The Truth Behind Nepal-India Trade Relations

  34 min 44 sec to read
The Truth Behind Nepal-India Trade Relations

The age-old relationship between the two South Asian neighbours needs a reset based on principles of fraternity and equality.


Whenever Nepal-India bilateral relations come under strain, Nepal's economic dependence with the southern neighbour is often highlighted. Indian experts say the open border, transit access through Indian land and seaports, foreign direct investment from India, and India's dominating share in Nepal's foreign trade has benefited Nepal.

To an extent, their assessment has some merit. However, there is another side to this story which has not been closely looked at. Contrary to popular belief that Nepal has survived only through dependence on India, the southern neighbor, too, has benefitted from Nepal in different ways.

The available data shows that Nepal also has been an important source for the Indian economy. Nepal is amongst the top-10 export destinations of India, accounting for 2.16 percent of its total exports. The same is the case with remittance where Nepal is ranked among the top 10 remittance source countries for India. While millions of Nepalis go to India for employment, Indian workers have a dominant presence in Nepal's real estate, construction, manufacturing and trade sectors.

For many unemployed Indians, especially for those living in bordering Indian states, Nepal has remained a major job destination. And, a majority of bordering markets from West Bengal to Uttarakhand, are largely dependent on Nepali customers.

Nepal as a Major Market
It is a fact that Nepal’s foreign trade is heavily tilted in favour of India. The southern neighbour accounts for over two-thirds of Nepal’s merchandise trade, about one-third of trade in services, one-third of foreign direct investments and almost 100 percent for petroleum supplies.

Nevertheless, these facts also illustrate that Nepal is a huge market for Indian goods and services. Mineral fuels are Nepal's largest import commodities in which the Indian Oil Corporation (IOC) has a monopoly.  The fuel import bill in the fiscal year 2019/20 was Rs 157.72 billion.

Nepal is also a major market for FMCG items, automobile and pharmaceutical products from India. Indian automobile companies have complete dominance in the Nepali automobile business, commanding an almost 90 percent market share.

Exports to Nepal have always remained a very attractive business for India. According to statistics of the Department of Commerce, India, Nepal is ranked amongst the top ten goods export destinations for India. In the fiscal year 2019/20, Nepal's import bill from India amounted to over USD 7 billion, whereas exports from Nepal to the southern neighbour totaled around USD 700 million. Nepal is the 59th top import source for India.

India is getting huge benefits from the trade in services with its northern neighbour. In fiscal year 2018/19, Nepal exported services worth Rs 19 billion whereas Nepal’s imports of services from India stood at Rs 52 billion, yielding India a surplus of Rs 47 billion in service trade alone.

Nepali Students: Major Customers of Indian Education
The growing number of Nepali students in Indian universities and colleges and rising education bills is a lesser-known fact of the bilateral economic relation between Nepal and India. Historically, India has been the preferred education destination for Nepalis for higher studies. In recent years, this has transformed into a huge business opportunity for Indian education institutions who aggressively scout Nepali students through their agents and education fairs in Nepal.

The statistics of India’s Human Resource Development Ministry corroborates this fact. Of the total international students who took admissions in India in 2018/19 for higher studies, the share of Nepali students was 26.88 percent. A total of 47,724 foreign students were enrolled in various Indian universities that year, in which about 13,000 were from Nepal.

If we assume that a Nepali student spends five years for his/her higher education in India, then it becomes clear that some 65,000 Nepali students are currently studying in India. These 65,000 students have been contributing billions of rupees to the Indian economy in the form of admission fees, tuition fees, hostel and residential expenses and transportation.

If one is to go by the statement that Nepali parents spend about Rs 800,000 per student a year for their children’s higher education in India, the contribution of Nepali students alone to the Indian economy comes out to be Rs 52 billion. This amount goes up to Rs 100 billion if we include Nepali students going to the Indian cities of Dehradun, Nainital, Lucknow and the convent schools of Darjeeling for their school education.

