Unlocking untapped potential & turning borders into growth engines
Rajan Sharma is General Secretary of the Nepal India Chamber of Commerce and Industry (NICCI) and a trade, transport, and logistics strategist with over three decades of experience spanning the private sector, government advisory, multilateral institutions, and regional business platforms. A leading voice in trade facilitation and logistics reform in Nepal, he works at the intersection of policy, infrastructure, and private-sector coordination. Bal Krishna Sah of The Himalayan Times caught up with Sharma on the Nepal-India Trade Treaty and missed opportunities. Excerpts:
The Nepal-India Trade Treaty has existed for decades, yet Nepal continues to run a large trade deficit with India. What, in your view, are the biggest missed opportunities within the current framework?
The trade treaty appears to be more focused on market access than on development. It was signed when Nepal had a very small economy dominated by micro- and small businesses, so the treaty's primary goal was to seek trade preferences and facilitation, rather than to drive industrialisation or a larger industrial vision. It does not adequately reflect an agenda for structural transformation or industrial development.
Although the treaty provides opportunities such as trade preferences, rules of origin flexibility, and other favourable provisions, Nepal has failed to renegotiate and leverage them effectively over time. This is especially true in areas such as non-tariff measures, tariff measures, sanitary and phytosanitary regulations, and logistics, where we could have increased options while lowering costs. Instead, Nepal took a very traditional approach, did not learn from how other Asian countries negotiated, and chose ports and facilities without conducting adequate research on logistics performance, despite the fact that logistics cost is one of our most significant constraints.
The treaty remains a good instrument in principle with a useful focus, but it requires significant changes in the current context. It has failed to adequately integrate service-oriented industries, IT capabilities, and other emerging sectors of Nepal's economy. A major flaw is a lack of understanding of people's needs and expectations on both sides; without it, the treaty cannot fully serve its purpose.
What kinds of changes should Nepal push for in the treaty, particularly in light of India's expectations?
There is a clear need to revise the treaty so that Nepal not only requests preferences from India, but also understands what preferences and benefits India seeks from Nepal. India has strong research and market intelligence capabilities, and it understands what Nepal's stakeholders typically need. On the Nepali side, we do not have comparable research capacity or market intelligence to determine what we should prioritise for better access to the Indian market.
To meaningfully update the treaty, Nepal must first lay an analytical foundation: identify priority sectors, understand India's demand patterns, and negotiate using evidence rather than arbitrary demands. Only then can we make the treaty a more balanced framework that aligns mutual expectations while maximising benefits for both economies.
How do you see the trade deficit with India, and where are the main gaps in Nepal's export strategy?
The trade deficit with India remains large, but nearly one-third of it is due to fuel and LPG imports, over which Nepal has no real negotiating power. There is room for improvement in exports, but Nepal has yet to identify the right products for the right consumer segments or niche markets in India where it can compete.
We have also been slow to understand and comply with Indian standards and quality requirements. Instead of focusing solely on volume and low prices, we should aim for specific consumer groups, niche segments, and quality-based differentiation. Without it, we miss out on opportunities, even those in which we have a natural or comparative advantage.
What specific goods and sectors do you think Nepal could successfully supply to India?
There are numerous promising sectors. IT is a strong candidate in the services sector, and hydropower exports have significant growth potential. Among goods, herbal products and high-value agricultural items stand out. Nepal is particularly strong in ginger, cardamom, and turmeric, and there is a growing market in India among high-income, quality-conscious consumers who seek organic and premium products-an area where Nepal enjoys a natural advantage.
We must properly market these products, identify the right buyers, and prioritise packaging and branding for both everyday and speciality items. Agro products, herbal products, small manufacturing units, and cosmetics all have significant potential. Because these can command higher prices, we must have the confidence to position them as premium rather than low-cost commodities, and to insist that their quality justifies the higher price.
What role do you see for political leadership, particularly the new government, in improving trade outcomes with India?
Nepal requires political leaders who can identify the right experts, place them in appropriate positions, and empower them to effectively negotiate with India. I am optimistic that the new prime minister can accomplish this if he selects capable people, forms a professional negotiation team, and prioritises long-term national interests over short-term or partisan gains.
