By Ashwini kumar

Economic Liberalization in India

New industrial policy , 1991

Abolition of MRTP act

Setting up of SEBI

Investment by FII

Establishment of Policy regimes for the functioning of NBFC’s and agencies for

rating their credit worthiness

Economic Liberalization in Nepal

Nepal opened up its economy in early 1990’s with the adoption of economic reform

package

The bilateral treaty signed with India in 1996 supported the trade reform program of

Nepal

Financial reforms were also carried out to support trade and industrial reforms

Nepal’s Accession to World Trade Organization (WTO)

Comprehensive Economic Reform Program, 2002

Trade Policies of Nepal

The role of public sector will be minimized

Improve balance of payments position

Production of quality goods and services through effective and appropriate

utilization of economic resources.

Public sector trading corporations will gradually be privatized taking into

considerations the development and efficiency of the private sector.

Institutional development for the promotion of foreign trade

Modernizing management and technology

Export Policies of Nepal

Production and quality of exportable products to make them competitive in the

international market

Increase and diversify exports of goods and services

More emphasis on the export of profitable but processed and finished products

Export of hydro-electricity on a profitable basis

Export promotion will be provided on an institutionalized basis

Indo-Nepal Economic Relations

India was the most important donor to Nepal in the early decades after the

independence of India.

Areas of economic relation were mainly confined to the basic infrastructure.

The number of aided projects gradually declined after 1985.

Indian assistance to Nepal has increased over the years since Liberalization.

Formation of High Level Task Force (HLTF)

Indo-Nepal Trade Relations

Kautilya (400 B.C.), great economist of that time, mentions Nepal as the principal

exporter of woolen goods.

Imports and exports of goods between India and British India would be subject to

2.25 per cent customs duty according to 7-clause treaty proposed by East India

Company.

In the early days, foreign trade of Nepal was limited mainly with India and Tibet.

The development of good transportation system and the creation of many trade

centers in the northern India further helped to enhance the trade turnover between

Nepal and India.

(Historical Perspective)

Foreign Trade Structure: Till Early 1990s

Nepal’s exports to India comprised of 98.7 per cent of the total exports since

1956/57 to1970/71.

The export share of Nepal’s exports to India came down to 75.4 % in 1975/76, 40 %

in 1985/86, 21 % in 1990/91and 9.6% in 1992/93.

The percentage of exports to India in total trade decreased from 36.1 to 11.6 in

1992/93 but later it was reversed.

Foreign Trade Direction : 1990s Onwards

The total foreign trade increased except 2001/02.

The proportionate share of the Nepalese export to India was 16.3 percent for the

period of 1991/92 to 1996/97.

The share of export to India significantly increased and reached 43.6 per cent in the

period of 1997/98 to 2001/02.

The average annual import from India increased from 31.8 percent in 1991/92 to

1996/97 to 37.5 percent in 1997/98 to 2001/02 of the total import of Nepal due to

Treaty of Trade 1996.

Major Export Trade Partners of Nepal (%)

Countries 2001-02 2002-03 2003-04 2004-05 2005-06

India 59.0 52.9 57.0 66.6 68.3

U.S.A 19.8 25.4 18.0 13.0 11.6

Germany 8.5 7.1 6.6 5.3 4.7

France 1.0 0.9 1.1 1.1 2.2

U.K 1.7 2.1 3.1 1.8 2.0

Italy 1.2 1.1 1.1 1.0 1.2

Canada 0.6 0.8 1.0 0.9 1.1

Japan 1.0 0.9 1.0 0.9 1.0

Bhutan 0.1 0.1 0.1 0.3 0.4

Bangladesh 0.5 0.8 0.8 0.5 0.4

Thailand 0.1 0.2 0.2 0.1 0.1

Source: Trade Promotion Centre

Direction of Nepal’s Foreign Trade (%)

Fiscal Year Exports to India Import from India

1960-61 99.8 94.2

1995-96 18.5 32.8

2001-02 59.5 41.1

2005-06 68.3 67.1

Source: Trade Promotion Centre

Nepal-India Trade Treaties

Treaty of Peace and Friendship in 1950

Treaty of Trade and Commerce in 1950

Indo-Nepal Treaty of Trade 1991

Agreement of Cooperation to Control Unauthorized Trade. 1991

Revision in Indo-Nepal Trade Treaty, 1991 and Treaty of Transit, 1991

Contd…

Indo-Nepal Trade Treaty, 1996

Agreement of Cooperation to Control Unauthorized Trade, 1996

Treaty of Transit: Modifications in 1996

Treaty of Transit, 1999

Indo-Nepal Treaty of Trade, 2002

Renewal of treaty

India is Nepal’s largest economic partner and accounts for more than 40% of its trade. India has suggested some changes in the treaty, which are as follows: -

Curb the import of Nepali hydrogenated cooking oil, acrylic yarn, copper wires, steel pipes and zinc oxide as this is hurting domestic production

India has complained about cheap Chinese goods entering India through Nepal, a charge that Nepal denies.

Areas of disputes

Security concerns: - New Delhi is concerned about the use of Nepali soil by the Pakistani agency ISI for subversion activities in India.

Boundary dispute:- The Boundary Committee to prepare ‘Strip Maps’ of the boundary areas.

The treaty of 1950:- Nepal is keen on reviewing some of the security clauses of the 1950 treaty.

Extremist activities :- India and Nepal have decided to intensify the crackdown on cross-border terrorist.

Water dispute: - It was decided to complete the detailed project report on the construction of the 6000 MW Pancheswar Dam on the Mahakali River.

Cont……

Trade Dispute:- Both the Prime Minister directed that the Inter- Governmental Committee on trade and transit and unauthorized trade, headed by the Commerce Secretaries of the two Governments, be convened soon to address certain issues in a constructive manner.

An agreement on science and technology was also finalized. The two Prime minister agreed that the large hydro-electric potential needed to be tapped in an environmentally sustainable manner on both side of the border.

Problems

Trade imbalance

Inadequate market

Frequent revision in duties and rules

Administrative and Procedural Complications and delays

Unauthorized trade

Understanding and Good faith

Prospects

Hydroelectric power

Tourism industry

Education and Training

Mineral exploration and exploitation

Information and Communication technology

Foreign Direct Investment in Nepal

Privatization of State-owned Enterprises (SOEs) in Nepal

Investment Environment in India

Thank You