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About Trade and Commerce

 

Commercial and Economic Relations:

 

India is Nepal's largest trade partner and the largest source of foreign investments, besides providing transit for almost entire third country trade of Nepal. India accounts for over two-third of Nepal’s merchandise trade, about one-third of trade in services, one-third of foreign direct investments, almost 100% of petroleum supplies, and a significant share of inward remittances on account of pensioners, professionals and workers working in India.

 

1. Nepal’s International Trade

 

The trends in India-Nepal merchandise trade over the past few years (Nepalese fiscal year: July 16-July15) are as under.

 

In INR crores

Nepal’s

2015-16

2016-17

2017-18

Year on Year Growth (%)

2015-16

 2016- 17

2017 -18

Total Export

4382.3

4565.5

5074.4

-17.8

4.2

11.1

Export to India

2468.3

2590.5

2912.8

-29.3

5.0

12.4

Total Import

48349.9

61882.0

77676.6

-0.1

28.0

25.5

Import from India

29825.7

39604.3

50613.3

-2.9

32.8

27.8

Total Trade

52732.2

66447.6

82751.1

-1.8

26.0

24.5

Total trade with India

32294.1

42194.9

53526.1

-5.6

30.7

26.9


In US$ million

Nepal’s:

Year

Year on Year Growth (%)

2015 - 2016

2016 -

2017

2017 -

2018

2015 -

2016

2016 - 2017

2017-2018

Total Export

659.3

687.7

777.9

-21.3

4.2

11.1

Export to India

371.3

390.2

446.5

-32.3

5.0

12.4

Total Import

7274

9322.2

11907.8

-4.4

28.0

25.5

Import from India

4487.1

5922.1

7759.1

-7.1

32.8

27.8

Total Trade

7933.3

10010.0

12685.8

-6.1

26.0

24.5

Total trade with India

4858.3

6356.4

8205.6

-9.7

30.7

26.9


(in % age)

India’s share  in

Year

03-04

05-06

07-08

09-10

11-12

13-

14

14-15

15-16

16-17

17-18

Nepal’s Export

57.1

67.6

65.1

65.8

66.8

65.8

65.5

56.3

56.7

57.4

Nepal’s Import

57.8

61.7

64.2

58

64.8

66.7

63.5

61.7

64.0

65.2

Total trade

57.6

63.2

64.3

59.1

65.1

66.6

63.7

61.2

63.5

64.7



In addition to the bilateral trade, Nepal’s transit trade is routed through twenty two designated routes between India-Nepal border and the ports of Kolkata/Haldia and Vishakapatnam. In addition, Nepal’s trade with and through Bangladesh also transits through India. Government of India is providing assistance for development of cross-border trade related infrastructure. It includes upgradation of four major custom checkpoints at Birgunj-Raxaul, Biratnagar-Jogbani, Bhairahawa-Sunauli and Nepalgunj-Rupediya to international standards; upgrading approach highways to the border on the Indian side; upgrading and expanding the road network in the Terai region of Nepal; and, broad gauging and extending rail links to Nepal. Integrated Check Posts at Birgunj is fully functional and that at Biratnagar is nearing completion. 

 

LoE on Operationalisation of Vishakhapatnam Port (Amendment in the Treaty of Transit) for traffic-in-transit between Vishakhapatnam Port and Nepal was signed in February 2016 during the visit of Prime Minister of Nepal to India commensurate amendments in the Railway Services Agreement were also made. Since then it has facilitating movement of transit traffic between Vishakapatnam Port to Nepal (ICD Birgunj) and providing additional transit facilities. Both the Governments have now operated ECTS mechanism for transit cargo on a pilot basis and discussions are on to make it permanent.

 

The previous trade treaty revised in 1996 can be considered as a turning point in the trade relations between the two countries. Since 1996, Nepal’s exports to India have grown more than eleven times and bilateral trade more than seven times; the bilateral trade that was 29.8% of total external trade of Nepal in year 1995-96 has reached 63.2% in 2016-17.