Remittance and Employment
There is a general assumption that Nepalis working in India send huge sums of money back to their country. Yes, remittance from India to Nepal is above Rs 100 billion. But, remittance outflow from Nepal to India is much higher than what Nepal has been receiving from the southern neighbour.

The 2017 World Bank data shows Indians working in Nepal remit home thrice the amount Nepalis in India remit. According to the World Bank's Bilateral Remittance Matrix, Nepal received remittance worth USD 1.02 billion (about Rs 102 billion) from India in 2017 whereas remittance outflows from Nepal to India stood at USD 3.01 billion (about Rs 301 billion).

The remittance that comes from India includes also the amount earned by some 30,000 Nepalis working in the Indian army and some 180,000 Indian Gurkha pensioners. The total amount earned by these two categories of people is Rs 72.57 billion. If this amount is to be deducted from the total figure, then the actual amount of remittance coming to Nepal from India accounts to only about Rs 29 billion.

The other fact to be noted is Nepal is the eighth biggest remittance source country for India. For India, the remittance from Nepal is going to be even more important as the demand for migrant workers is decreasing in the Gulf countries and at the same time the USA is adopting immigration policies that restrict the number of Indians coming to work in the country. 

Reeling with the historic slump in oil prices this year due to the plummeting of the worldwide energy demand, the economic crisis mired oil and gas producing Gulf countries are unwilling to take low and semi-skilled foreign migrant workers until their economy recovers.  Similarly, the Trump administration in late June announced a halt to certain types of work visas including the H-1B visa programme restricting skilled Indians who mostly work in the technology sector. According to US government data, Indians workers have a lion share of 75 percent in the visa applications of the H-1B programme.

For many people in the bordering Indian states, Nepal has remained a job destination for a long time. From Nepal, a few hundred thousand Nepalis are employed in big Indian cities like Mumbai and Delhi. But there is a strategic apathy in Nepal to bring out the fact that Nepal is providing employment to much more numbers of Indian labourers.

Of those 30,000, some 20,000 Indians work in the Morang-Sunsari Industrial Corridor and around 100 brick kilns of Province 1. Industrialists say these Indian workers send around Rs 8 billion yearly back home.

Around 20,000 Indians work in brick kilns while another 10,000 work in different industries in the Morang-Sunsari Industrial Corridor. Industrialists say, on average, an Indian worker working in a brick kiln earns around Rs 200,000 annually. Annually Rs 4 billion goes to India through these 20,000 brick kiln workers. Majority of these workers are from Cooch Bihar district of West Bengal.

Another Rs 4 billion goes to India through the 10,000 industrial workers engaged in various industries of Province 1. "These Indian workers' monthly income ranges from Rs 10,000 (labourers) to Rs 100,000 (technicians)," says an industrialist.

A majority of Indians work in jute, yarn and steel industries. Industrialists often give priority to Indian workers when it comes to hiring as Nepali labourers tend to engage in trade union activities.

Bhim Ghimire, President of Chamber of Industries Morang says brick kilns totally rely on Indian workers as Nepalis usually do not prefer to work in the brick industry. "But it comes with a cost as billions of rupees go out of country through these Indian workers," says Ghimire.

The Bara-Parsa Industrial Corridor, one of Nepal's largest industrial belts, also has a sizeable presence of Indian workers. Of the total 50,000 workforce who work in this industrial corridor, 25 percent are from India.

As per the 1950 Treaty of Peace and Friendship between Nepal and India, no permit is required for Indian nationals working in Nepal and vice versa.   The Articles No 6 and 7 of the Treaty talk about 'providing equal treatment to citizens of both countries with regard to participation in industrial and economic development of such territory and to the grant of concessions and contracts, relating to such development, matter of residence, ownership of property, participation in trade and commerce, movement and other privileges of a similar nature."

Though the government has made it mandatory for foreign nationals to get employment permits to be able to work in Nepal, the Indian side cites the 1950 Treaty between India and Nepal and pressures Nepal not to implement the mandatory employment permit provision in the case of Indian nationals. Experts stress on the need to make changes to the existing practices to safeguard the rights of Nepali workers.  “It is equally true that Nepal as a small country cannot afford reciprocal and equal treatment to the Indian citizens in respect of economic and trade opportunities,” says former Secretary of Commerce Purushottam Ojha.

