Commercial and Economic Relations:
India is Nepal's largest trade partner and the largest source of foreign investments, besides providing transit for almost entire third country trade of Nepal. India accounts for over two-third of Nepal’s merchandise trade, about one-third of trade in services, 40% of foreign direct investments, almost 100% of petroleum supplies, and a significant share of inward remittances on account of pensioners and workers.
The trends in India-Nepal merchandise trade over the past few years (Nepalese fiscal year: July 16-July15) are as under.
In IRs crores
|Growth in %
|Export to India||3101||3187.4||3713.5||3491.5||2468.3||14.4||2.7||16.5||-5.9||-29.3|
|Import from India||18711.8||22939.4||29545.6||30728.4||29825.7||14.3||22.5||28.7||4||-2.9|
|Total trade with India||21812.8||26126.9||33259.2||34220||32294.1||14.3||19.7||27.2||2.8||-5.6|
|Total Trade Balance||-24212.9||-29988.9||-38654.3||-43085.3||-43967.6||16.7||23.8||28.8||11.4||2|
|Trade Balance with India||-15610.8||-19751.9||-25832.0||-27236.9||-27357.4||14.2||26.5||30.7||5.4||0.4|
In US$ million
|Growth in %
|Export to India||612.3||579.8||605.0||549||371.3||2||-5.3||4.3||-9.2||-32.3|
|Import from India||3695.2||4172.7||4813.4||4831.9||4487.1||1.9||12.9||15.3||0.3||-7.1|
|Total trade with India||4307.6||4752.5||5418.4||5381.0||4858.3||1.9||10.3||14||-0.6||-9.7|
|Total Trade Balance||-4781.6||-5455||-6297.4||6775||6614.7||4.1||14||15.4||7.5||-2.3|
|Trade Balance with India||-3082.8||-3592.9||-4208.4||4282.9||4115.8||1.9||16.5||17.1||1.7||-3.9|
(in % age)
|India’s share: in Nepal’s||95-96||96-97||99-00||01-02||03-04||05-06||07-08||09-10||11-12||13-14||14-15||15-16|
During the early 1970s, India absorbed almost all of Nepal’s exports and accounted for nearly 90% of Nepal’s imports. A conscious Nepalese policy of trade diversification saw India’s share in Nepal’s foreign trade drop below 30% by mid-1990s. The 1996 trade treaty, combined with India’s rapid economic growth and industrial transformation in the 1990s as also monetary integration through the fixed exchange rate (INR 1= NRS 1.6) since 1993, has helped reverse the trend.
The previous trade treaty revised in 1996 can be considered as a turning point in the trade relations between the two countries. Since 1996, Nepal’s exports to India have grown more than eleven times and bilateral trade more than seven times; the bilateral trade that was 29.8% of total external trade of Nepal in year 1995-96 has reached 61.2% in 2015-16. The bilateral trade grew from IRs. 1,755 crores in 1995-96 to IRs. 32294.1 Crores (US$ 4.8 billion) in 2015-16.Exports from Nepal to India increased from IRs. 230 crores in 1995-96 to IRs. 2468.3 crores (US$ 371 million) in 2015-16 and India’s exports to Nepal increased from IRs. 1,525 crores in 1995-96 to IRs.29825.7.6crores (US$ 4.48 billion) in 2015-16.Further the treaty has been revised in 2009 details of which are provided under Bilateral Framework.
Although Nepal’s trade deficit with India has reached a peak of 62.2% of total trade deficit of Nepal in 2015-16, it may be noted that a significant part of the trade deficit is due to petroleum and energy imports, which account for about 25-30% of Nepal’s imports from India.
Exports from India to Nepal fell by 2.9%. The fall is mainly on account of the decreased level of exports of petroleum products, silver, m. s. billet, betel nut, crude palm oil, etc. About 14.7 % (i.e. IRs 4387.5 Crores) of these imports were against payment in US dollars and the balance in Indian rupees. The NRB purchased Indian currency (INR) equivalent to Rs. 385.47 billion through the sale of US$ 3.4 billion and Euro 0.21 billion in FY 2015-16
Nepal’s main imports from India are petroleum products (13.7%); motor vehicles and spare parts (13.1%); M. S. billet (4.7%);rice & paddy (4.5%); other machinery & parts (4%); medicine (4%); hotrolled sheet in coil (2.8%); electrical equipment(2.5%); cement (2.4%); agricultural equipment & parts(1.9%); coal (1.9%); m.s. wires, rods, coils, bars (1.6%); vegetables (1.6%); coldrolled sheet in coil (1.4%); thread (1.3%), etc.
