industrialization process of the country far exceeds the gains in revenues. Nepal must put a premium on industrialization process over trade that benefits a few. The government should also be proactive in making the local-level mechanisms work so that small trade-related problems are resolved promptly. Slackness in addressing such minor issues on the ground has also impacted our exports in the past.
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