In February 2019, the Nepal government decided to collect data on the number of Indian nationals working in various industries and enterprises across the country in order to bring them under the purview of the Labor Act. “To my knowledge this is yet to take any concrete shape. This is something that has to be discussed between the two governments. The government should clearly speak its mind to the government of India that the provision of national treatment to the Indian nationals in terms of employment is not tenable and cannot be sustained by Nepal,” mentions Ojha, adding, “I think, this issue certainly had been reflected in the report of the Eminent Persons Group (EPG), which is still to be received by the government of India.”

One major reason behind India imposing an economic embargo on Nepal in 1989 was the Nepal government’s decision to implement the provision of work permits also for Indian labourers. India would not be at any kind of a loss if the work permit provision was implemented. This would in fact make it known how many Indians work in Nepal and in which profession. India would receive remittance from Nepal through the formal channels. Ironically, the southern neighbour has always avoided such transparency. Some people think that India has always protested against the provision of work permits for Indians in Nepal so as to fuel the rumour that Nepal cannot survive without India’s help and that hundreds of thousands of Nepalis would come out onto the streets if India does not help them and to hide the actual number of Indian labourers working in Nepal. If Nepal implements such a provision, then India, too, is free to reciprocate. But India doesn’t want that.

According to Wikipedia, the average annual wage in India is USD 767 whereas it is USD 1,644 in Nepal – more than double in India. It is because of this attractive wage that Indians vie with each other to come and work in Nepal. Thus, Nepal is an attractive job destination for poor rural Indians.

Also, for high level professionals, Nepal is an attractive destination. Indians who once got jobs in Nepal, like to stay in Nepal for good. It has been seen that those who get deputed to Nepal, including those by multinational companies, for some duration, love to leave their jobs and stay in Nepal if they are called back to India.

Unequal Treatment
Historically, India’s share in Nepal’s foreign trade had reached as high as about 90 percent in the 1970s which declined to less than 40 percent by 1990. But, Nepal's dependency with India again expanded following the political changes of 1990.

The pace of this dependency has increased particularly after Nepal and India signed the Treaty of Trade and Treaty of Transit in 1996 with provisions that encouraged Indian companies to set up their bases in Nepal. Subsequently, Indian companies including multinational companies that have a strong base in India, came to Nepal and set up their factories. While the likes of Dabur, Unilever, Asian Paints were the first ones to open their factories in Nepal in the 1990s, Patanjali and entered in recent years.

The Nepal government has imposed minimum customs duties on the import of the raw materials and packaging materials required by these industries also providing protection to them by imposing high customs duties on the import of finished products. This has enabled them to make huge profits and repatriate huge amounts in dividends to India. Yes, this has helped Nepal in the form of FDI as well as revenue. But, employment generation from these companies for Nepali people is quite insignificant when compared to their transaction volume and profit.

Former Joint Secretary at the Ministry of Commerce and Industry, Ravi Shanker Sainju marks 1996 as the starting point for the decline in the fortunes of Nepal industries post-liberalisation.  “The first thing we need to dwell on how we've become an India-reliant country. We missed to pay attention to certain critical aspects of the Nepal-India trade relationship before signing the Nepal-India Trade and Transit Treaties,” he says, adding, “We adhered only to the  principle of reciprocity in the treaty. This led to a sharp decline in our domestic production.”

According to Sainju, India has provided wide ranging subsidies to agricultural and industrial producers and due to the provision of reciprocity in the treaty, Nepali products became much costlier than Indian products hence failing to compete with imports from the southern neighbour.  “In later years, we asserted and convinced the India side to remove the provision of reciprocity in the treaty. However, the results are yet to be seen,” he says.

Non-tariff Barriers Hinder Nepali Products' Market Access
While the Nepal government has facilitated the companies with Indian investment, that reciprocity is not seen when it comes to facilitating Nepali exports to India. Time and again, India has imposed various kinds of non-tariff barriers on the products of Nepali companies established by Nepali investors targeting the Indian market.

