Nepal engages in international trade with as many as 141 countries of the world. However, the country has a trade deficit with 113 of these countries. Neighboring India is Nepal’s biggest trade partner. However, the trade between the two countries is highly in favor of India. Some recent statistics will make it clear. In the first six months of the current fiscal year 2022/23 (mid-July 2022 to mid-January 2023), Nepal exported goods worth just Rs 57.84 billion to India while it imported goods worth Rs 486.33 billion from the southern neighbor, resulting in a trade deficit of a whopping Rs 428.33 billion for Nepal. The fact is a small country like Nepal should have exported more and imported less and have a trade surplus. But that has so far been limited to wishful thinking. In fact, if one is not to chew words, then it can be said that Nepal has long struggled with a trade deficit with India, which has had a significant impact on the country’s economy. A major reason for this deficit is Nepal’s dependence on India as a primary trade partner. India accounts for more than two-thirds of Nepal’s total trade, and the country imports a wide range of goods from India. In a way, for India, Nepal has been a monopoly market of sorts!
The situation is such that Indian goods get an easy entry into the Nepali market but things are not reciprocal here. If India was to generously open its market for Nepali goods and services - something Nepal has done for Indian goods - things could have been different. But India has exhibited a clear lack of that kind of generosity. Almost all vehicles – two-wheelers as well as four-wheelers – running in Nepal are imported from India. The fuel needed by those vehicles is imported from India. The thing is Nepal has provided easy market access to Nepali goods but India hasn’t reciprocated that gesture from Nepal. The idea that Nepal should produce everything it needs is simply not possible. In fact, no country in the world can do that. But Nepal can at least try to be self-dependent in agricultural products. It can focus on agricultural production to at least meet the domestic demand. But sadly a trend to rely on imports, mainly from India, even for food items, has already started. For example, we saw recently, the sugar factories in the country imported sugarcane from India, ignoring the sugarcane produced by the Nepali farmers. Similarly, we are becoming more and more dependent on imports from India even for fruits and vegetables. Indian agricultural goods enter the Nepali market easily, without any hassles but there are news reports from time to time about India imposing non-tariff barriers for Nepali agricultural goods such as ginger, cardamom etc. Nepal can lower its trade deficit to some extent even if it becomes self-reliant in agricultural products. But sadly, due to the lack of proper policies and subsidies to farmers, the domestic products have not been price-competitive.
Cooperation for trade
The trade deficit with India is not a new issue. In fact, Nepal has long struggled with a trade deficit with India, with imports far outstripping exports. In order to address this imbalance, Nepal must take a multi-faceted approach that addresses both supply-side and demand-side factors. On the supply side, Nepal must focus on boosting its own production capabilities. This can be achieved through investment in infrastructure, technology, and human capital. Additionally, the government should work to create a more favorable environment for agri-business, by reducing red tape and bureaucracy. On the demand side, Nepal should work to diversify its export markets, so that it is not wholly reliant on India for almost everything. This can be achieved by building trade relationships with other countries and working to promote Nepal as a destination for tourism and foreign investment. There are many countries in the world that love Nepal. Nothing should stop us in today’s world from exporting our goods of comparative advantage to those countries. The main thing is Nepal should ask India for uninterrupted and easy market access for its products. The country should make the same demand to China as well. After all, China is Nepal’s second biggest trade partner after India. If Nepal is to get easy access to the huge markets of its giant neighbors, things could change for the better in no time.
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