Nepal-India relations : Cooperation and emerging trends

Public Diplomacy Division of the Ministry of External Affairs, India, held a two-day seminar (April 26-27) in Patna on the emerging trend in India-Nepal relations. The message that Nepali participants brought home from the high profile

seminar was that India can do business with the new political dispensation in Nepal and was more than willing to assist Nepal in the process of political and economic transformation.

The major concern raised by Nepali delegates was India’s increasing share in Nepal’s trade, which is above 67%. The total negative trade balance is NRs 68 billion. The annual average growth in trade deficit with India has been 14.8% in the last five years. If the trend continues, Nepal can be expected to purchase IC by selling $1587.30 million by the end of the current fiscal year. Both India and Nepal agreed that the major impediments to declining trade and limited integration are high transaction costs and non-tariff barriers.

To address the problem of trade deficit, Bihar’s chief minister Nitish Kumar informed the gathering that India’s support to Nepal was aimed at making trade more efficient by developing world-class infrastructure. As an initial step, India would assist in creating integrated check posts at the four border checkpoints on Indo-Nepal border.

Nepal has been complaining about the interruption of direct rail connection by broad-gauze railway network to Kolkata. Nepal’s competitiveness study reveals that transporting a 20-foot container via rail saves 22-33% cost compared to the transport through road network. In response, the chief minister elaborated on a project for cross-border rail links at five locations on the Indo-Nepal border with an aim to promote trade and commerce between the two countries.

Nepal is remembered in Bihar especially during monsoon, the Indian side noted. Collaborative efforts in extension of embankments on rivers flowing from Nepal into India were therefore urged. To this end, the three projects that needed mutual cooperation were Sapta Koshi High Dam, Kamala Reservoir Project and Bagmati Reservoir Project. The Indian side further observed that sale of surplus energy will raise the GDP and per capita income. The annual destruction of life and property due to floods would also be prevented.

The potential for selling power to India — and particularly the Northern Grid Region — is high. The Indian Central Electricity Authority had estimated a shortage of roughly 10,000 MW in the Northern Region (Uttar Pradesh and Delhi) at the end of 2007. There is scope for exports from Nepal without compromising domestic requirements. This calls for activating the Power Trade agreement signed between Nepal and India on June 5, 1997 to promote private sector participation for accelerated development of the power infrastructure in both countries. The Power Exchange Committee between India and Nepal, which has been defunct for some time, has to be reactivated.

Frank discussions on the existing hurdles in Indo-Nepal trade were held and alternative policy recommendations made. The issues raised were custom processing delays at the border and Kolkata port, which added 3-5 days to the 8-day travel time between Kathmandu and Kolkata. Customs and transshipment delays account for as much as 55% of the logistic costs of sending certain goods from Kathmandu to Kolkata.

All agricultural and food items exported to India need to first go through tests at the quarantine check posts. This is a cumbersome process that has hampered Nepal’s exports. India’s minister of state for commerce Dr. Jairam Ramesh assured the Nepali delegation that this problem would be resolved immediately. The forthcoming secretary-level meeting on bilateral trade should take this issue forward.

The emerging issues in investment were also discussed with India’s public and private sector stakeholders. FNCCI president’s meeting with Bihar Chamber of Commerce explored further possibilities of trade and investment with the state of Bihar. So far, India has invested a cumulative total of 44% of total foreign investment in Nepal. As of Jan. 19, 2007, a total of 354 Indian projects were registered in Nepal with Rs.13.8 billion foreign investment. Out of the total employment generated in joint venture investments, Indian investments have created almost 40.6% employment.

India-Nepal joint ventures are in sectors as diverse as tourism, infrastructure, education, consumer durables and non-durables and export oriented industries like garments and carpets. Indian companies such as Dabur, Hindustan Lever, and Colgate have also set up their manufacturing bases in Nepal. In the end, a close neighbour of Nepal, with a 700-km open border, India has an important stake in Nepal’s political stability and economic prosperity. Nepal is not India-locked but India-linked. We can hope that Indian assistance will continue to grow in a range of fields for years to come.

Pyakuryal is professor of Economics, TU