The 1996 Treaty opened the Indian market extensively for Nepali products with new provisions for duty-free and quota-free market access. However, the 2002 amendment introduced restrictions in the form of quotas for four sensitive products and defined the rules of origin criteria.

The majority of the banaspati ghee, edible oil, copper and zinc factories that were opened in Nepal (mainly by Nepali investors) with the aim of mainly exporting to India, following the 1996 Treaty of Trade, were forced to shut down due to the quota restrictions. While a few of them are somehow managing to survive, they are limited to the domestic market only.

A 2017 report of the International Trade Centre (ITC), a multilateral agency having a joint mandate with the World Trade Organization (WTO) and United Nations, shows that the largest number of difficult non-tariff barriers are Indian regulations or procedures that account for 18 percent of the burdensome non-tariff barrier cases. As per the report, exporters and logistics service providers face difficulties in India when exporting or transiting. “Exporters’ key concerns relate to Indian authorities not accepting product test results conducted in Nepal, requiring testing to be done in Kolkata, arbitrary decisions of customs officers, slow clearance processes and demand for bribes," states the ITC report.

ITC has said that frequent regulatory changes in India often without prior notice have made conditions volatile for Nepali exporters. The latest victim of Indian inconsistent regulatory change is palm oil exports from Nepal. With India stopping the import of refined palm oil from Nepal, billions of investments made by Nepali businesses are at risk.

Nepali exporters say they encounter several hurdles while exporting goods to India. Countervailing duty on garments, separate license requirements for ginger and agro products export, antidumping duties, quarantine issues, documentation process, quota provision and access gateway limits have hit Nepali exports not only to India but also to third countries. For instance, India has been levying countervailing duty on Nepali readymade garments and antidumping duty on jute products. Likewise, a two-decade-old quota on Nepali vegetable ghee, acrylic yarn, copper utensils and zinc oxide is still in place which has held back exports to the southern neighbour.

Nepali industrialists and businesspersons lament that it has become a common practice in India to discourage Nepali exporters through planned stringent measures, from issues such as quarantine at the Indian customs points to forcing them to make informal payments, and asking them to get their products tested and certified from accredited Indian laboratories which are hundreds of kilometres away from the customs point.

"Such testing and certification take from 15 to 21 days to complete. However, even after producing a quality certificate, there is no guarantee that the goods would be allowed entry into India," says a Nepali exporter.

Nepali exporters say they often face the discretionary work style of Indian customs officials who put forward various conditions at different customs offices for the same goods. Whether the Nepali goods are allowed to enter India depends entirely on the whims of the Indian customs officials. But the ‘harassment’ the Nepali exporters face at the Indian customs offices is not limited to this. Indian customs officials arbitrarily change the categorisation of Nepali goods so that the exporters get discouraged. For example, there is the practice of categorizing raw ginger as dried ginger so that a five percent Goods and Services Tax (GST) could be charged as there is no GST on raw ginger. Similarly, it is a general practice at the Indian customs offices to force Nepali exporters to declare the bark of the Kaulo tree (cassia or fragrant bay tree) as Kaulo powder.

Nepal has been raising the issue of non-tariff barriers with its largest trading partner India at almost every high-level conference including intergovernmental meetings. The Indian government has made repeated promises to address Nepal’s pleas, but exporters have experienced no respite so far.

While exporters continuously highlight the stringent non-tariff barriers that have created difficulties for them, experts see things in a different light in this respect. “We should always bear in mind that every country first looks into the commercial interests of its own rather than of its neighbours. Accordingly, countries adopt tariff and non-tariff measures in order to protect their domestic production from competition abroad,” says former Commerce Secretary Ojha.

According to him, the measures of protection are generally antithetical to the WTO principles. Ojha thinks that the kind of measures adopted by the importing countries should be looked at from certain perspectives- whether measures taken for restrictions are genuine or not. “The concern about the protection of public health, public morale, ethics or security may be genuine, but the measures for protection of domestic production in disguise are considered to be antithetical to trade norms,” he opines.