At present, we lack a standard operating procedure (SOP) for negotiations with India. A clear SOP is required to ensure that negotiations become systematic and consistent, rather than relying on individual bureaucrats' styles and ad hoc decisions.
You mentioned an SOP for negotiations. What kind of SOP should Nepal have for negotiating with India?
Nepal is frequently pulled in different directions-sometimes towards China, sometimes towards India-and influenced by a variety of external actors. Domestically, various political forces (Congress, Communists, and Maoists) rise to power with shifting priorities. However, economic priorities, security concerns, and foreign policy should be stable and consistent across governments.
India provides an interesting contrast: regardless of who is in power, the country does not compromise on economic security or foreign policy fundamentals. For Nepal, an SOP should define a standard approach to negotiation based on continuity and institutional memory.
We currently rely heavily on individual bureaucrats, each with their own method, because there is no standardised record or approach. An officer posted as a CDO in a district may become a joint secretary in the Ministry of Commerce and be sent to negotiate within days, without adequate background or preparation. Negotiations cannot be handled in a casual, rotational manner; they necessitate specialised expertise and continuity.
If you had to identify three specific treaty provisions that Nepal has failed to fully leverage, which would they be, and why?
First, the article on access preferences is underutilised; Nepal could have negotiated far better terms, including deeper and more specific preferences. Second, the rules of origin are still problematic. The 30% value-addition requirement, which is primarily calculated on Indian imported raw materials, has hampered Nepal's ability to diversify and upgrade its exports.
Third, Nepal has not fully utilised the transit and logistics provisions. As a logistics and transit specialist, I see that Nepal has very limited options for transport routes and modes, which significantly raises logistics costs. We should have negotiated more options, improved integration with Indian logistics networks, and implemented more modern facilitation measures such as digitalisation, transparency, risk-based inspections, and modern border management.
Another failure is that we did not fully consider Indian consumers' expectations and desires. We cannot simply supply what we produce without first ensuring there is a demand. We must be able to generate demand in Indian markets so that consumers ask their governments to allow imports from Nepal in sectors where we excel. This people-to-people, consumer-to-government link is missing, and both the government and business support organisations frequently ignore it.
How can Nepal move from being a passive beneficiary of preferential access to becoming an active exporter under the treaty?
To become more competitive in exports, Nepal must first strengthen its internal supply chains. We take a shallow approach to market intelligence, focusing solely on initial market access and entry rather than deep, long-term market understanding. True market intelligence entails delving deeply into specific consumer classes, their preferences, and the integrity and composition of the products we sell.
For example, if we are exporting coffee, we should be able to specify its metallic content, chemical composition, mineral profile, and how it compares to other products available in the target market. We must understand the types of coffee that Indian consumers are currently drinking, why our coffee is superior, and what value proposition we provide.
We have failed to identify products and services that truly meet Indian expectations. Developing a joint Nepal–India production ecosystem would help where value chains and production processes are integrated. The treaty should be viewed as a door, and Nepal must be brave enough to walk through it with confidence and negotiate more assertively.
Exports do not grow simply because we produce lentils, coffee, and tea. Consumers in the importing country must want those products and demand them from their government, which must then consider social safeguards, environmental concerns, and standards-all of which may be more important than price. We should stop competing solely on price and volume (kilos) and instead shift to smaller, higher-value units (such as tolas), emphasising quality and branding that justify a higher price.
Do Indian businesses see the treaty as enabling enough, or do procedural and non-tariff barriers still discourage trade and investment?
Many Indian businesses view the treaty as necessary but insufficient. It provides legal certainty and a framework, but procedural frictions and non-tariff barriers remain high, frequently jeopardising commercial viability.
Key issues include border uncertainty, long dwell times, a lack of seamless digital systems, and investment scale limitations. Concerns about social stability and contract enforcement are also important considerations for investors. Indian firms want fewer uncertainties and faster, more predictable decision-making.
They also want access to Nepal's markets and, ideally, the ability to export abroad. If producing in Nepal does not provide a clear competitive advantage, they will not relocate or invest. Nepal often overprotects a small group of weak, low-taxpaying industries, sacrificing the opportunity to attract larger, high-taxpaying, job-creating firms from India. Excessive protection for a small base can prevent much larger investment opportunities.
