January 1, 1997 Sujeev Shakya

Made in Nepal, Exported to India

The new Indo-Nepal trade treaty signed on 4 December 1996 will allow, for the first time, goods manufactured in Nepal access to the Indian market free of custom duties. The treaty does not include cigarettes, alcohol, perfumes and cosmetics, but pretty much everything else. The benefits that can accrue to Nepal is therefore immense. India is Nepal´s largest trading partner, but the reverse is hardly true. The trade imbalance is massive, and in India´s favour. The trade treaty, with the stroke of a pen, now makes it feasible to set up manufacturing units in Nepal solely for the purpose of exporting across the border. The fragile economy of a landlocked country like Nepal has only this option to correct its adverse balance of payments, and now it is available.

Planners have since long ago suggested that it will be much cheaper to market Indian brand products manufactured in Nepal in Bihar and Uttar Pradesh than to transport from production centres in far comers of India. The Nepal tarai has a tremendous advantage as a manufacturing region because transportation costs would be minimised. At the same time, Nepal´s more relaxed laws on import of third-country machinery coupled with cheaper labour provides more competitive advantage.

The signing of the treaty has thus ushered in a new dimension to the regional trade scenario. The treaty was achieved through concerted lobbying by Nepali and Indian businessmen, each in their own capital. The treaty document largely follows the recommendations of a task force set up jointly by the Confederation of Indian Industries and the Federation of Nepalese Chamber of Commerce and Industries.

The private sector´s active role in the Indo-Nepal treaty´s formulation has also provided an precedent for activating the other economic linkages in South Asia. It might be feasible to tackle bilateral trade issues even as work on a regional economic opening up continues through the SAPTA preparations.

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