To resolve the problems created by non-tariff barriers, Nepal needs to effectively raise the issues during trade talks with the southern neighbour. “Addressing the issue of non-tariff barriers cannot be a one-time job as new measures may crop up with the passage of time. Hence, we should focus on carrying out a regular and effective dialogue in order to report the incidence of non-tariff barriers and find out measures to address them,” says Ojha. He suggests that the current mechanism of the inter-governmental committee (IGC) should be reviewed and an effective dialogue forum needs to be created between the two governments.

Sainju expresses similar views. According to him, it is obvious for the Indian side to toughen the requirements for Nepali exporters in order to promote their own products. “Not only raising these issues during trade negotiations, but also having a commitment to work towards resolving the problems is important,” he expresses.

Unfair Transit Trade
India almost controls the freight forward and transit transport trade of Nepal. The sea route available to Nepal is in the command of India. Indian operators control the transport of export and import goods through the sea, from the port to the Nepal border and even within Nepal. India presents this, allowing Nepal to use its sea ports, as doing a special favour to the northern neighbour. 

But in reality, India is deriving huge benefits through these facilities provided to Nepal in terms of various fees and charges. The transit facility provided to Nepal is a highly profitable trade for India. In the Nepali fiscal year 2019/20, over 100,000 overseas containers were transported to Nepal through Indian ports. On average, some 1,500 trucks carrying goods enter Nepal from India daily. The Indian trucks have access to any part of Nepal, a small country where it is possible for a truck to reach anywhere from anywhere within a day or two. But Nepali trucks are not allowed to cross the Indian border. This has secured jobs for hundreds of thousands of people in India.

The way the ports and transport systems in India operate for Nepal is such that the transaction costs for Nepal’s trade becomes artificially high. On the other hand, these operating systems are indirectly promoting Indian businesses.

This is the reason why India is very sensitive towards any change that Nepal tries to adopt. A case in point is the Indian rejection of Nepal’s proposal to use Nepali tankers to carry liquefied petroleum gas (LPG) from India to Nepal. Though India has cited security concerns in this respect, the reality is the business profit from this trade.

Also, the Inland Container Depot (ICD) in Birgunj, the main trading point of Nepal, has been in the control of an Indian company ever since the depot came into operation about a decade ago. Its management was till recently under Himalayan Terminals, a company in which Container Corporation of India Ltd. (CONCOR), a government of India undertaking, is the main shareholder.

Recently, another Indian company Pristine Logistics got the control of the Birgunj ICD for five years with a provision for renewal for another five years. Also, the railway agreement between Nepal and India is such that the private operators have no chance to enter the business. The rail service into ICD to and from Indian ports is still under the monopoly of CONCOR, a publicly listed unit under the Indian Railways. CONCOR has made very good use of this monopoly charging hefty service fees.

The instance of India’s goods movement to north-eastern states needs to be compared with this situation. The surface transport to reach the eight states of India’s North East is difficult and lengthy. It is about 1,600 kilometres from Kolkata to Tripura in the North East. But thanks to a goodwill gesture of Bangladesh, this distance is shortened to 500 kilometres.

However, India has not yet taken steps to ease the transit facilities between Bangladesh and Nepal or between Bangladesh and Bhutan.

Meanwhile, India has proposed that Bangladesh allow power transmission through Bangladesh to evacuate the electricity generated in big hydro projects in India’s North East and to supply it to Indian power demand centres. In response, Bangladesh has proposed a regional power grid agreement among Nepal, India, Bhutan and Bangladesh.

Due to political stability, Bangladesh has been making rapid economic growth in recent years. For a long-term sustainability of this growth, Bangladesh needs to have a reliable power supply arrangement. For that reason, Bangladesh is looking for power supply from hydro projects in Nepal and Bhutan. The realisation of this plan depends entirely on Indian cooperation. But there are no indications that India is ready to cooperate.