Is there a case for upgrading the treaty to reflect current economic realities, especially in manufacturing, services, and digital trade?
Yes, there is a very compelling case. The treaty is old and still based on a preferential market access mindset. The world has shifted towards economic integration and production partnerships, and Nepal-India relations must adapt accordingly. We need a partnership framework rather than just a market access and preferences agreement.
Currently, the treaty focuses primarily on traditional issues such as tariff quotas, rules of origin, and non-tariff barriers. The treaty has been amended numerous times through letters of exchange, leaving it garbled and difficult to interpret clearly. It is time to issue a new, consolidated treaty that reflects current realities.
There has been talk of developing industrial corridors along the Nepal–India border. What has held this idea back, and do you think it is a good idea?
The concept of industrial corridors along the border is excellent and has great potential. Without such corridors, Nepal risks remaining primarily a consumer market rather than developing into a manufacturing and export hub.
The issue is that Nepal views these corridors primarily through the lens of export promotion, whereas India often sees them as peripheral investments rather than strategic priorities. We must change this mindset and demonstrate that such corridors benefit the entire region rather than just Nepal or India.
To accomplish this, Nepal must provide facilities and conditions that encourage Indian investors to consider these corridors as part of a regional integration and industrialisation strategy. We require a proper master plan; without it, progress is impossible. Bottlenecks include land acquisition, infrastructure gaps, weak investor confidence, a limited production base, poor logistics ecosystems, and weak value chain integration.
Nepal focuses primarily on trade facilitation, whereas Indian counterparts see corridors as tools for industrialisation through regional integration. We should also prioritise regional integration rather than just third-country exports. Some work has already been done-for example, UN ESCAP is researching corridor development in Birgunj and Rasuwagadhi-but we require a more comprehensive master plan to attract Indian counterparts to invest, produce, and create jobs using both Indian and Nepali raw materials.
How viable is the concept of export-oriented manufacturing hubs in southern Nepal specifically targeting the Indian market?
The concept is extremely viable. Tea has a high potential for agriculture-based processing, with Nepali tea often outperforming Indian tea, which is why non-tariff measures are sometimes used as protective measures. Darjeeling tea bushes in India are over a century old, whereas our tea is grown on more fertile land and produces higher-quality yields.
There have been reports of tea grown on the Nepali side being smuggled across the border and sold as Darjeeling tea, demonstrating the quality of our product. Similarly, Nepali ginger and turmeric differ from Indian varieties; our turmeric contains more curcumin, giving us a significant advantage in quality.
Beyond these, essential oils, herbal products, and other high-value items show great promise. The core issue is not potential, but rather our inability to assist small farmers, consolidate production, and establish large-scale manufacturing and branding operations. Footwear and small consumer goods are also viable manufacturing options.
Nepal requires a joint industrial strategy with India that identifies sectors where we can compete fairly, including against Indian producers, if we target the right markets and consumers. Building zones, ecosystems, and integrated production with Indian partners is critical to achieving this potential.
What sectors-such as textiles, agro-processing, light manufacturing, or pharmaceuticals-offer the most immediate potential for border-based production zones?
Several sectors have immediate potential. Ginger, tea, spices, and essential oils are popular in agriculture and agro-processing industries. Garments, footwear, and small consumer items show promise in terms of manufacturing. Herbal and wellness products are particularly appealing in India, where there is a growing demand for natural and traditional products.
There is a high degree of border interdependence. Indian border towns rely heavily on Nepali consumers, and many Nepalis rely on Indian markets for a living. This interdependence suggests a significant untapped market opportunity. Both parties will benefit if we can provide fresh vegetables from the hills, herbs from other regions, and specialised products.
However, this necessitates serious market intelligence-understanding what Indian markets truly require, how to add value, and how to exceed their expectations. Nepal already imports juices and similar products from India, Bangladesh, Dubai, and other countries; if foreign products can establish a market in a small country like Nepal, Nepali products should be able to do the same in much larger Indian and regional markets.