 

 

1 (a)   External Trade

 

In the Nepalese fiscal year 2017-18, Nepal’s overall exports increased by 11.1% over previous year, to NRs.81.19 billion (US$741.8 million) compared to an increase of 4.2% in the same period of the previous year. Exports to India, China and other countries increased by 12.4%, 43.3% and 7.5% during FY 2017-18. Exports of cardamom, polyester yarn, sackings, zinc sheet, threads, among others, increased whereas export of G.I. pipes, twines, juice, woolen carpet and pashmina, decreased  during FY 2017-18.

 

During Nepalese Financial year 2017-18, Nepal’s merchandise imports increased by 25.5% to Rs.1242.83 billion (US$11.4 billion as compared to an increase of 28% in the same period of the previous year. Imports from India, China and other countries increased 27.8%, 25.5% and 19.3%. Imports of petroleum products, vehicles & spare parts, other machinery & parts, M.S. billet, Hot-rolled Sheet in Coil, among others, increased whereas imports of agriculture equipment & parts, sanitary ware, edible oil, small cardamom and  zinc ingot  decreased during Nepalese FY 2017-18.                                                                                                           

 

 

Total trade deficit during the Nepalese financial year 2017/18 increased by 26.7% to NRs.1161.63 billion (US$10.6 billion) as compared to an expansion of 30.4% to NRs.917.06billion (US$8.9 billion) in the same period of the previous year.

 

The export-import ratio remained at 6.5 during the Nepalese fiscal year 2017-18 as compared to 7.4 in the same period of the previous Nepalese fiscal year 2016-17.

 

1 (b) Bilateral Trade (India - Nepal)

 

Imports

 

The total imports from India during the Nepalese fiscal year 2017-18 amounted to NRs.809.81 billion (INR.50613.3 Crore or US$7.39 billion). About 18.7% (i.e.INR.9497.2 Crore) of these imports were against payment in US dollars and the balance in Indian Rupees.The share of Indian currency in total reserves stood at 23.8% at mid-July 2018.

 

Exports

 

The total exports to India from Nepal during the Nepalese fiscal year 2017-18 amounted to NRs.46.60 billion (INR.2912.8 Crore or US$0.42 billion).

 

Total Bilateral Trade

 

The total trade between the two countries during the Nepalese fiscal year 2017-18 amounted to Nrs.856.41 billion (INRs.53526.20 crore or US$7.82 billion), registering a rise of 26.9% over the previous year.

 

 

1 (c)  Key Macroeconomic Statistics of Nepal.

 

The gross foreign exchange reserves increased 2.1% to Rs.1102.59 billion as at mid July 2018 from Rs.1079.43 billion in mid-July 2017. The share of reserves held by Nepal Rashtra Bank (NRB) increased 6.7% to Rs.989.40 billion as at mid-July 2018 from Rs.927.27 billion a year ago. The share of Indian currency in total reserves stood at 23.8% as at mid-July 2018.

 

The current account deficit showed a marked expansion to NRs.245.22 billion (US$2.3 billion) during the Nepalese financial year 2017-18 with a narrow deficit of Rs.10.13 billion ((US$0.1 billion) as compared to the same period of the previous year. The surge in current account deficits was on account of the elevated level of import of petroleum products, transport equipment and parts, and industrial goods. The overall balance of payments (BOP) recorded a surplus of NRs.960.2 million (US$8.8 billion) in the Nepalese financial year 2017-18 as compared to a surplus of NRs.82.11 billion (US$0.8 billion) in the previous year.

 

During the Nepalese financial year 2017-18, the flow of foreign direct investment (FDI) to Nepal amounted Rs.15.88 billion (US$ 150 million) compared to Rs.12.27 billion (USD 200 million) in the corresponding period of the previous year.

 

2.      Bilateral Framework for Trade

 

The bilateral framework for trade is anchored on the India-Nepal Treaty of Trade and Agreement of Co-operation to Control Unauthorised Trade - 2009. The revised Trade Treaty, valid for seven years, was signed on October 27, 2009 after successful conclusion of bilateral consultations, which began in August 2006. Both Treaties were automatically renewed for a further period of 7 years in October 2016. It has been decided by the two Governments to carry out comprehensive review of the Treaties of Trade and Transit between the two countries.  Review process has commenced since August 2018.

 

The main features of the current Trade Treaty are as follows:

 

·Duty free access to each other’s primary products as per agreed list, which has been expanded in 2009 Treaty.

