Though the government claims to have introduced policies to substitute imports by promoting exports, the country’s trade deficit has been constantly ballooning. As per government’s statistics, Nepal’s trade deficit jumped by almost 22 per cent to Rs 991 billion in the first nine months of the ongoing fiscal year, thereby reflecting the ineffectiveness of policies that are in place to address contemporary trade issues. Against this backdrop, Sujan Dhungana of The Himalayan Times talked to Kedar Bahadur Adhikari, secretary at the Ministry of Industry, Commerce and Supplies, to know the details. Excerpts:
What is your evaluation of the current trade scenario of the country?
We all know that Nepal’s imports are much higher than its exports. Though exports are growing gradually, imports are increasing at a higher pace and this shows the need to further capitalise on our export potential. Among others, import of petroleum products and machinery and raw materials required in the construction sector has boosted the import figures. Thus, the government is currently focused on ways to raise the production base of the country and explore export potential of different goods. Along with this, the government is also serious about addressing various export hurdles that Nepali goods have been facing in different foreign markets. The government recently raised import duty on 19 different products through the budget and expressed its commitment to promote domestic production. Similarly, the budget has ensured at least one level of gap in the import tax for raw materials and finished products. On the export front, the government is also providing export incentives to different products and is easing the process to claim such incentives for traders. All these measures will gradually narrow down the trade deficit of the country.
The export-import gap is ever widening though the government claims to have introduced policies and programmes in recent years to prioritise domestic production and their export over imported goods. So, what do you think is the problem?
So far, the private sector has been complaining that the major bottleneck to export is the unfavourable business environment, including lack of smooth electricity supply, which has raised production cost of domestic goods. Similarly, traders have been complaining about the high transit cost, which has raised the domestic production cost. These issues are being sorted out slowly as of now. Similarly, though labour cost in Nepal is regarded to be comparatively cheaper, the rising outflow of labour forces to different foreign destinations has resulted in a kind of labour crisis in the country, which directly affects the production base. Likewise, the worker-employee relationship, especially in the case of minimum wages, is yet to be smooth, which too has affected production. More importantly, as the economy is bound to expand, more and more raw materials will be needed. As we have not been able to explore domestic sources of raw materials, its import is increasing constantly. All these factors have combined to limit exports and raised our imports.
The government recently unveiled a national work plan to address the ballooning trade deficit. However, the private sector has been saying that the work plan is over ambitious and unrealistic. What do you have to say on this?
Based on the spirit of the budget and the national work plan, the government has recently opened export of few domestic products, especially food products whose exports were forbidden in the past. Similarly, we have also restricted import of some foreign products. The work plan reflects the long-term vision of the government to substitute imports and give priority to domestic production. We will soon set up necessary implementing mechanisms of the work plan. All the measures stated in the work plan cannot be implemented overnight. The government will discuss with stakeholders on every measure and ensure that all the government-adopted measures to substitute imports and promote production do not affect the business community.
One of the provisions in the national work plan is to stop trust receipt loans for vehicle importers, which will compel automobile dealers to fully fund vehicle imports themselves. How realistic is this measure?
Vehicles and their spare parts are among the top imports of the country. The plan to tighten TR loans on vehicle import basically aims to discourage import of luxury vehicles and promote the public transportation system in the country. Tightening the import of luxury goods, including high-end vehicles, will not only boost national savings but also ensure the availability of capital for investment in the country. However, the concerned provision in the national work plan does not necessarily mean that TR loans to importers of vehicles of all types will be stopped completely.
The commerce joint secretary-level meeting between Nepal and India to review the Railway Service Agreement and other trade issues concluded recently. What were the major outcomes of the meeting?
We had been seeking a few changes in the RSA with India since long, and the recent bilateral meeting dwelt on the agenda put forth by Nepal on reviewing the RSA. The meeting has decided to take Nepal’s request to allow other private Indian railway companies to ferry Nepal-bound goods. At present, state-owned Container Corporation of India (CONCOR) has the monopoly in transporting Nepal-bound cargo. If India agrees to our proposal, it will raise competitiveness and slash transportation cost for Nepali traders. Similarly, we had requested the Indian side that RSA be automatically given recognition in ports and transit route facilities identified by the transit treaty with India, and the Indian side is positive in this regard. Similarly, we had sought access of Indian railway track (Birgunj-Kolkata) for Nepal’s own rail and the Indian side has principally agreed on this proposal. Meanwhile, the meeting has also renewed the RSA for next five years till September of 2024.
The government recently decided to give cash incentives on export of different products to India. How effective will it be to narrow down the country’s trade gap with the southern neighbour?
Initially, the government’s policies and programmes for next fiscal year had mentioned giving cash incentives for exports to India at a time when such incentives were being provided only to third-country exports. Based on this, the government recently decided to give cash incentives to 27 different India-bound Nepali goods, including vegetables, footwear products and cardamom, in the range of three to five per cent. The announced cash incentive to India-bound Nepali goods will be based on nature of goods and their value addition. While goods with value addition of up to 30 per cent will receive three per cent export incentive, goods with value addition of up to 50 per cent will receive five per cent cash incentive. The cash incentive scheme basically intends to encourage exports. As India is our major trading partner and a major market for Nepali goods, such schemes will certainly boost exports to India and help reduce the trade gap with the southern neighbour. Along with India, the government will also diversify trade with other countries, including China. At present, we are focusing on increasing trade connectivity with China by opening different possible routes. The Tatopani trade point has resumed recently and will prove to be crucial in enhancing Nepal-China trade. Similarly, the protocol of implementing the Transit and Transport Agreement with China has been signed and we are currently preparing groundwork to implement it.
A version of this article appears in print on June 18, 2019 of The Himalayan Times.