Nepal’s transit trade is routed through twenty two designated routes from India-Nepal border to the port of Kolkata/Haldia. In addition, Nepal’s trade with and through Bangladesh also transits through India.
Government of India is providing assistance for development of cross-border trade related infrastructure. It includes upgradation of four major custom checkpoints at Birgunj-Raxaul, Biratnagar-Jogbani, Bhairahawa-Sunauli and Nepalgunj-Rupediya to international standards; upgrading approach highways to the border on the Indian side; upgrading and expanding the road network in the Terai region of Nepal; and, broad gauging and extending rail links to Nepal.
The bilateral framework for trade is provided by the India-Nepal Treaty of Trade and Agreement of Co-operation to Control Unauthorised Trade - 2009. A new Trade Treaty, valid for seven years was signed on October 27, 2009 after successful conclusion of bilateral consultations, which began in August 2006.
The main features of the previous Trade Treaty retained in the 2009 Treaty are as follows:
India and Nepal have signed a treaty of transit, which confers transit rights through each other’s territory through mutually agreed routes and modalities. The treaty was last renewed for seven years in March 2006. The key features are:
The Treaty of Trade which would be up for renewal soon will further enhance market access for Indian products in Nepal as well as Nepalese products into Indian market and consequently help growth of bilateral trade between the two countries.
A high level Inter- Governmental Committee (IGC) meeting on trade, transit and cooperation to Control Unauthorised Trade between India and Nepal of the senior Government officers of India and Nepal is held on regular intervals. The IGC meeting provides a regular platform for review of implementation of past trade and transit agreements besides discussing new measures to facilitate bilateral trade and investment. It is a platform to discuss and resolve issues relating to bilateral trade between India and Nepal, transit facilities provided by India to Nepal to facilitate trade with third countries, investment promotion, improvement of infrastructure at land customs stations, day-to-day problems in regulation of Nepalese traffic-in-transit, issues related to Indian investment in Nepal, etc. The 3rd meeting of the IGC was held at New Delhi, India on 28-29 June 2016. The Indian delegation was led by Ms. Rita Teaotia, Commerce Secretary, Government of India while the Nepalese delegation was led by Mr. Naindra Prasad Upadhaya, Commerce Secretary, Government of Nepal.
Bilateral Investment Protection and Promotion Agreement (BIPPA) was signed on 21st October 2011 during the visit of Hon'ble Baburam Bhattarai, Prime Minister of Nepal to India.
India and Nepal signed a Double Taxation Avoidance Agreement (DTAA) on 27th November 2011 in Kathmandu during the visit of Finance Minister Shri Pranab Mukherjee of India to Kathmandu. With the signing of this agreement, bilateral trade and investment from India has got a boost. Once the Bilateral Investment Promotion and Protection Agreement (BIPPA) is ratified it would give further encouragement to investors.
India and Nepal signed a Rail Services Agreement (RSA) in May 2004, to extend cargo train service to the Inland Container Depot (ICD) at Birgunj in Nepal. A Container Corporation of India-led joint venture is operating the ICD. The RSA was modified in December 2008 to allow oil/ liquid traffic in tank wagons and bilateral break-bulk cargo in flat wagons.
India and Nepal have signed the following Letters of Exchange (LOE) to facilitate traffic in transit :
LOE on (‘Amendment to the Protocol to the Treaty of Transit between Nepal and lndia for the Movement of vehicles’ on its own - signed in May 2015
LOE on ‘Movement of traffic in transit carrying third country originated good via Indian transit routes’ - signed in January 2014.
LOE on ‘Operationalisation of traffic-in transit through rail transport o/from Vishakapatnam Port (Amendment in Rail Service Agreement)’ - signed and exchanged in February 2016, during the visit of the Prime Minister K.P. Oli to India.
LOE on ‘Operationalisation of Rail transit facility though Singhabad for Nepal’s trade with Bangla Desh.’ signed and exchanged in February 2016. during the visit of the Prime Minister K.P. Oli to India.
LOE on ‘Simplification of Modalities for Traffic-in-transit between Nepal and Bangladesh through Kakarbhita-Banglabandh Corridor.’- signed and exchanged in February 2016, during the visit of the Prime Minister K.P. Oli to India.
LOE on operationalisation of traffic-in-transit between Vishapatnam Port and Nepal (Amendment in Treaty of Transit) - signed and exchanged in February 2016, during the visit of the Prime Minister K.P. Oli to India.
Air Services Agreement to facilitate air traffic between India and Nepal was signed on 16th February 2010.
