Nepal and India share a long history of trade and commercial exchanges. India is Nepal’s largest trade partner. The volume of bilateral trade has reached over NRS 976.78 billion during the last eleven months of the fiscal year 2020-21 with imports from India amounting to NPR 886.59 billion and exports to India standing over NPR 90.19 billion.
The table below shows the volume of Nepal’s annual trade with India. (Rs. in million)
|Particulars||2018-19 (Annual)||2019-20 (Annual)||2020-21 (11 Months)|
|Share in %||64.70||62.20||64.90|
Source: Nepal Rastra Bank
Nepal’s top export items in the year 2021 include Soybean oil, Cardamom, woolen carpets and polyester yarn. Other traditional export items comprise Jute products, Leather goods, ginger, tea, ready-made garments, handicrafts, agro- and forest-based goods, medicinal herbs while noodles, rosin, toothpaste and shoes are emerging export items.
The items such as energy, drinking water, mushroom, saffron and floriculture products hold huge potential. Vegetable seeds, orthodox and CTC tea, Niger seeds, essential oils from medicinal and aromatic plants, leather goods, woolen goods, silver articles and jewellery, gold jewellery also have good prospects for export.
Over the years, Nepalese imports have increased substantially. The major import items include petroleum products, Transport equipment & parts, other machinery & parts, rice, crude soya bean oil, medicine, telecommunication equipment and parts, ready garments, coal etc.
Nepal-India Treaty of Trade (2009), Agreement of Cooperation to Control Unauthorized Trade (2009), Treaty of Transit (1999), and Rail Services Agreement (2004) provide for the bilateral mechanism for trade and transit.
Under the Treaty of Trade, duty-free access into the Indian market for all Nepali-manufactured goods is provided on a non-reciprocal basis, except a short negative list (including cigarettes, alcohol and cosmetics). However, the export-items must meet the criteria of domestic value addition of 30% and change in HS classification at the four-digit level in the course processing in Nepal in order to enjoy duty-free market access. Annual quotas have been prescribed for duty-free exports to India for four sensitive items – vegetable fats (100,000 Metric tons), acrylic yarn (10,000 M. tons), copper products (10,000 M. tons) and zinc oxide (2,500 M. tons).
Generally, bilateral trade takes place in Indian rupees. Nepal’s central bank also maintains a list of items that can be imported from India in dollars using a Letter of Credit. Currently, there are about 163 items on the list. The Indian rupee is convertible in all banks and financial institutions in Nepal. The exchange rate has been maintained at NRs. 1.6 per Indian rupee.
The Agreement for Cooperation between India and Nepal to Control Unauthorized Trade signed on 27 October 2009 provides the legal framework for checking illegal trade. The India-Nepal Treaty of Transit (1992), renewed every seven years, provides for port facilities to Nepal at Kolkata/Haldia and Visakhapatnam and specifies different transit routes between Kolkata and Vishakhapatnam and the India-Nepal border. For bilateral trade, 27 entry/exit points are designated along the Indo-Nepal border.
The Rail Services Agreement, 2004 prescribes the details for operating and managing the rail services between India and Nepal. Initially, the Rail Services were confined from Kolkata/Haldia port to Raxaul/Birgunj transit point in Nepal. In 2016, Vishakhapatnam Port was designated for Nepal Bound Transit Trade and Rail Service was extended to the Port.
A Letter of Exchange (LoE) of Rail service Agreement (RSA) between Nepal and India has been signed on 9 July 2021. Now, all cargo train operators can utilize the Indian railway network to carry containers bound to or originating from Nepal whether bilateral freight between Indian and Nepal or third country freight from Indian ports to Nepal. This arrangement is going to increase efficiency and cost-competitiveness, eventually benefiting the Nepalese consumer.