India liberalized its economy in 1991 which opened up trade and investment. Nepal also liberalized in the 1990s and signed a bilateral trade treaty with India in 1996 to support reforms. India remains Nepal's largest economic partner, accounting for over 40% of Nepal's trade. However, issues remain around the trade imbalance, unauthorized trade, and security concerns along the porous border. Both countries are exploring opportunities to increase cooperation in areas like hydropower, tourism, education, and foreign investment.

1. By
Ashwini kumar

2. Economic Liberalization in India
 New industrial policy , 1991
 Abolition of MRTP act
 Setting up of SEBI
 Investment by FII
 Establishment of Policy regimes for the functioning of NBFC’s and agencies for
rating their credit worthiness

3. Economic Liberalization in Nepal
 Nepal opened up its economy in early 1990’s with the adoption of economic reform
package
 The bilateral treaty signed with India in 1996 supported the trade reform program of
Nepal
 Financial reforms were also carried out to support trade and industrial reforms
 Nepal’s Accession to World Trade Organization (WTO)
 Comprehensive Economic Reform Program, 2002

4. Trade Policies of Nepal
 The role of public sector will be minimized
 Improve balance of payments position
 Production of quality goods and services through effective and appropriate
utilization of economic resources.
 Public sector trading corporations will gradually be privatized taking into
considerations the development and efficiency of the private sector.
 Institutional development for the promotion of foreign trade
 Modernizing management and technology

5. Export Policies of Nepal
 Production and quality of exportable products to make them competitive in the
international market
 Increase and diversify exports of goods and services
 More emphasis on the export of profitable but processed and finished products
 Export of hydro-electricity on a profitable basis
 Export promotion will be provided on an institutionalized basis

6. Indo-Nepal Economic Relations
 India was the most important donor to Nepal in the early decades after the
independence of India.
 Areas of economic relation were mainly confined to the basic infrastructure.
 The number of aided projects gradually declined after 1985.
 Indian assistance to Nepal has increased over the years since Liberalization.
 Formation of High Level Task Force (HLTF)

7. Indo-Nepal Trade Relations
(Historical
Perspective)
 Kautilya (400 B.C.), great economist of that time, mentions Nepal as the principal
exporter of woolen goods.
 Imports and exports of goods between India and British India would be subject to
2.25 per cent customs duty according to 7-clause treaty proposed by East India
Company.
 In the early days, foreign trade of Nepal was limited mainly with India and Tibet.
 The development of good transportation system and the creation of many trade
centers in the northern India further helped to enhance the trade turnover between
Nepal and India.

8. Foreign Trade Structure: Till Early 1990s
 Nepal’s exports to India comprised of 98.7 per cent of the total exports since
1956/57 to1970/71.
 The export share of Nepal’s exports to India came down to 75.4 % in 1975/76, 40 %
in 1985/86, 21 % in 1990/91and 9.6% in 1992/93.
 The percentage of exports to India in total trade decreased from 36.1 to 11.6 in
1992/93 but later it was reversed.

9. Foreign Trade Direction : 1990s
Onwards
 The total foreign trade increased except 2001/02.
 The proportionate share of the Nepalese export to India was 16.3 percent for the
period of 1991/92 to 1996/97.
 The share of export to India significantly increased and reached 43.6 per cent in the
period of 1997/98 to 2001/02.
 The average annual import from India increased from 31.8 percent in 1991/92 to
1996/97 to 37.5 percent in 1997/98 to 2001/02 of the total import of Nepal due to
Treaty of Trade 1996.

10. Major Export Trade Partners of Nepal (%)
Countries 2001-02 2002-03 2003-04 2004-05 2005-06
India 59.0 52.9 57.0 66.6 68.3
U.S.A 19.8 25.4 18.0 13.0 11.6
Germany 8.5 7.1 6.6 5.3 4.7
France 1.0 0.9 1.1 1.1 2.2
U.K 1.7 2.1 3.1 1.8 2.0
Italy 1.2 1.1 1.1 1.0 1.2
Canada 0.6 0.8 1.0 0.9 1.1
Japan 1.0 0.9 1.0 0.9 1.0
Bhutan 0.1 0.1 0.1 0.3 0.4
Bangladesh 0.5 0.8 0.8 0.5 0.4
Thailand 0.1 0.2 0.2 0.1 0.1
Source: Trade Promotion Centre

11. Direction of Nepal’s Foreign Trade (%)
Fiscal Year Exports to India Import from India
1960-61 99.8 94.2
1995-96 18.5 32.8
2001-02 59.5 41.1
2005-06 68.3 67.1
Source: Trade Promotion Centre

12. Nepal-India Trade Treaties
 Treaty of Peace and Friendship in 1950
 Treaty of Trade and Commerce in 1950
 Indo-Nepal Treaty of Trade 1991
 Agreement of Cooperation to Control Unauthorized Trade. 1991
 Revision in Indo-Nepal Trade Treaty, 1991 and Treaty of Transit, 1991

13. Contd…
 Indo-Nepal Trade Treaty, 1996
 Agreement of Cooperation to Control Unauthorized Trade, 1996
 Treaty of Transit: Modifications in 1996
 Treaty of Transit, 1999
 Indo-Nepal Treaty of Trade, 2002

14. Renewal of treaty
India is Nepal’s largest economic partner and accounts for more than 40%
of its trade. India has suggested some changes in the treaty, which are as
follows: -
 Curb the import of Nepali hydrogenated cooking oil, acrylic yarn, copper
wires, steel pipes and zinc oxide as this is hurting domestic production
 India has complained about cheap Chinese goods entering India through
Nepal, a charge that Nepal denies.

15. Areas of disputes
 Security concerns: - New Delhi is concerned about the use of
Nepali soil by the Pakistani agency ISI for subversion activities in
India.
 Boundary dispute:- The Boundary Committee to prepare ‘Strip
Maps’ of the boundary areas.
 The treaty of 1950:- Nepal is keen on reviewing some of the
security clauses of the 1950 treaty.
 Extremist activities :- India and Nepal have decided to intensify the
crackdown on cross-border terrorist.
 Water dispute: - It was decided to complete the detailed project
report on the construction of the 6000 MW Pancheswar Dam on the
Mahakali River.

16. Cont……
 Trade Dispute:- Both the Prime Minister directed that the Inter-
Governmental Committee on trade and transit and unauthorized trade,
headed by the Commerce Secretaries of the two Governments, be
convened soon to address certain issues in a constructive manner.
An agreement on science and technology was also finalized. The two
Prime minister agreed that the large hydro-electric potential needed to be
tapped in an environmentally sustainable manner on both side of the
border.

17. Problems
 Trade imbalance
 Inadequate market
 Frequent revision in duties and rules
 Administrative and Procedural Complications and delays
 Unauthorized trade
 Understanding and Good faith

18. Prospects
 Hydroelectric power
 Tourism industry
 Education and Training
 Mineral exploration and exploitation
 Information and Communication technology
 Foreign Direct Investment in Nepal
 Privatization of State-owned Enterprises (SOEs) in Nepal
 Investment Environment in India