 

·Nepalese manufactured products are allowed non-reciprocal access to the Indian market, free of basic customs duty, on the basis of Certificate of Origin issued by a Government of Nepal designated authority – FNCCI, if the goods are manufactured in Nepal with Nepalese and/or Indian inputs; or, with at least 30% local value addition, if third country inputs are used; and, involves substantial manufacturing process leading to change in HS classification at four-digit level;

 

·Annual quotas for duty free access in respect of four items – vegetable fats (100,000 tonnes) acrylic yarn (10,000 tonnes), copper products (10,000 tonnes) and zinc oxide (2,500 tonnes);

 

·MFN list of three items – cigarettes, alcohol (excluding beer) and cosmetics with non-Nepalese and non-Indian brands;

 

·Nepalese goods attract Countervailing Duty (CVD) equal to excise duty on similar products in India;

 

·Goods manufactured by small scale units in Nepal enjoy the same benefits as SSIs in India with regard to tax exemption;

 

·The exports and imports of goods not subject to prohibitions or duties are also allowed to move through the traditional routes on common border. (Nepal has established customs stations called Chhoti Bhansars on some of these traditional routes.)

 

The main changes introduced in the 2009 Trade Treaty are as under:

 

·The validity of the Treaty has been increased from five to seven years, along with the provision of automatic extension for further periods of seven years at a time. This will provide more stable framework for bilateral trade and promote investments in Nepal based on preferential access provided by the Treaty to Nepalese products.

 

·No discrimination will be made in respect of tax, including central excise, rebate and other benefits to exports merely on the basis of payment modality and currency of payment of trade. This will bring the bilateral trade conducted in Indian Rupees at par with trade in convertible currency and has ended the existing mechanism of duty refund procedure which was procedurally cumbersome. It has provide Nepal a direct control on the customs duty revenues on import of manufactured goods from India. It also allows Indian exports to avail benefit of export promotion schemes prevailing in India, making these products more competitive in Nepal either for sale or for further value addition.

 

·The time limit for temporary import of machinery and equipment for repair and maintenance has been raised from 3 to 10 years.

 

·Several new items of export interest to Nepal have been added to the list of primary products giving these items duty free access to India without any quantitative restrictions. These include floriculture products, atta, bran, husk, bristles, herbs, stone aggregates, boulders, sand and gravel.

 

·Criterion for calculating value addition for gaining preferential access to India has been changed from ex-factory basis to FOB basis.

·India has agreed to consider waiver, on request from GON, of any additional duty that may be levied over and above CVD.

 

·Both sides have agreed to exempt exports of goods, which are already covered under forward contract, from imposition of restrictions on exports.

 

·Both sides will grant recognition to the sanitary and phyto-sanitary certificates issued by the competent authority of the exporting country based on assessment of their capabilities.

 

·Articles manufactured in Nepal, which do not fulfill the criteria for preferential access will be provided MFN access to the Indian market. The certificate of origin in case of such exports has been prescribed.

 

·The provisions regarding safeguard measures in case of serious injury to the domestic industry have been streamlined.

 

·A joint mechanism, comprising local authorities has been established to resolve problems arising in clearance of perishable goods.

 

·Four additional Land Customs Stations (LCSs) will be established to facilitate bilateral trade: Maheshpur/Thutibari (Nawalparasi); Sikta-Bhiswabazar; Laukha-Thadi; and Guleria/Murtia, bringing the total number of Stations to 26.

 

·For the first time, bilateral trade will be allowed by air through international airports connected by direct flights between Nepal and India (Kathmandu/Delhi, Mumbai, Kolkata and Chennai).

 

·The Indian side has agreed to review and simplify the existing administrative arrangements for operationalization of fixed quota for acrylic yarn, copper products and zinc oxide.

 

·India has agreed to consider several additional products as wholly produced or manufactured in Nepal for the purpose of gaining preferential access to the Indian market. It includes articles collected in Nepal fit only for recovery of raw materials and waste and scrap resulting from manufacturing operations in Nepal. It also includes products taken from seabed/ ocean floor/ sub-soil for which Nepal has exclusive rights under UNCLOS.

 

·India has agreed to assist Nepal to increase its capacity to trade through improvement in technical standards, quarantine and testing facilities and related human resource capacities.

