Nepal and India enjoy deep cultural, historical, and geographical bonds that are also marked by a strong trade and commerce relationship. This partnership is crucial to the Nepalese economy though it is full of challenges that keep affecting the small-sized economy of Nepal more than that of India. Both nations, however, are set to address many of trade and commerce irritants as the meeting of the Inter-Governmental Committee (IGC), a bilateral mechanism to address trade issues between the two nations, takes place on January 9-10. To be participated by high-ranking officials from both nations, the two-day meet is expected to revisit the trade and commerce agreement and will seek to address long-standing issues toward a more balanced trade partnership. In the previous two meetings, the two countries agreed to give continuity to the old commerce treaty without making any amendment in the treaty. Last time, Kathmandu hosted the IGC meet on December 7, 2020. Both nations had signed the Trade and Commerce Treaty on November 27, 2009.
It is worth noting that India remains Nepal’s largest trading partner, with the bulk of both imports and exports. In the last fiscal year, Nepal imported goods worth NPR 996.68 billion from India, while its exports to India stood at just NPR 103.17 billion. This massive trade deficit with India, around Nepali Rs. 893.51 billion, sheds light on Nepal’s reliance on Indian goods and services. On the other hand, while conducting trade, Nepali traders and exporters encounter many hurdles in reaching the Indian market. The requirement of the mandatory Bureau of Indian Standards (BIS) certification, coupled with non-tariff barriers for Nepali goods, poses unnecessary blockage for Nepali products like tea, cardamom, footwear, ginger, diapers, plywood, cement, and sanitary pads, among others, in accessing Indian markets. Also, the bureaucratic hurdles often delay cargo shipments of Nepali goods to third nations, increasing costs and thus making Nepali goods less competitive. The imbalance is also noticed in the export of Nepal’s agricultural products that must obtain quarantine certificates, while Indian agricultural products often find an easy reach to Nepali markets. Indian restrictions on Nepali dairy products and reluctance in allowing a bulk of Nepali products access to Indian railway services are other hindrances for Nepali goods in fully utilizing its duty-free privileges. Meanwhile, India has expressed its concerns regarding illegal cross-border trade and the re-export of third-country goods from Nepal. Products such as garlic, betel nuts, and palm oil are among the third-country goods that are exported to India from Nepal by taking advantage of duty-free facilities. These activities have led to suspicion among Indian authorities regarding the bilateral trade agreement.
Bridging Data Gaps for Effective Development Policy in Nepal
For Nepal, the IGC meeting on Thursday and Friday will offer an opportunity to ask India to remove non-tariff barriers and to simplify the certification process for Nepali traders. Accessing rail and transit facilities to third countries as easily as spelt out in the agreement is another matter to be pursued by the Nepali side, aimed at reaching out to new markets for Nepali products. Both sides should also find a solution on quarantine of Nepali agro-products and bureaucratic issues which will enable Nepali products to reach Indian markets. At the same time, Nepal needs to address Indian concerns about illegal trade by enhancing border monitoring and ensuring compliance with agreed-upon trade terms. Nepal’s inability to have full access to Indian markets shows its inability to correct the current trade imbalance. However, with its massive economic size, India, a rising global power, has a responsibility to support its smaller neighbors in achieving prosperity. As the IGC meeting commences today, there is an opportunity for both parties to engage in meaningful dialogues in the spirit of cooperation and mutual respect, not only to address several trade irritants but to pave the way towards shared prosperity through enhanced trade and commerce.
