Trade and Commerce
Commercial and Economic Relations:
India is Nepal’s largest trade partner and source of foreign investment; India is also the only transit providing country for Nepal.
Trends in trade and investment:
Bilateral trade was US$ 2.23 billion during Nepalese fiscal year 2006-07 (July 16 – July 15). Nepal’s import from India amounted to US$ 1643.8 million and exports to India aggregated US$ 591.9 million. During fiscal year 2007-08, Nepal’s total trade with India was about US$ 2.81 billion; Nepal’s exports to India were about US$ 594.0 million; and imports from India were about US$ 2222.7 million.
Since 1996, Nepal’s exports to India have grown more than ten times and bilateral trade more than six times; the bilateral trade that was 29.8% of total external trade of Nepal in year 1995-96 has increased to 63.8% in the year 2007-08. Since 1995-96, the total external trade of Nepal has increased from NRs. 9433 crores (IRs.5895 crores) to NRs. 28690 crores (IRs. 17931 crores). 81% of this increase is on account of increase in the bilateral trade between India and Nepal, which grew from NRs. 2808 crores (IRs. 1755 crores) in 1995-96 to NRs. 18315 crores (IRs. 11446 crores) in 2007-08. Nepal’s exports also increased from NRs.1988 crores (IRs. 1242 crores) in 1995-96 to NRs. 6078 crores (IRs. 3799 crores) in 2007-08. 86% of this increase was on account of increase in Nepal’s exports to India.
Nepal’s main imports from India are petroleum products (28.2%), motor vehicles and spare parts (8.2%), M. S. billet (5.6%), medicines (3.7%), machinery and spares (3.2%), coldrolled sheet incoil, and chemicals. Nepal’s export basket to India mainly comprises G.I sheet (11.4%), Threads (10.7%), Polyster yarn (6.7%), Jute goods (6.6%), vanaspati ghee (6.1%), textiles (5.4%), Juice (4.7%), GI Wire (4%), large cardamom (2.6%) and range of other semi-processed and processed food products. G. I. sheets and wire, processed from raw materials imported from India have emerged as major export items from Nepal to India.
Indian firms are the biggest investors in Nepal, accounting for about 44% of total approved foreign direct investment of IRs 31.51 billion (approx. US $ 660 million) and 25.2% of 1741 approved ventures with foreign investment.
Indian ventures in Nepal are engaged in manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries. Some large Indian investors include, ITC, Dabur India, Hindustan Unilever, VSNL, TCIL, MTNL, State Bank of India, Punjab National Bank, Life Insurance Corporation of India, Asian Paints, CONCOR, GMR India, IL&FS , Manipal Group, MIT Group Holdings, Nupur International, Transworld Group, Patel Engineering, Bhilwara Energy, Bhushan Group, Birla Corporation, etc.
Nepal’s transit trade is routed through fifteen designated routes from India-Nepal border to the port of Kolkatta/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; laying an oil pipeline from Raxaul to Amlekhgunj, through a joint venture between Indian Oil Corporation and Nepal Oil Corporation; 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.
Bilateral Framework:
The bilateral framework for trade and transit is provided by the India-Nepal Treaties of Trade, of Transit, and Agreement of Co-operation to Control Unauthorised Trade signed in 1991. The Trade Treaty, valid for five years was modified and renewed through exchange of letters on December 3, 1996 and March 5, 2002. The Treaty was renewed automatically, without any change, in March 2007. The key features of the treaty are:
- Duty free access to each other’s primary products;
- Nepalese manufactured products are allowed access to the Indian market, free of basic customs duty, on the basis of Certificate of Origin issued by a GoN designated authority – FNCCI, if the goods are manufactured in Nepal with Nepalese and/or Indian inputs; or, with at least 30% local value addition, if third country inputs are used; and, involves substantial manufacturing process leading to change in HS classification at four-digit level;
- Annual quotas have been prescribed for duty free access in respect of four items – vegetable fats (100,000 tonnes) acrylic yarn (10,000 tonnes), copper products (10,000 tonnes) and zinc oxide (2,500 tonnes);
- The MFN list for Nepal has three items – cigarettes, alcohol (excluding beer) and cosmetics with non-Nepalese and non-Indian brands;
- Nepalese goods attract Countervailing Duty equal to excise duty on similar products in India;
- Goods manufactured by small scale units in Nepal enjoy the same benefits as SSIs in India with regard to tax exemption;
- Nepal provides a small rebate of 7% in the customs duty for imports from India upto a duty rate of 25% and rebate of 5% for duty rates above 25%;
- The Treaty provides duty-free access to primary products, but Nepal levies an Agriculture Development Fee (ADF) of 5% on imports from India.
- Twenty two designated points on India-Nepal border have been notified for conducting bilateral trade.
- The exports and imports of goods not subject to prohibitions or duties are also allowed to move through the traditional routes on common border.
Bilateral trade takes place either in Indian rupees or convertible currency. Nepal's central bank (Nepal Rashtra Bank) maintains a list of items that can be imported from India in convertible currency. Currently, 135 items are in the list. Since 1993, the Nepal Rastra Bank maintains a fixed exchange rate with Indian Rupee (1 INR = 1.6 NPR).
India and Nepal have 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:
- India offers 15 transit routes from Kolkata/Haldia to Nepal for its third country trade.
- Goods can move by road or rail. The creation of ICD in Birgunj and extension of railway line from Raxaul to Birgunj has facilitated direct movement of goods in transit by rail to Nepal.
- A simple customs procedure has been put in place for Nepal’s third country traffic.
- Since 1993, India also allows movement of goods from one part of Nepal to another through a simple process of customs undertaking. Nepal has agreed to extend similar facility to India in the course of renewal of the transit treaty in March 2006.
- India has extended Nepal direct transit routes to Bangladesh for bilateral and third country traffic. One road route and one rail route have been notified. The road route is through Kakarbitta-Panitanki-Phulbari-Banglabandha corridor. The rail route is through Radhikapur-Birol interchange point on India - Bangladesh border.
The Agreement of Cooperation between India and Nepal to Control Unauthorised Trade was automatically renewed for five years in March 2007.
The two countries have been engaged in consultations to revise the Trade Treaty and Agreement on Cooperation to Control Unauthorized Trade, since August 2006. The revised Treaty and Agreement have been finalized and were initiated on August 22, 2009.
The two governments are negotiating a Bilateral Investment Protection and Promotion Agreement. The last round of negotiations was held in January 2007.
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.
A Motor Vehicles Agreement (MVA) for passenger vehicles, initialled in February 2004 is awaiting formal signature. The agreement envisages bus services between India and Nepal and will facilitate individuals travelling to either country in their personal vehicles.
A bilateral Air Services Agreement was initiated in 1997.
An Inter-Governmental Committee on Trade, headed by Commerce Secretaries meets regularly to consider policy, regulatory and infrastructure issues in India-Nepal trade.