Government of India supported Lines of Credit extended by the Export Import Bank of India to Government of Nepal
GOI has agreed to provide four lines of credit to the Government of Nepal for US$ 100 million, US$ 250 mn, US$ 550 mn and US$ 750 mn. These lines of credit were signed in June 2006, September 2007 and September 2016, for execution of infrastructure development projects and post-earthquake re-construction projects as prioritized by GON.
The projects approved for implementation under the LoC US$ 100 mn are 17 projects valued at US$ 93.64 mn which include road development projects, rehabilitation of Hydro Power Projects (HEP), cross-border transmission line and rural electrification projects. An amount of US$ 65.34 mn has been disbursed so far under this LoC.. The projects approved for implementation under the LoC US$ 250 mn are 22 projects which include road development projects, Hydro Power projects and transmission line projects valued at US$ 98.91 mn and disbursed amount is US $ 16.25 mn. Under the LoC for US $ 550 mn projects for an amount of US$ 530 mn have been identified.
During the visit of Hon’ble Prime Minister of India in November, 2014, an MOU on Cooperation in the Field of Traditional Systems of Medicine was signed between GoI and GoN. There exists substantial potential for cooperation between India and Nepal in the field of traditional medicine especially in production/manufacture of Ayurvedic medicines, research centres and better utilization of herbs.
Bilateral cooperation in the sector got a tremendous boost with the visit of Hon’ble Prime Minister Narendra Modi to Nepal in August 2014 which expedited signing of the Agreement on “Electric Power Trade, Cross-Border Transmission Interconnection and Grid Connectivity" popularly known as Power Trade Agreement (PTA) on 21st October, 2014 at Kathmandu between the Power Secretary, Government of India, and Energy Secretary, Government of Nepal. The agreement will facilitate and further strengthen cross-border electricity transmission, grid connectivity and power trade between Nepal and India. The agreement will also provide a framework for imports, by Indian entities, of surplus power generated from future hydroelectric plants in Nepal, on mutually acceptable terms and conditions. The modalities for PTAs implementation would be jointly worked out.
The Raxaul-Amlekhgunj across border petroleum pipeline project is a 41 kilometer pipeline aimed to transport petroleum products from India to Nepal. The project aims to connect IOC’s regional depot at the bordering Indian city of Raxaul with Nepal’s biggest fuel storage based in Amlekhgunj. The project gathered momentum since one of the decisions taken during the Prime Minister’s visit to Nepal in August 2014, was the construction of the Raxaul-Amlekhganj Product Pipeline. An inter-governmental MOU was signed on 24 August 2015. IOC and NOC also signed an MOU on 25 August 2015.
The 1996 Mahakali Treaty between India and Nepal provides for the implementation of the Pancheshwar Multi-purpose Project. The project, conceived as a peaking power project, will have 5600 MW of installed capacity and create irrigation potential for 130,000 hectares in Nepal and 240,000 hectares in India. The Pancheshwar Development Authority for implementation of the Pancheshwar Multipurpose Project has been constituted. The Pancheshwar project was languishing since 1996. The visit by honourable Prime Minister of India Shri Narendra Modi to Nepal in 2014 revived the project with commitment for faster implementation.
The Pancheshwar Multi-Purpose project is the largest that has been undertaken so far between India and Nepal and its successful implementation is essential not only for the tremendous benefits that the project offers for both countries but also to create a climate of mutual trust between Indian and Nepal.
Project Development Agreement (PDA) for Arun III Project (900 MW) between Satluj Jal Vidyut Nigam Limited and Investment Board of Nepal was concluded in November 2014 for development of 900 MW of electricity.
Project Development Agreement (PDA) for the construction of the Upper Karnali Hydro Power project (900 MW) was signed between GMR and the Government of Nepal in September 2014 for development of 900 MW of electricity.
Investment of USD 2.5 billion will come to Nepal through the two projects of Arun III and Upper Karnali HEP. These projects are export-oriented and are expected to supply electricity to India based on the Power Purchase/Sale Agreement that they conclude with Indian agencies.
A Memorandum of Understanding (MoU) on Cooperation in the field of Tourism was signed on 25th Nov, 2014 in Kathmandu between the Ministry of Tourism, Government of India and the Government of Nepal, to enhance bilateral co-operation in the field of tourism and hospitality sector as well as to strengthen the ties of existing friendship between India and Nepal. Signing of the MoU between the two countries would go a long way to deepen and broaden cooperation in the field of tourism and also promote cooperation and direct communication between the stake holders of tourism and hospitality industry for enhancing tourism cooperation and strengthening economic development and employment generation.
During the recent visit of Hon’ble Prime Minister of India in November, 2014, a Memorandum of Understanding on Cooperation in the Field of Traditional Systems of Medicine was signed between GoI and GoN.