ECONOMIC INTEGRATION KEY TO DEVELOPMENT
Gone are the days of boosting only historical and cultural ties. In the age of economic integration, Nepal needs to take more advantage of the Indian market.Our historical and cultural ties need to be updated as well as redefined. There will have to be more economic cooperation that can lead both nations -- Nepal and India – to prosperity, senior economist Bishwambher Pyakuryal says.aNepal has long failed to tap its 1.26-billion- people-strong market in the south, which could have also been a door to economic integration benefitting both countries, he says, adding that the age-old customs procedures, rough roads along boarders, and rising informal trade are only some of the roadblocks to joint economic cooperation between the two South Asian neighbors. ent environment.The democratic movement of 1990 that propelled economic activity in Nepal has also opened new avenues for trade with India due to liberal economic policy.
However, it could not last long as Nepal's exports sector quickly started drifting and led to huge trade deficits.Though tariff and non-tariff issues, and bureaucratic mindset have been blamed for long for the increasing trade deficit and low trade volume between Nepal and India, recent political changes in India have shone some rays of hope.
After the rise of Prime Minister Narendra Modi in India, there are some rays of hope as he has been vocal about giving priority to economy in India's relation to Nepal, Pyakuryal says, suggesting to follow the bilateral economic agreements that are tools to economic integration.
The recently-signed petroleum pipeline deal -- after two decades of talks, and the operationalization of the Pancheshwor Multipurpose Hydropower project are some of the indications that the relation between Nepal and India is going to redefine itself through more economic integration.However, the picture is not all rosy. "Nepal needs to increase factors of production if it wants to increase exports to India and bridge the ballooning trade deficit," former commerce secretary Purushottam Ojha says.
Increased connectivity -- air routes, roads, and telecommunications -- and an updated Nepal-India Trade Agreement would propel Nepal-India trade, he says, adding that Nepali entrepreneurs should also lobby for intra-industry trade promotion.As Nepal is fast losing its competitive and comparative advantage with India in exports, the country has to promote agriculture and non-timber products that hold some amount of advantage over India, Ojha suggests.Likewise, decreasing labor productivity and lack of power are yet more road blocks in the way of increasing Nepal's exports to India.
"Nepal needs to attract more foreign investment in the power sector that can not only help manufacturing industries flourish in Nepal but also export power to energy hungry India," Ojha says, adding that Nepal should also promote services trade like health care and education to bridge its trade deficit.Nepal offers tourism, agriculture, information technology, social media, and the meat and dairy industry as investment opportunity areas for Indian investors.
Despite various hindrances, the Nepal-India Trade Treaty 1996 -- a milestone in industrial development in Nepal that helped generate tremendous increment in bilateral trade -- and its subsequent amendments in 2002 and 2009, and other important treaties and agreements like the Transit Treaty, the Agreement of Co-operation between Nepal and India to control Unauthorized Trade (2009) and its subsequent amendments, the Bilateral Agreement Concerning the Power Trade, the Amendment in Agreements to Avoid Double Taxation and Prevention of Fiscal Evasion (DTAA) with respect to Taxes on Income, the Bilateral Investment Promotion and Protection Agreement (BIPPA), the Mahakali Treaty, and the recent Petroleum pipeline agreement have opened new avenues for larger economic cooperation between the two countries.Likewise, the recent Motor Vehicles agreement among four -– Bhutan, Bangladesh, India and Nepal –is also expected to smoothen connectivity between Nepal and India leading to more free flow of passengers that would promote joint tourism.
However, Nepal needs to exploit the opportunities that India -– its largest trading partner –- offers if it wants a more prosperous future, Pyakuryal suggests. "The need of the hour is also effective economic diplomacy."India is also the largest source country of foreign direct investment (FDI) that has helped the industrialization of Nepal. It has also helped, albeit a lot less, to reduce its trade deficit with India.Nepal received FDI commitment of Rs 67 billion in Fiscal Year 2014/15."As in the past, India remained the major FDI source country for Nepal, accounting for 52 percent of the total FDI commitment," according to Nepal-India Chamber of Commerce and Industry President Shashi Raj Pandey. Apart from government-level engagements, private sector engagement should also be encouraged to strengthen the economic ties.
Indian industries have been doing encouraging business in Nepal despite a decade-long armed conflict.Besides the two giants Dabur and Unilever, around two dozen India-based industries have been operating in Nepal. However, they have long been asking the Nepali government to simplify and shorten the process of repatriation of dividend to parent companies, in addition to investor-friendly labor laws, consumer-friendly regulations – like tax rebate in insurance sector, and protection of intellectual property rights, among others, for a more conducive environment.The Indian entrepreneurs also claim that more Indians are willing to come to Nepal for investment, if Nepal creates more conducive investm