About Us About Trade and Commerce

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, 36% of foreign direct investments, almost 100% of petroleum supplies, and a significant share of inward remittances on account of pensioners and workers.

Merchandise Trade

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

In IRs crores

Nepal’s: Year Growth in %  
2014-15 2015-16 2016-17 2014-15 2015-16   2016-17
Total Export 5332.4 4382.3 4565.5 -5.5 -17.8 4.2
Export to India 3491.5 2468.3 2590.5 -5.9 -29.3 5.0
Total Import 48417.7 48349.9 61882.0 9.3 -0.1 28.0
Import from India 30728.4 29825.7 39604.3 4 -2.9 32.8
Total Trade 53750.1 52732.2 66447.6 7.9 -1.8 26.0
Total trade with India 34220 32294.1 42194.9 2.8 -5.6 30.7
Total Trade Balance -43085.3 -43967.6 -57316..5 11.4 2 30.4
Trade Balance with India -27236.9 -27357.4 37013.7 5.4 0.4 35.3


In US$ million

Nepal’s: Year  

Growth in %

2014-15 2015-16 2016-17 2014-15 2015-16 2016-17
Total Export 838.5 659.3 687.7 -8.7 -21.3 4.2
Export to India 549 371.3 390.2 -9.2 -32.3 5.0
Total Import 7613.6 7274 9322.2 5.4 -4.4 28.0
Import from India 4831.9 4487.1 5922.1 0.3 -7.1 32.8
Total Trade 8452.1 7933.3 10010.0 3.8 -6.1 26.0
Total trade with India 5381.0 4858.3 6356.4 -0.6 -9.7 30.7
Total Trade Balance 6775 6614.7 -8634.4 7.5 -2.3 30.4
Trade Balance with India 4282.9 4115.8 -5575.9 1.7 -3.9 35.3
  
(in % age)

India’s share: in Nepal’s 01-02 03-04 05-06 07-08 09-10 11-12 13-14 14-15 15-16 16-17
Export 59.6 57.1 67.6 65.1 65.8 66.8 65.8 65.5 56.3 56.7
Import 41.1 57.8 61.7 64.2 58 64.8 66.7 63.5 61.7 64.0
Total trade 46.7 57.6 63.2 64.3 59.1 65.1 66.6 63.7 61.2 63.5
Trade Balance 26.7 58.2 58.5 63.8 56.5 64.5 66.8 63.2 62.2 64.6

During the early 1970s, India absorbed almost all of Nepal’s exports and accounted for nearly 90% of Nepal’s imports. A conscious Nepalese policy of trade diversification saw India’s share in Nepal’s foreign trade drop below 30% by mid-1990s.  The 1996 trade treaty, combined with India’s rapid economic growth and industrial transformation in the 1990s as also monetary integration through the fixed exchange rate (INR 1= NRS 1.6) since 1993, has helped reverse the trend.

Nepal’s transit trade is routed through twentytwodesignated routes from India-Nepal border to the port of Kolkata/Haldia. 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.

LoE on Operationalisation of Vishakhapatnam Port (Amendment in the Treaty of Transit) for traffic-in-transit between Vishakhapatnam Port and Nepal signed in February 2016 during the visit of Prime Minister of Nepal to India. It will Facilitates movement of transit traffic between Vishakapatnam Port to Nepal (ICD Birgunj) and provide additional transit facilities. LoE was signed in February 2016 during the visit of Prime Minister of Nepal to India for operationalisation of traffic-in-transit through rail transport to and from Vishakpatnam port (Amendment to Rail Service Agreement).  It will provide additional transit facilities through the port of Vishakapatnam.

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.

