India remains Nepal's largest trading partner, accounting for nearly two-thirds of its total trade
Nepal's trade is at a crossroads. Once a key exporter of agricultural commodities, the country now struggles to sustain its own demand for essential goods, including paddy, milk, and sugarcane. While it is convenient to attribute these struggles to cheaper Indian imports, the reality is more complex. Structural inefficiencies, weak negotiation strategies, and a lack of proactive trade policies have significantly contributed to Nepal's growing trade deficit with India. Instead of perceiving India as a trade barrier, Nepal must rethink its strategy, strengthen its bargaining power, and proactively engage in economic diplomacy to ensure a more balanced trade relationship.
India remains Nepal's largest trading partner, accounting for nearly two-thirds of its total trade. However, Nepal's imports from India far exceed its exports. In the first seven months of FY 2081/82, Nepal imported goods worth NPR 596.35 billion while exporting only NPR 98 billion, leaving a staggering trade deficit of NPR 498.34 billion. This imbalance is not just a matter of trade figures; it reflects deeper systemic issues, including Nepal's over-reliance on imported goods, lack of industrial competitiveness, and inability to leverage its trade agreements effectively.
The automatic renewal of the Nepal-India Trade Treaty in November 2023 was a missed opportunity to renegotiate better terms. The Nepalese Ministry of Foreign Affairs and relevant trade bodies failed to push for critical revisions, particularly on duty-free access for Nepali products, trade facilitation, and resolution of non-tariff barriers. One key issue has been the delay in getting the Bureau of Indian Standards certification for Nepali goods, stalling exports of cement, footwear, textiles, and even sanitary products. While some argue that this is part of India's broader trade strategy, Nepal's inability to effectively lobby for quicker certification is a failure of its own institutional mechanisms.
A crucial, often overlooked factor is the potential influence of industry lobbies on Nepal's trade policies. With a fragmented political landscape and frequent government changes, Nepal's policymakers are often unable to take a firm stand on trade issues. It is possible that some Nepali politicians are influenced by industry lobbies, preventing them from addressing trade concerns effectively. The sugarcane sector, for instance, has suffered not only due to cheaper imports but also because of delayed payments and weak policy interventions. Stronger institutions, transparent policymaking, and a well-organized private sector are essential to counter such external influences and push for trade policies that genuinely benefit Nepal.
Rather than adopting a reactive stance, Nepal must build a long-term trade strategy that prioritizes competitiveness, policy clarity, and proactive diplomacy. Expanding the list of duty-free exports under the Nepal-India Trade Treaty is a critical step. Identifying high-potential products, such as processed foods, herbal medicines, and niche agricultural goods, will help Nepal move away from an overreliance on raw material exports. The government must invest in trade specialists who understand global economic trends, trade agreements, and negotiation tactics. Strengthening institutional memory and ensuring consistency in trade discussions will help Nepal secure better terms in future agreements. The bottlenecks caused by Bureau of Indian Standards certification delays must be addressed through mutual recognition of standards between Nepal and India. Establishing a Nepal-India Technical Standards Committee could ensure that Nepali products meet Indian requirements in a predictable and timely manner.
Nepal must focus on reducing production costs through better infrastructure, tax incentives, and targeted subsidies for industries with export potential. Hydropower, tourism, and IT services hold immense promise and can be leveraged to offset trade imbalances. The private sector must be more engaged in trade policymaking. A structured dialogue between the government and business associations will ensure that trade policies are shaped by industry needs rather than political considerations alone.
Instead of viewing India solely as a dominant exporter, Nepal should focus on positioning itself as a competitive supplier in Indian markets. Nepal's border states have a high demand for Nepali agricultural and manufactured products. Establishing export zones near the India-Nepal border could facilitate trade and reduce logistics costs. Nepali products, such as organic tea, medicinal herbs, and handicrafts, have unique appeal. Developing strong branding and certification mechanisms will make these products more attractive to Indian consumers. Nepal's surplus electricity should be exported under favourable Power Purchase Agreements, helping to offset trade deficits while supporting India's growing energy demands. With India's booming e-commerce sector, Nepali businesses can tap into digital platforms to reach Indian consumers directly, bypassing traditional barriers.
Nepal's trade deficit with India is not an inevitability-it is a challenge that can be addressed through strategic policymaking, stronger institutions, and smarter economic diplomacy. Blaming India for Nepal's trade woes oversimplifies the problem; the real issue lies in Nepal's ability to negotiate better terms, strengthen its domestic industries, and proactively seek market opportunities. By addressing internal weaknesses, resisting undue influence from external lobbies, and crafting a forward-thinking trade strategy, Nepal can transform its trade relationship with India into a mutually beneficial partnership. The time for action is now. With bold reforms and a clear vision, Nepal can not only reduce its trade deficit but also position itself as a formidable economic player in the region.
Sumit Bikram Rana is Program Director at The Himalayan Dialogues
