Trade gap widening due to lack of government support to promote domestic products
KATHMANDU, SEPTEMBER 21
Nepal's total exports slumped 21.4 per cent to Rs 157.14 billion in the last fiscal year compared to a surge of 41.7 per cent to an all-time high of Rs 200.03 billion in the fiscal year 2021-22. The country's exports continued to contract in the first month of the current fiscal year, with a drop of 8.7 per cent to Rs 13.53 billion compared to the same month of last fiscal.
According to traders, although the country has huge export potential, lack of government's effort to promote domestic products has resulted widening trade imbalances.
Also, importing raw materials from abroad and exporting finished products instead of focusing on local production has made Nepal an import-dependent country, they say.
"Although the related policies in place look positive in boosting exports, the government has yet to walk the talk.
Reliance on imported raw materials, ineffective implementation of export promotion measures, higher production and logistic costs, and government apathy over illegal trade activities have affected the country's export prospects," Resham Bahadur Pokhrel,president of Export Council of Nepal, said.
In addition, changes in trade policies of Nepal's neighbours have added to the growing issues, traders say "For example, changes in the trade policy of India have recently dented the exports of refined edible oils, which were one the highest exported commodities in recent years," Pokhrel told THT.
In the last fiscal year, exports of refined palm, soybean, and sunflower oil dropped 50.1 per cent, 82.4 per cent, and 90.2 per cent respectively amounting to a total of just Rs 29 billion.
Previously, refined palm oil worth Rs 41 billion, refined soybean oil worth Rs 48 billion, and refined sunflower oil worth Rs 4.51 billion had been exported out of the country, according to data maintained by the Department of Customs (DoC).
According to traders, the export of the three refined edible oils dropped heavily after Nepal's southern neighbour revised its policy on the import of raw materials and finished products of these oils. A provision in the South Asian Free Trade Area (SAFTA) allowed Nepali traders to export edible oils to India with zero tariffs on goods exported from thecountry. However, as per the revised rule, India has reduced the customs duty on the import of palm and soybean oils from other countries to five per cent, reducing traders' demand for Nepali oils and reducing revenue for the government as well.
Also, the lack of financing and tax exemptions for exports has discouraged exporters.
"Although the government has decided to provide cash incentives for the production of agriculture products and herbs among other products, exporters have not been able to benefit from the provision. At the same time, loans disbursed for agricultural purposes have been invested elsewhere which has not helped increase domestic production. As a result, Nepal has to import billions of rupees worth of agricultural products every month despite being an agrarian country," he added.
According to Deepak Kumar Poudyal, general secretary of the Association of Nepalese Rice, Oil and Pulses Industry, around 5.5 million metric tonnes of paddy is produced in the country, and an additional one million metric tonne is imported from India to fulfil the market's demands.
"Although India has imposed a ban on the export ofnon-basmati rice since July 20, imports of other types of rice have not stopped," he said, adding that the country has enough stock to last three months.
According to DoC, Nepal imported paddy worth Rs 2.77 billion, basmati rice worth Rs 520 million, and other rice worth Rs 967 million in the first month of the current fiscal year. Overall, the import of grains increased by 94.7 per cent and reached seven billion rupees in the review period.
Pokhrel also shared that the export of the country's agricul-tural produce has not increased due to lack of mass farming practices, and a reliable chain for farmers' produce to reach exporters.
"Most of the country's production, including agricultural products like cardamom, ginger, etcetera, are exported to India as exporting them to third countries results in higher freight charges. Also, as mass farming of such products is not done in the country, many of the products do not reach the market or the exporters on time and have to be exported at lower prices," he added.
Lack of raw materials and high costs of logistics have further added to challenges for exporters. "Our production cost is around 20 per cent higher compared to India, without adding logistics costs.
When transporting the products via road to Kolkata, the cost amounts to around $2,200 per container. Also, trading has increased instead of production.
The lack of production-based industries has hampered the country's trade balances," Pokhrel shared.
Meanwhile, Dilli Ram Pokhrel, information officer for Nepal Rastra Bank, shared that the increase in both exports and imports in the fiscal year 2021-22 might have affected trade activities in the last fiscal year and the first month of the current fiscal year. However, it is not sure if the activities will follow a similar pattern throughout the year.
"Trade activities decreased in the last fiscal year following the increased activity in the previous year, a surge of issues and challenges in the external sector, and tightening of monetary policy. Meanwhile, export activities continued to fluctuate and remained at around Rs 12 billion per month. With decreased imports, some correction was seen in the trade deficit. The country's trade imbalances could be lowered further by decreasing imports while expanding export activities and increasing domestic production, but we have not seen much improvement in that sector. Export and imports were both down in the previous year as a result of the uptick in activities in the fiscal year 2021-22 and measures taken by the NRB. As a result, the current account recorded a surplus of Rs 12.99 billion. Although trade activities were still low in the first month of the current fiscal, they are likely to increase soon," he said.
A version of this article appears in the print on September 22, 2023, of The Himalayan Times