The issue is not a lack of markets, but rather our inability to identify buyers, organise distribution, properly brand products, and overcome the mindset of 'it doesn't work'. We must abandon negativity and dependency thinking and take a forward-thinking approach.
What kind of policy environment and incentives do Indian investors need to set up manufacturing units in Nepal instead of just across the border?
Indian investors are not primarily looking for low-cost incentives; rather, they prefer faster, smoother, and more predictable decision-making and operating environments. They only relocate production when there is a clear and consistent structural advantage.
It is less about tax breaks or specific incentives than it is about making the right investment at the right time, with the right policies and facilities in place. Nepal should avoid excessive protection of small, low-tax industries at the expense of preventing larger, job-creating investments. Even at low tax rates, high employment and value creation are more beneficial in the long run. We must reduce our focus on revenue collection and consider broader developmental gains. I believe the current administration can and should work on this shift.
How important are infrastructure elements like roads, rail links, integrated check posts, and dry ports for making border production zones viable?
These infrastructures are absolutely necessary. Without adequate roads, rail links, integrated checkpoints (ICPs), and dry ports (ICDs), trade and border-based production cannot function.
Nepal has established ICPs and ICDs, but we have used them as revenue-generating centres rather than cost-effective trade facilitation facilities. Many of these infrastructures were built with grants or concessional financing from organisations such as the World Bank, ADB, and the Government of India. Nonetheless, we leased them to private operators based on the highest bid, which was often double what the state expected. The additional cost is eventually recovered from traders, service providers, and other stakeholders, resulting in high logistics costs and facilities that fail to deliver the expected benefits.
These infrastructures are important, but we must also connect them to domestic logistics hubs in India, such as Kanpur.
We took traditional approaches, such as relocating to Visakhapatnam when India suggested it and later demanding additional ports. We also requested multiple ports from China, despite the fact that the one offered was not cost-effective. While Visakhapatnam benefited large importers, micro and small traders reaped no significant benefits. Our cost calculations have been poor, and the government frequently takes advice from individuals who have not done their homework.
We need to convince India to provide a dedicated railway line for our imports and exports, potentially shared with Indian cargo to border areas, leaving passenger lines separate. With this, we could implement multimodal, end-to-end transportation solutions.
What we truly require is not just more small roads, but an integrated transport and logistics ecosystem co-developed with India. Our negotiators and diplomats must understand these technical details; otherwise, piecemeal decisions will continue to erode our competitiveness. Unfortunately, many diplomats appear to be more concerned with personal comfort abroad than with making trade work for Nepalese citizens. The new government should take this issue seriously.
Can joint ventures between Nepali and Indian firms accelerate this process? What models from other countries could Nepal replicate?
The current joint venture model in Nepal, particularly in logistics and ICP management, is unlikely to be effective. For instance, in some joint ventures, Indian partners own 99.9% of the equity, while Nepali partners own only a token share. True joint ventures require Nepali partners to own at least 25-30% of the company, ensuring a significant local stake and benefit.
Joint ventures can be very effective with such equitable structures, providing both parties with better access to the Indian market. Internationally, several models are relevant:
Cluster-based joint ventures, such as those between China and Vietnam, in which industrial zones with anchor investments quickly develop export-oriented ecosystems.
Equity and production-sharing models are used in Bangladesh's garment sector, where foreign investors provide capital and management while local partners provide land, labour, and basic facilities, resulting in true partnerships.
Anchor-investment-driven joint ventures, such as those in Vietnam, in which large firms enter first and then attract micro and small businesses as suppliers, thereby deepening skills and supply chains.
Public-private partnerships and public venture models combine government and private sector capabilities.
These models can be tailored to Nepal's needs. What will not work are nominal joint ventures that concentrate control and benefits almost entirely on one side, such as those seen in logistics. We need structures that distribute risk, reward, and decision-making more equitably.
Finally, with a new government in place and high public expectations, what key steps should Nepal take now on trade and negotiations with India?
I am expecting and hoping for significant change under the current government to foster a genuine sense of goodwill between the peoples of the two countries. Building mutual respect and positive perceptions among individuals is critical for any long-term economic partnership.