Informal Trade
There is another side to the situation of exports from India to Nepal. According to studies carried out by Nepali as well as foreign researchers on various occasions, such informal imports into Nepal is about 35 percent of the total formal imports from India. On the basis of this estimate, the informal import from India to Nepal in the last fiscal year comes out to be about Rs 312 billion.

India always complains that the goods imported from the third countries are smuggled to the Indian market via Nepal. But it is just a publicity stunt. The real sufferer is Nepal, not India. The Nepal government has always tried to address this concern of India. The recent ban on peas, black pepper, betel nuts and dates was imposed more out of India’s interest than that of Nepal.

Nepal police personnel deployed along the Nepal-India border seize such goods being illegally exported to India from time to time. Newspapers have been frequently reporting such seizures. But India has never shown any interest in controlling informal exports from its land to Nepal. Nepali industrial and trade sectors have been adversely affected by the unauthorised imports from India. The illegal trade across the border not only makes a big dent in the Nepali economy but also affects its society, as major items of such illegal exports from India into Nepal include spurious and banned drugs.

Bordering Indian Towns Thrive on Nepali Customers
Recently, different Indian newspapers published news reports that the Indian traders in Rupaidiha, an Indian town across the border at Nepalgunj warned the local administration that the Nepali customers should be allowed to enter Rupaidiha bazaar otherwise it would turn into a graveyard.  There are about 229 such small/big Indian towns like Raxaul, Jogbani and Nautanwa adjoining the Nepal border. The business and trade in all these bordering Indian towns is almost totally dependent on Nepali buyers.

Nepal has set up a total of 160 customs points – 25 main customs points and 135 minor customs points – along its border with India in a bid to facilitate trade between the two countries. On the other side of the border at these customs points, there are Indian bazaars corresponding to the size of the Nepali bordering towns. There are bigger Indian markets across the border at the main customs points and smaller Indian markets across the border at the minor customs points.

Just recently, the BBC Hindi Service reported that the businessmen and traders in these bordering Indian towns were facing a great financial crisis as the Nepal-India border remained closed due to the lockdown to fight the Covid-19 pandemic. It’s the Nepali customers who have saved their livelihoods. Ironically, intellectuals in Nepal and India never want to bring this aspect to light. If there are no Nepali buyers then 17 bordering Indian districts are sure to face economic recession, loss of employment and the whole region will have to go through extreme poverty.

Buying Indian Currency
It’s not easy to earn convertible foreign currency such as the US dollar. But India has been easily buying the US dollar from Nepal with Indian currency which it can print at will. In fiscal year 2018/19 alone, Nepal purchased Indian Rupees 300 billion by paying in US dollars. For this, Nepal had to spend its hard-earned money of about USD 430 million. One of the major reasons behind the scarcity of Indian currency in Nepal is Nepal’s growing trade deficit with India. India has been benefitting a lot from this kind of transaction.

But even this aspect of the Nepal India trade is widely publicized, both in India and Nepal, as Nepal’s weakness and India’s generosity. To continue this unique trade of buying the US dollar by printing Indian paper notes, India continuously intervenes in Nepal’s policy making level. Nepal is paying US dollars and buying the Indian currency which is not acceptable anywhere else except in Bhutan.

The Truth Behind Grants
When the 2015 earthquake hit Nepal, India announced assistance worth USD 1.08 billion to Nepal which seemed to portray great generosity. But the reality is very different.

In the five years since the earthquake, India has provided only USD 682,839 which is a mere 0.6 percent of the total commitment. This percentage is 57 in the case of the European Union and 32 in the case of other countries.

In recent years, India seems to be more interested in providing loans to Nepal than grants. In fiscal year 2018/19, India provided a total loan assistance of USD 45.95 million to Nepal for different projects. However, of these projects, only four are in operation now. India has set a goal of spending USD 15 million in Gorkha and Nuwakot under its ‘Nepal Housing Reconstruction Project, as a multi-year assistance. But the Indian assistance in this project, which was said to commence in 2017, is more social and technical than financial. India, Nepal’s biggest trading partner, does not figure even in the top five in the list of the countries providing grant assistance to Nepal in 2018/19. On the other hand, India is in fourth position in the list of countries providing loan assistance to Nepal.

