India Nepal Trade

Today our assistance programme has its imprints in nearly all districts of Nepal, with over 400 projects under implementation having an outlay of more than NRs. 60 billion.<br><EM>RAKESH SOOD</EM>

March 28, 2011, 5:45 p.m. Published in Magazine Issue: Vol. : 04 No.-19 Mar.25-2011 (Chaitra 11,2067)

NICCI has made an important contribution in advancing India-Nepal trade and economic relations. Its 16 year old history parallels the continuing growth and diversification in India-Nepal commercial relations.

Nepal and India, despite their differences in size and population are closely linked together by history and geography, cultural and religious ties, commercial and economic linkages and extensive people to people contacts. The two countries share a unique relationship, built on the foundation of mutual trust and friendship and desire for peace and stability in South Asia.

This relationship, characterized by open border and free movement of their people, was forged not after 1947 but much earlier. It is time tested and has proved to be mutually beneficial. It has thrown open opportunities for Nepalese people to study and work in India and for Indian entrepreneurs to explore economic opportunities in Nepal.

While I speak about the special relationship, I should add that with the special relationship come special responsibilities; whether it is in terms of mutual assistance or addressing mutual concerns.  We are conscious of this fact. Since India’s Independence, we have extended extensive economic assistance to Nepal; we have granted Nepal special privileges in trade and commerce; and perhaps no other land-locked country in the world enjoys the same kind of transit facilities that have been provided by India to Nepal. 

In the past few years, we have significantly expanded our economic cooperation programme with special emphasis on improvement of socio-economic and trade related infrastructure. Today our assistance programme has its imprints in nearly all districts of Nepal, with over 400 projects under implementation having an outlay of more than NRs. 60 billion. In the last five years, our capacity building programme has benefitted over 9000 Nepali citizens, in government and in the private sector and students pursuing higher education. The concessional lines of credit of USD 350 million offered by India to the Government of Nepal will further augment our efforts to create development infrastructure.

Indian investors have also played a key role in the economic development in Nepal. They account for nearly 45 % of Nepal’s foreign direct investment. They have brought in new technologies and management skills; they have made a significant contribution in terms of revenues to the exchequer, import substitution, promoted Nepal’s exports to India and provided direct employment to around 30000 Nepali citizens and indirect employment to more than twice that number.

I also applaud the contribution made by the Indian and Nepalese businessmen who are engaged in the bilateral trade between the two countries. Our trade relations have recorded new heights with the bilateral trade doubling in the last five years. This year the bilateral trade is expected to cross US$ 4 billion. This was made possible by the landmark trade treaty signed in 1996, which bestowed preferential treatment for the Nepalese goods at par with the Indian producers. Transit of Nepalese goods was made easier with opening of new bilateral and transit routes. The main objective behind it was to create an enabling environment for Nepal’s industrial and economic development.

Regrettably, what we have witnessed in the last decade is a deteriorating investment climate, sagging industrial confidence and departure of some of the Indian investors.  Outstanding issues relating to some of the existing investments continue to hamper new investments. We also come across unsubstantiated media reports against Indian joint ventures in Nepal and in recent months some Indian companies have reported that they were being adversely discriminated in the public procurement. These combined factors are creating a negative perception among Indian companies about Nepal. Today, when Indian companies are actively pursuing investment opportunities across the globe and have committed US$ 70 billion abroad in last 5 years, it is a sad reflection that no new major Indian investment has come to Nepal since 2003. 

We continue to receive reports that the freedom of transit accorded to Nepal is being misused by some unscrupulous elements to divert goods into India either on the way or after it reaches Nepal. This was discussed at the recently held India-Nepal Inter Governmental Sub-Committee meeting on trade and transit issues.  We have urged the Government of Nepal to check such diversion of third country goods from Nepal to India by taking effective policy and administrative measures. In respect of diversion of goods into India during their transit, the Indian side proposed affixation of an additional one time lock by Indian Customs, which is intended to facilitate Nepal’s transit trade. The necessary support from Government of Nepal in addressing these challenges would give confidence to the Indian authorities not to constrain or diminish the existing facilities enjoyed by Nepal.

My attention has been also drawn to the rampant practice of copying of popular Indian brands and trademarks by some unscrupulous Nepalese manufacturers with the intention of exploiting Indian brand reputation. Such infringement will neither help Nepal trade with India nor meet its external trade objectives, but it will certainly create doubts in the minds of the Indian business about the legal framework in Nepal on protection of intellectual property.

While India has been further widening the scope of privileges offered to Nepal as could be witnessed in the 2009 Trade Treaty, the last decade has seen a significant erosion of margin of preference given by Government of Nepal on import of goods from India. This not only puts a question mark on our bilateral trading arrangement, but it is also hampering economic growth in Nepal by adding to inflation and making the critical inputs costlier.

I am convinced that the extensive privileges, facilities and assistance extended by India to Nepal, coupled with India’s own economic growth and a market of 1.2 billion people, have a huge potential, to act as a catalyst for driving Nepalese economy towards high growth if these efforts are complemented by the Government of Nepal through renewed commitment, determination and firmness for improving the investment and business climate in Nepal. I can assure you that Government and people of India would not be found wanting in extending whatever help Nepal may require in this endeavour.

In this context, NICCI has an important role to play. Its members have a direct stake in nurturing the special relationship existing between the two countries and have benefitted from the special privileges offered by India to Nepal both in terms of trade and investments. Today, there is a need as well as opportunity for an organization like NICCI to come centre-stage and take initiatives to supplement the governments’ efforts in further strengthening trade, investment and economic relations between the two countries with increased vigour. I am glad that NICCI is already taking active steps in that direction. The involvement of the India-Nepal joint ventures to take a leading role in the working of the organization will go a long way in building investor confidence and further motivating such partnerships. This will also allow the Chamber to more effectively understand the problems faced by the Indian investors and facilitate their redressal.

Another area, where I feel, NICCI needs to focus is strengthening its permanent secretariat, becoming more inclusive and expanding its reach to all important trade and industrial centers in Nepal. In that direction, we are ready to work closely with NICCI in organizing B to B interactions, in conducting studies to investigate and evaluate emerging opportunities, dissemination of information, and participation in trade fairs and exhibitions and other business promotion activities. There is an urgent need to think about investment in areas where Nepal has a competitive edge. I am glad that NICCI has already taken an initiative to prepare a guide for Indian investors. This should become an important reference manual for any Indian company that is exploring investment opportunities in Nepal.
Sood is Indian Ambassador to Nepal. Excerpts of Ambassador’s address at the Annual General Meeting of Nepal-India Chamber of Commerce & Industry (NICCI) on March 15, 2011

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