Bilateral trade

  • The bilateral trade grew from IRs.1,755 crores in 1995-96 to IRs.42194.9 Crores (US$ 6.35 billion) in 2016-17.Exports from Nepal to India increased from IRs. 230 crores in 1995-96 to  IRs. 2590.5 crores (US$ 390 million) in 2016-17 and India’s exports to Nepal increased from IRs.1,525 crores in 1995-96 to IRs.39604.3 crores (US$ 5.96 billion) in 2016-17.
  • Nepal’s exports to India (2016-17) increased 5.0% to Rs.390.25 million compared to a drop of 29.3% (2015-16. Commodity wise, exports of juice, oil cakes, jutes goods, handicrafts, noodles increased, whereas export of woolen carpet, cardamom, readymade garments, polyester yarn and tea decreased during the FY 2016/17.

Nepal’s imports from India increased by 32.8% amounting to NRs.633.66 billion (IRs.39604.3 crores or US$ 5.96 billion) during 2016-17. Commodity wise, imports of petroleum products, vehicles & spare parts, M.S. billet, Other Machinery & parts, cement, Rice, Medicine, Hot rolled Sheet in coil, Agri equipment and electrical equipment have increased.

  • Total trade deficit during the fiscal year 2016/17 widened by 34% to Rs.917.00 billion compared to drop of 2.0% in the same period of the previous year. The export-import ratio declined to 6.5% during the fiscal year 2016/17 to 8.3% in the corresponding period of the previous year.
  • The total imports from India during the fiscal year 2016-17 amounted to 633.66 billion (IRs.39604.3.75 Crores or US$ 5.96 billion). About 14.9% (i.e. IRs.5937.6 Crores) of these imports were against payment in US dollars and the balance in Indian rupees. Imports from India increased by 28%, as compared to decrease of 0.1 % in the same period of previous year.
  • The total trade between the two countries during the 2016-17 amounted to NRs.675.11 billion (IRS 42194.9 Crore or US$ 6.35 billion), registering a rise of 30.7% over the previous year(2015-16). Nepal imported goods worth 633.66 billion, while it exported commodities worth Rs.41.4 billion during 2016-17. Import from India during the FY 2016-17 is 32.8% higher compared to import figures of the same period (2015-16).
  • The gross foreign exchange reserves increased 3.9%t to Rs.1079.52 billion as at mid-June 2017 from Rs.1039.21 billion in mid-July 2016. The total foreign exchange, reserves held by NRB increased 4.5% to Rs.927.27 billion as at mid-June 2017 from Rs.887.01 billion as at mid-July 2016. The share of Indian currency in total reserve stood at 23.3%, during the fiscal year 2016-17
  • The overall BOP recorded a surplus of Rs.82.15 billion during the fiscal year 2016-17 compared to a surplus of Rs.188.95 billion in the same period of the previous year.

Bilateral Framework

The bilateral framework for trade is provided by the India-Nepal Treaty of Trade and Agreement of Co-operation to Control Unauthorised Trade - 2009. A new 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 renewed  for a further period of 7 years in October 2016.   