 

·Bilateral trade takes place either in Indian rupees or convertible currency. Nepal's central bank (Nepal Rashtra Bank) maintains a list of items that can be imported from India in convertible currency. Currently, 135 items are in the list. Since 1993, the Nepal Rastra Bank maintains a fixed exchange rate with Indian Rupee (1 INR = 1.6 NPR).

 

3. Bilateral Framework for Transit of Nepal bound Cargo

 

·India and Nepal have a Treaty of Transit, which confers transit rights through each other’s territory through mutually agreed routes and modalities. Two Governments have completed the review of the Protocol and Memorandum to the Treaty of Transit in accordance with article XI of the Treaty. Following the review the treaty signed on 6th January 1999 and subsequently extended for a period of seven years up to 6th January 2006 and in force until 5th January, 2013, is extended for a period of seven years until 5th January 2020 without any changes to the existing treaty. The key features are : India offers 22 transit routes from Kolkata/Haldia to Nepal for its third country trade.

 

·Goods can move by road or rail. The creation of ICD in Birgunj and extension of railway line from Raxaul to Birgunj has facilitated direct movement of goods in transit by rail to Nepal.

 

·A simple customs procedure has been put in place for Nepal’s third country traffic.

 

·Since 1993, India also allows movement of goods from one part of Nepal to another through a simple process of customs undertaking. Nepal has agreed to extend similar facility to India in the course of renewal of the transit treaty in March 2006.

 

·India has extended Nepal direct transit routes to Bangladesh for bilateral and third country traffic. One road route and one rail route have been notified. The road route is through Kakarbitta-Panitanki-Phulbari-Banglabandha corridor. The rail route is through Radhikapur-Birol interchange point on India - Bangladesh border.

 

· India and Nepal signed a Rail Services Agreement (RSA) in May 2004, to extend cargo train service to the Inland Container Depot (ICD) at Birgunj in Nepal. A Container Corporation of India-led joint venture is operating the ICD. The RSA was modified in December 2008 to allow oil/ liquid traffic in tank wagons and bilateral break-bulk cargo in flat wagons.

 

4. High Level Monitoring Mechanism

 

·A high level Inter- Governmental Committee (IGC) meeting on trade, transit and cooperation to Control Unauthorised Trade between India and Nepal of the senior Government officers of India and Nepal is held on regular intervals. The IGC meeting provides a regular platform for review of implementation of past trade and transit agreements besides discussing new measures to facilitate bilateral trade and investment. It is a platform to discuss and resolve issues relating to bilateral trade between India and Nepal, transit facilities provided by India to Nepal to facilitate trade with third countries, investment promotion, improvement of infrastructure at land customs stations, day-to-day problems in regulation of Nepalese traffic-in-transit, issues related to Indian investment in Nepal, etc. The 4th meeting of the IGC/IGSC was held at Kathmandu, Nepal on 26-27 April 2018.

 

5. Bilateral Framework for Investment

 

·Bilateral Investment Protection and Promotion Agreement (BIPPA) was signed on 21st October 2011 during the visit of Hon'ble Baburam Bhattarai, Prime Minister of Nepal to India. A model Bilateral Investment Treaty (BIT) is being discussed between the two countries.  It will replace BIPPA.

 

·India and Nepal signed a Double Taxation Avoidance Agreement (DTAA) on 27th  November 2011 in Kathmandu during the visit of Finance Minister Shri Pranab Mukherjee of India to Kathmandu.  With the signing of this agreement, bilateral trade and investment from India has got a boost.

 

6. Sector Specific Agreement/MoUs

 

·Air Services Agreement to facilitate air traffic between India and Nepal was signed on 16th February 2010.

 

·Government of India supported Lines of Credit extended by the Export Import Bank of India to Government of Nepal. GOI has agreed to provide four lines of credit to the Government of Nepal for US$ 100 million, US$ 250 mn, US$ 550 mn and US$ 750 mn. These lines of credit were signed in June 2006, September 2007 and September 2016, for execution of infrastructure development projects and post-earthquake re-construction projects as prioritized by Government of Nepal. Approximately US$ 1 billion out of the four line of credit have been committed/disbursed.  Discussions are on-going to utilize the remaining amounts.

