National 6 (Spotlight Weekly)

Untapped Potentials

Nepal is yet to benefit from a huge and burgeoning market next-door

By SANJAYA DHAKAL

India is set to become one of the leading economies in the world in the next few decades. With one-billion-plus population and equally strong economy, India provides a huge market for Nepal.

But after the initial optimism following the 1996 Trade Treaty, the bilateral trade scenario has not worked in favor of Nepal with the latter experiencing growing trade deficits. In the year 1996, Nepal recorded trade deficit worth US$ 375 million. This figure gradually declined. In 1998, this figure was US$ 299 million and in 2001, it came down to US$ 260 million.

Dr. Lohani at the program : Need to exploit opportunities

But the change in policy that resulted in Trade Treaty renewed in 2002 with a number of restrictions ensured that the tables turned once again. In the year 2003, the trade deficit again rose to reach US$ 375 – back to square one.

According to Madhukar SJB Rana, senior economic advisor to the Ministry of Finance, out of Nepal’s total trade volume of Rs 174.79 billion (of 2002/2003), India occupies 47.5 %. Export to India as percent of total trade with India is 32.4 %.

“We must begin to visualize the Indian economy as a vital opportunity where, through prudent strategies for inter-dependence, our GDP growth rates can be boosted from the targeted 6% to 8% or more per annum. Such a growth trajectory will wipe out the face of poverty in Nepal within one decade and bring regional balance in our development endeavors to create a more dynamic and equitable society with fuller employment opportunities for all,” said Rana presenting a paper at the ‘Nepal-India Economic Cooperation’ organized by Nepal Council of World Affairs (NCWA) and B.P. Koirala Nepal-India Foundation on December 21.

Finance Minister Dr. Prakash Chandra Lohani has said that all of South Asian nations including Nepal can take advantage of the high growth path in which India is moving ahead. Dr. Lohani also said that both countries have to ensure that their open border is not used by ‘undesirable elements’.

Indian ambassador Shyam Saran said that Nepal was India-open and not India-locked. He said there was a possibility of bringing Indian railways network right up to the Nepal border. Likewise, he highlighted the possibility of linking petroleum pipelines to Nepal, which could sharply bring down transportation cost and chances of adulteration. Keshav Raj Jha, president of NCWA, said that Nepal can benefit from India’s experience in World Trade Organization (WTO).

Despite the rosy projections, the ground reality is starkly different. Due to various reasons, the extent of informal trade between the two countries has also increased in the recent years.

According to Binod K. Karmacharya, associate professor at the Central Department of Economics, Tribhuwan University, recent studies carried out in Indian states and in Nepal show that informal trade between Nepal and India is a two way phenomena.

“In fact, survey-based estimate suggests that the average informal export from India is US$ 180 million, while that from Nepal to India is US$ 157 million, implying Nepal has a slight deficit on the informal trade account. Total two-way informal trade ranges between US$ 368 million (Nepalese study estimates) and US$ 408 million (Indian study estimates),” he stated in a paper he presented at the program.

Karmacharya stated that apart from trade and domestic policy distortions, other factors like quick realization of payments, no paper work, no procedural delays and lower transportation cost are the major causes for such a huge volume of informal trade between the two countries, which is bleeding the economy of both the countries as they are denied huge revenue amounts.

As such, there is a clear need to re-analyze the current bilateral economic relations to arrest anomalies and pave way for prosperous region.