In terms of technical assistance, a major sector for foreign assistance in Nepal, India again is not in the list of the top five countries. In 2018/19, India’s total assistance to Nepal stood at USD 58,944,224. Of this amount, only USD 10,580,020 is grants while USD 2,308,853 is technical assistance and USD 45,955,351 is loan assistance. In this way, the share of India’s grants, technical assistance and loans to Nepal is 18 percent, four percent and 78 percent, respectively.

Nepal-India trade
During Rana rule and before that, it can be found that Nepal had adopted the strategy of exporting to India through the maximum utilisation of the available means and resources increasing competitiveness of Nepali products. Back then, primary products from agricultural land, forests and mineral ores and the handicrafts and other goods based on these three natural resources formed the main bases of Nepal’s economy. According to the notes taken by the customs collector in Tirahut (Saptari district in Tarai) in 1770 BS, timber, timber-based products, paddy, rice, other grains, woolen blankets (Bhote Kambal), cotton, cardamom, oranges, wax, medicines, rosin, catechu (Kattha), incense, iron, rhino horns and hide, myna birds, parrots, hawks etc, used to be exported to India.

A hundred years later, according to the records maintained by authorities of British India, food grains, mustard seeds, animals, musk, swertia (Chiraito), timber, cardamom, yaks and their tails, ginger, aromatic grass, fur and hawks used to be exported to India. In this way, in those 100 years, India seemed to be an export market for Nepal’s primary goods (Regmi: 1971). Similarly, hashish (Chares), musk, woolen blankets, hawks, horses etc from the mountainous region and cotton, cardamom, herbs, copper, iron and other metals and handmade products such as cotton clothes, woolen products, iron, copper and brass utensils, Khukuri knives, shoes, bangles, and paper from the hills used to be exported to India. Also raw copper and copper coins used to be exported in huge quantities from Nepal to India.

According to historian William Kirkpatrick, all copper, copper utensils and coins used across India would come from Gorkha (Nepal) till 1806 and that copper was produced from ores in places including Palpa. Most of the iron and iron goods used in north India, too, used to be supplied from Nepal. Nepal dominated in the export of rice and timber (Sal and Catechu wood) to India. (Regmi: 1971)

Nepal was in a solid position not only in terms of raw timber but also in terms of processed goods made from timber. A huge base of the timber industry was built in Nepal’s Tarai region. In terms of quality as well, Nepali products were much better than the products from around the world back then. The cotton produced in Nepal’s hills would be considered much better than the Bengali cotton. The Nepali Sakkhar (solidified sugarcane juice), too, was number one in the whole of south Asia. Similarly, Nepali iron, too, was inferior to none in the world. According to Kirkpatrick, land in the hilly region of Nepal was valuable not only for agriculture but also because of ores. There were enough deposits of ores of copper, iron, lead, gold etc in Nepal. There was enough production of wool in the mountainous region. It has been mentioned in Kirkpatrick’s notes that the quality of Nepal’s copper was a lot higher than that of European copper (Regmi: 1971).

As long as the Indian Railway did not have access to Nepal’s bordering areas, export of Nepali goods to India would take place by the rivers flowing from Nepal to India. According to Francis Buchanan Hamilton, a single boat would transport up to 20 metric tonnes of goods down the Koshi River. Elephant export, too, was an important part of Nepal’s export trade back then. According to an estimate by Kirkpatrick, around 1773 AD, annually two to three hundred elephants used to be exported to India from Nepal’s Koshi Tappu alone. To facilitate the exports, there were gola mandis (wholesale market centres) in different places (Regmi: 1971, 1984).