 

·During the visit of Hon’ble Prime Minister of India in November, 2014, an MOU on Cooperation in the Field of Traditional Systems of Medicine was signed between GoI and GoN. There exists substantial potential for cooperation between India and Nepal in the field of traditional medicine especially in production/manufacture of Ayurvedic medicines, research centres and better utilization of herbs.

 

·Bilateral cooperation in the power sector got a tremendous boost with the visit of Prime Minister of India to Nepal in August 2014 which saw signing of the Agreement on “Electric Power Trade, Cross-Border Transmission Interconnection and Grid Connectivity" popularly known as Power Trade Agreement (PTA). This agreement has strengthened cross-border electricity transmission, grid connectivity and power trade between Nepal and India. The agreement has provided a framework for imports, by Indian entities, of surplus power generated from future hydroelectric plants in Nepal, on mutually acceptable terms and conditions.

 

·A Memorandum of Understanding (MoU) on Cooperation in the field of Tourism was signed on 25th Nov, 2014 in Kathmandu between the Ministry of Tourism, Government of India and the Government of Nepal, to enhance bilateral co-operation in the field of tourism and hospitality sector as well as to strengthen the ties of existing friendship between India and Nepal.  Signing of the MoU between the two countries would go a long way to deepen and broaden cooperation in the field of tourism and also promote cooperation and direct communication between the stake holders of tourism and hospitality industry for enhancing tourism cooperation and strengthening economic development and employment generation.

 

·An Agreement between the Bureau of Indian Standards, Ministry of Consumer Affairs, Food and Public Distribution of the Republic of India and Nepal Bureau of Standards and Metrology, Ministry of Industry of Nepal on Cooperation in the field of Standardization and Conformity Assessment was signed on 24 August 2017 to facilitate trade of goods and services with respect to services in Standardization and Conformity Assessment, and in order to facilitate the market access in their territories aiming to facilitate the acceptance of Inspection Reports and Test Reports to eliminate technical barriers to trade.

 

 

.7. Flagship Projects

 

·Arun III Project (900 MW) between Satluj Jal Vidyut Nigam Limited and Investment Board of Nepal was concluded in November 2014 for development of 900 MW of electricity. The foundation stone of the Project was laid by the two Prime Ministers during the visit of Prime Minister of India to Nepal in May 2018.  Since then, the construction of the Project has begun in full swing.  All major contract packages have been awarded.  Civil work is ongoing and Project has reached 15% completion target.  It has received Generation and Transmission Licenses and has almost achieved Financial Closure.

 

·The Raxaul-Amlekhgunj across border petroleum pipeline project is a 41 kilometer pipeline aimed to transport petroleum products from India to Nepal.  The project aims to connect Indian Oil Corporation’s regional depot at the bordering Indian city of Raxaul with Nepal’s biggest fuel storage based in Amlekhgunj. The project gathered momentum since one of the decisions taken during the Prime Minister’s visit to Nepal in August 2014, was the construction of the Raxaul-Amlekhganj Product Pipeline. An inter-governmental MOU was signed on 24 August 2015. Indian Oil Corporation and Nepal Oil Corporation also signed an MOU on 25 August 2015. The pipeline construction is nearing completion.

 

·The 1996 Mahakali Treaty between India and Nepal provides for the implementation of the Pancheshwar Multi-purpose Project. The project, conceived as a peaking power project, will have 5600 MW of installed capacity and create irrigation potential for 130,000 hectares in Nepal and 240,000 hectares in India.

 

·India has provided an assistance of NRs. 167.62 million towards river training and construction of embankments along Lalbakeya, Bagmati and Kamla rivers in Nepal. The river training and embankment works in the Lalbakeya, Bagmati and Kamla rivers in Nepal aimed at flood control and water resources management, which benefit several million people inhabiting in the watershed of these rivers in India and Nepal. With the NRs. 167.62 million, the Government of India has so far given 14 installments since 2008 to Nepal for the river training and embankment works totaling to over NRs. 4.85 billion. India remains committed to continue working closely with Nepal for further cooperation in the field of river training, flood control and water resources management in these and other rivers.

 

In the recent meeting of Joint Standing Technical Committee on Water Resources held in January 2019, Government of India has agreed to support the river training works in three more rivers i.e. Khando, West Rapti and Banganga, under the Joint Committee on Inundation and Flood Management (JCIFM) framework.

 

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