 |
|
| Kathmandu, Tuesday March 04, 2003 Falgun 20, 2059. |
|
Indian budget to impact Nepali
economy
Post Report
KATHMANDU, March 3 : Considering the fact that
India is Nepal’s largest trading partner, the latest budget unveiled by the Indian
Finance Minister Jaswant Singh for the fiscal year 2003/04 beginning April 1 is bound to
have far reaching impact on Nepal. This write-up tries to assess the implications that the
policy decisions under the budget can have on Nepal.
And because bilateral trading relations between
Nepal and India are carried out on a preferential basis, the implications are more direct
than indirect. An assessment, hence, becomes even more important, especially in the light
of the fact that Nepal and India share a common border. The write-up is presented on a
sub-sectoral basis for clarity.
Hi-tech farming
The Indian budget has laid special emphasis on
the development of the agricultural sector. The policies announced for the growth of the
Indian agro-sector can have huge impact on Nepal. The budget proposed to introduce a
high-tech horticulture and precision farming, with special emphasis on fertigation, use of
biotechnological tolls, green food production, among others.
All proposed reforms and initiatives under
agriculture as announced by the Indian budget is likely to come as a major boost to the
Indian agro-sector, leading to sharp rise in production as well as productivity. But,
while the changes are likely to come as a boon to Indian farmers, they may prove a bane
for their Nepali brethren.
That is due mainly due to the fact that the cost
of production in Nepali agro-sector is high. Efficiency in Indian farming would only mean
that production would rise, and then create a more serious problem for Nepali farmers, who
are already reeling under the price drops caused as a result of flooding imports of excess
agro-output in India. However, the implications are of longer-term than immediate.
Fertilisers
One of the most important and specific
announcements made in the budget relates to that on subsidy in fertilisers. The budget
proposed to cut subsidies that would lead to a rise in the price of urea by IRs 12 and
that of Di-ammonium Phosphate (DAP) by IRs 10 per 50 kg bag. The reduction comes in line
with the announcements made by the Indian government in previous budgets to slash
subsidies in fertilisers.
"The reduction in subsidy in fertiliser and
the subsequent increase in price is good to Nepali farmers who were not able to compete
with the cheap and subsidised Indian agro-produce," says prominent economist Dr
Bishambher Pyakhuryal.
However, some view that partial withdrawal in
fertiliser subsidy may negatively impact the fertiliser price situation in Nepal too. That
is because most fertilisers used by Nepali farmers come from India, both through legal as
well as illegal channels. The cumulative pressure on Nepali farmers, who are devoid of any
subsidies back home, may accumulate.
Irrigation
Another budgetary proposal relating to the
supply of subsidised drip and sprinkler irrigation systems is likely to have a wider
impact. That comes as incentive to the Indian farmers, while Nepali farmers, again devoid
of such incentives, would be forced to compete against the cheaper agro-produce that flow
in from across the porous border.
Textiles
The budget has prioritised the industrialisation
of the country, for which a number of sweeping reforms to attract foreign investment has
been introduced. Though the overall reforms may only have indirect or minimal impact on
Nepal, the changes proposed in the textile sector are alarming for the Nepal’s
apparels and textiles industry, especially when considered in the medium-term.
Jaswant Singh in his budget announced to reduce
the customs duty on the import of apparel grade raw wool from 15 to 5 percent. Likewise,
he proposed the modernisation of the textile industry, for the purpose of which he slashed
customs duties on a large number of textile machinery and their parts from existing 25
percent to 5 percent.
The budgetary decision to waive such duties for
the benefit of the apparel and textile industry in India certainly would not impact Nepal
immediately. But the latest Indian changes could spell disaster for the high cost Nepali
garment manufacturers from December 1, 2004 when the Multi-Fibre Arrangement that has been
guiding global garment trade ends. Nepali garments, which already costs 15-20 percent more
than in India, would not be able to compete against garments manufactured in India.
"If Nepal does not take remedial action
soon and reduce the duties relating to textile industry, the effects can be disastrous for
the once vibrant Nepali garment sector," says Dr Pyakhuryal. There is a few months
time, Nepal should act when the budget is announced next.
Pharmaceuticals
Apart from the negative implications of the
changes in the textile industry, Nepal is likely to benefit from the concessions provided
to the pharmaceutical sector. Since Nepal depends to a large extent for pharmaceutical
products on India, the concessions received by the sector in India could help reduce
medicinal costs in Nepal. The budget announced to extend, among others, to slash customs
duties on the import of reference materials by the industry from 25 to 5 percent.
Telecommunications
The budgetary provisions relating to the
telecommunication sector are likely to benefit Nepal in the longer-term. The budget
announced to slash customs duties on a number of capital goods used by the telecom and IT
sector for manufacture of components from 25 to 15 percent. Likewise, to help the Indian
industries to manufacture e-glass roving used for making optical fibres, the budget
announced down cut in duties from 30 to 15 percent. In all, the decisions are likely to
help Nepal procure cheaper telecommunication components in the future.
Gold trade
The Indian budgetary decision to cut down
customs duty on the import of gold to IRs 100 per 10 grams from earlier IRs 250 per 10
grams is likely to completely stop the flow of gold from Nepal to India. Last year’s
Indian budget that had slashed the customs duties on gold imports per 10 grams from IRs
400 to IRs 250 had caused drastic decrement in gold exports to India. Considering the fact
that Indian jewellery industry is highly developed, outflow of even jewellery items is
likely to go down substantially.
State VAT
Among the other reforms, FM Singh in his budget
speech announced a number of changes in taxation policy, the most important one being the
introduction of Value Added Tax (VAT) at the state level. The budget proposed to ensure
that all states have a minimum set of common features, which will reduce tax discrepancies
from state to state for goods that are exported from Nepal. "Imposition of VAT at the
state level is one good aspect of the Indian budget," says Dr Pyakhuryal.
Excise duty structure
The budget also announced to rationalise the
excise duty structure at 8 percent, 16 percent and 24 percent respectively. The earlier
highest duty stood at 32 percent. Reduction in the excise duties in goods that are
exported from Nepal would hit revenue for the Nepali government in the form of lesser
returns under the Duty Refundable Procedures as laid down by the Nepal India Trade Treaty.
Though the cumulative loss in revenue due to a
slashing in excise duties for products that are exported from Nepal to India is unlikely
to be of any significant amount, it should, nonetheless, be mentioned that excise duties
for biscuits too have been reduced. Biscuits in some quantities are exported from Nepal to
India.
Other Stories
|