Even as early as the initial decades of the 20th century, Nepal’s export situation was quite okay. But, the statistics of the first couple of decades of the 20th century show that the export of Nepal’s metal, wool and timber-based products mentioned in Kirkpatrick’s notes had almost ended because of the shrinking of the Nepali land area, thanks to the Sugauli Treaty. Despite that, until 1920/21, Nepal had a trade surplus with the southern neighbour. In 1900, for instance, Nepal’s total exports to India stood at about Rs 23.6 million and imports at Rs 16.3 million, resulting in a trade surplus of about Rs 7.3 million for Nepal. (Singh and Khanal: 2008)

Similarly, in 1913/14 and 1920/21, Nepal’s export to India stood at Rs 42.5 million and Rs 59.7 million, respectively, while Nepal’s total imports from India in these years stood at Rs 20.4 million and Rs 28.3 million, respectively (Singh and Khanal: 2008).

Bilateral trade during Rana period 
Analysing the facts mentioned above, it can be proved that the belief that Nepal was a mere exporter of raw material before 1923 doesn’t hold true. Nepal’s export back then was a good mix of raw materials and processed goods. Producing raw materials based on agriculture, minerals and forests and their processed products with the aim of exporting them was a feature of Nepal’s foreign trade back then. Nepali goods with one hundred percent value addition used to be produced in sufficient quantities to meet the demands of the Indian market. Because those goods were better than the goods from other countries in terms of quality, Nepal enjoyed a monopoly of sorts in such products in this region’s export trade. If one goes through Nepal’s history, then it becomes clear that the Sugauli Treaty of 1816, the Nepal-Britain Treaty of 1923 and the Nepal India Treaty of Peace and Friendship of 1950 were aimed at gradually weakening Nepal’s economy and ending Nepal’s dominance in the region’s trade. This is made evident by the degradation seen in Nepal’s exports following each of these treaties.

The issue of herbs: 
Nepal has been producing many types of herbs. But India doesn’t allow the export of all Nepali herbs to India. India periodically issues lists of the herbs to be imported. There is zero-tariff arrangement between the two countries for the import/export of raw herbs. But Indian customs have a practice of charging extra tariffs even if there is very little value addition. Nepali products such as herbs, ritha (the Nepali soapberry), cardamom, ginger, tea etc are being exported to India. The same Nepali products are further exported to third countries by India at much higher prices claiming it as Indian products. Any initiative by Nepali exporters to export the Nepali herbs directly to the third countries is thwarted by the various artificial arguments put forward at various places of transit - from the Indian customs points to the sea ports, lament exporters.

Examples of barriers created by India on Nepali goods' export
Nepal’s export to India faces a most uncertain fate. The kind of treatment the Nepali goods receive at the Indian customs depends upon the interest of the Indian businesspersons and quantity of those products being produced in India. The way the lorries carrying Nepali tea are approached at the Mechi Customs Point is determined at the behest of the tea producers in Darjeeling and Assam. Not that long ago gourds and ladies fingers to be exported to India via Mahendranagar were stopped at the border overnight under pressure from the farmers in Pilibhit. Whenever there is a good production of ginger in South India, the Nepali ginger is made to rot at the Indian customs point under the pretext of quarantine measures. Similarly, to make the Nepali herbs less competitive in the market, inter-state taxes are imposed from time to time. In conclusion, though India has agreed to provide zero-tariff entry to most Nepali products, it controls imports from Nepal using non-tariff barriers.

Value Addition: According to the treaties and agreements signed between the two countries, Nepal can freely export goods with certain percentage of value addition and India has to accept the certificates of origin issued from Nepal. But contrary to the provisions in the agreements, India has been imposing import bans through notices. The ban on the import of palm oil imposed by India recently is an example of this. The truth is the Nepali entrepreneurs have been making enough value addition to the palm oil to meet specified levels.

Nepal’s four export goods controlled by Indian traders:
Indian traders have full monopolistic control over the tea, cardamom, ginger and herbs exported from Nepal to India. Given the fact that the tea gardens in India are quite old, India imports the green tea from the young tea gardens of Nepal and exports the same tea abroad under its own brand. Similarly, it’s an old strategy of India to import Nepali cardamom, ginger and herbs as an importer with monopoly and export them abroad including to the Middle East countries. Under this strategy, an Indian network is always active in Nepal so as to thwart Nepal’s efforts to export these four goods directly to other countries.

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