The main features of the previous Trade Treaty retained in the 2009 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 GoN 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. [This change has came into effect from 1st March 2012]
  • 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.
  • An Inter-Governmental Sub-Committee (IGSC) at the joint secretary-level has been established. Existing Inter-Governmental Committee (IGC) at the Secretary level will meet once in six months and the IGSC will meet at the interval of the two IGC meetings.
  • 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 operationalisation 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).
  • 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   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.
  • A high level Inter- Governmental Committee (IGC) meeting on trade, transit and cooperation to Control Unauthorised Trade between India and Nepalof 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 3rd meeting of the IGC was held at New Delhi, India on 28-29 June 2016. The Indian delegation was led by Ms. Rita Teaotia, Commerce Secretary, Government of India while the Nepalese delegation was led by Mr. Naindra Prasad Upadhaya, Commerce Secretary, Government of Nepal.
  • 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.
  • 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. Once the Bilateral Investment Promotion and Protection Agreement (BIPPA) is ratified it  would give further encouragement to investors.
  • 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.
  • India and Nepal have signed the following Letters of Exchange (LOE) to facilitate traffic in transit: 
    LOE on ‘Amendment to the Protocol to the Treaty of Transit between Nepal and lndia for the Movement of vehicles’ on its own - signed in May 2015.
  • LOE on ‘Movement of traffic in transit carrying third country originated good via Indian transit routes’ - signed in January 2014. 
  • LOE on ‘Operationalization of traffic-in transit through rail transport o/from Vishakapatnam Port (Amendment in Rail Service Agreement)’ - signed and exchanged in February 2016, during the visit of the Prime Minister K.P. Oli to India.
  • LOE on ‘Operationalization of Rail transit facility though Singhabad for Nepal’s trade with Bangladesh.’ signed and exchanged in February 2016. during the visit of the Prime Minister K.P. Oli to India.
    LOE on ‘Simplification of Modalities for Traffic-in-transit between Nepal and Bangladesh through Kakarbhita-Banglabandh Corridor.’- signed and exchanged in February 2016, during the visit of the Prime Minister K.P. Oli to India.
  • LOE on operationalisation of traffic-in-transit between Vishapatnam Port and Nepal (Amendment in Treaty of Transit) - signed and exchanged in February 2016, during the visit of the Prime Minister K.P. Oli to India.
  • 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 GON.
  • The projects approved for implementation under the LoC US$ 100 mn  are 17 projects valued at  US$ 93.64 mn  which include  road development projects, rehabilitation of Hydro Power Projects (HEP), cross-border transmission line and rural electrification projects. An amount of US$ 65.34 mn has been disbursed so far under this LoC.. The projects approved for implementation under the LoC US$ 250 mn are 22 projects which include road development projects, Hydro Power projects and transmission line projects valued at US$ 98.91 mn  and disbursed amount is US $ 16.25 mn.  Under the LoC for US $ 550 mn projects for an amount of US$ 530 mn have been identified.
  • 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 sector got a tremendous boost with the visit of Hon’ble Prime Minister Narendra Modi to Nepal in August 2014 which expedited signing of the Agreement on “Electric Power Trade, Cross-Border Transmission Interconnection and Grid Connectivity" popularly known as Power Trade Agreement (PTA) on 21st October, 2014 at Kathmandu between the Power Secretary, Government of India, and Energy Secretary, Government of Nepal. The agreement will facilitate and further strengthen cross-border electricity transmission, grid connectivity and power trade between Nepal and India. The agreement will also provide a framework for imports, by Indian entities, of surplus power generated from future hydroelectric plants in Nepal, on mutually acceptable terms and conditions.  The modalities for PTAs implementation would be jointly worked out.
  • 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 IOC’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. IOC and NOC also signed an MOU on 25 August 2015.
  • 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. The Pancheshwar Development Authority for implementation of the Pancheshwar Multipurpose Project has been constituted.  The Pancheshwar project was languishing since 1996. The visit by honourable Prime Minister of India Shri Narendra Modi to Nepal in 2014 revived the project with commitment for faster implementation.
  • The Pancheshwar Multi-Purpose project is the largest that has been undertaken so far between India and Nepal and its successful implementation is essential not only for the tremendous benefits that the project offers for both countries but also to create a climate of mutual trust between Indian and Nepal.
  • Project Development Agreement (PDA) for 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.
  • Project Development Agreement (PDA) for the construction of the Upper Karnali Hydro Power project 
    (900 MW) was signed between GMR and the Government of Nepal in September 2014  for development of 
    900 MW of electricity.
  • Investment of USD 2.5 billion will come to Nepal through the two projects of Arun III and Upper Karnali HEP.  These projects are export-oriented and are expected to supply electricity to India based on the Power Purchase/Sale Agreement that they conclude with Indian agencies.
  • 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.
  • During the recent visit of Hon’ble Prime Minister of India in November, 2014, a Memorandum of Understanding on Cooperation in the Field of Traditional Systems of Medicine was signed between GoI and GoN.