Nepal-India Trade, Transit And Unauthorized Trade: Some Considerations

The meeting of the Nepal-India Intergovernmental Committee (IGC) on Trade, Transit and Unauthorized Trade Cooperation was recently held in Kathmandu. It is good for both countries that the meeting of the Nepal-India Intergovernmental Committee (IGC) on Trade, Transit and Unauthorized Trade Cooperation was held in Kathmandu on January 10-11, 2025 with various agreements. At the request of the Nepali side, the Indian side had agreed that the maximum permissible weight of two-axle vehicles and 28 tons for three-axle vehicles as per the prevailing regulations of the Ministry of Road Transport and Highways will also be applicable to Nepali vehicles. This is expected to be a milestone in the import and export of cargo via the Kakadbhitta (Nepal) – Bangla (Bangladesh) – Phulbari (India) route via the cargo in-transit route.

This meeting of the IGC, a bilateral mechanism for strengthening trade and investment relations, seems to have comprehensively reviewed the overall aspects of bilateral trade and economic relations.

Both sides reviewed issues related to mutual market access, IPR and tariffs. In addition, the agenda also discussed the review of the Transit Treaty and Trade Treaty, proposals for amendments to the existing agreement, harmonization of standards and coordinated development of trade infrastructure, including electrification of the Raxaul-Birgunj railway.

The meeting was positive in that the Indian side informed that it had accepted Nepal’s request for the supply of two lakh metric tons of wheat.

Responding to the request of the Nepali side, the Indian side informed that sal seeds and chayote have been included in India’s Plant Quarantine Order.

Request for Jatamasi – Root Extract; Sugandhakokil Berry Extract; Sugandhawal Rhizome Extract and Taimur Berry Extract have also been accepted in the list of processed goods (plant products).

The Confederation of Indian Industry (CII) and the Federation of Nepal Chambers of Commerce and Industry (FNCCI) organized the second edition of the Joint Business Forum recetly .

It will provide an opportunity for businessmen from both sides to highlight their suggestions for improving the ease of doing business in terms of bilateral trade and investment.

India has become the largest trade and investment partner for Nepal, contributing significantly to both Nepali imports and exports. Nepal needs to make extensive use of the economic and trade opportunities available in India, but has not been able to do so due to the following problems.

Weak productive capacity, inadequate infrastructure, low foreign direct investment, lack of effective institutional mechanisms to address the emerging issues, etc. are the major ones. Inefficient trade facilitation infrastructure with complex rules and regulations, lack of coordination between trade and transport agencies, inconsistent reporting of trade data.

Absence of a recognition board, and low margin of preference, more emphasis on formalities than trade like the Intergovernmental Committee and IGAC, Small Scale Industries (SSI) products are facing difficulties in exporting due to complexities in the rules of origin; The definition of SSI products should be in line with the provisions of the Industrial Policy-2010. Oil pipeline will be a boon for the economy.

The Nepal-India Cross Border Petroleum Pipeline Project is in operation after more than 20 years of planning. The support and cooperation of the Government of India is expected to establish modern quarantine and pesticide check posts, keeping in mind the people-to-people relations regarding fruits and vegetables imported from India.

In terms of technical assistance delivery, the private sector has suggested, which may be wrong, that it could be developed as a project funded by the G2B mechanism so that the funds can be used more effectively by the recipient.

This would lead to greater transparency and greater impact. India’s trade with Nepal has increased significantly. Nepal should also benefit equally. But how?

Modalities need to be discussed. Trade and transit agreements should also include transport, despite progress in trade, Nepali traders still face many obstacles in transporting goods through Indian territory.

In the past, the increasing traffic at Kolkata Port, lack of adequate number of rail rakes, congestion at Birgunj Inland Container Depot, full operation of Birgunj Integrated Check Post and excessive documentation process were the major ones.

There is a need to implement a single window system and online document verification to reduce the number of days in cargo movement. In addition to accelerating the implementation of Integrated Check Post (ICP), implementation of an electronic cargo tracking system, Nepal should optimally utilize Visakhapatnam Port and also think about Dhamra Port for future transit traffic.

Nepal is facing a huge trade deficit with India, which is a matter of serious concern for Nepal’s economic and sustainable development. Therefore, Nepal expects the support of the Government of India in this regard. To ensure reciprocal trade relations, it can help create a conducive environment for the export of Nepali products to the Indian market.

The private sector wants to operate in a free and fair environment where both governments work to promote and welcome investment with an open heart – both in Nepal and India.

There are ample opportunities for Indian investors to operate in Nepal. This is the right time to invest in big projects in Nepal, especially when we are talking about helping Nepal rebuild and various laws and a single-door system are in place.

Due to its strategic geographical location, Nepal can be an ideal place for the Indian private sector to base its business. From Nepal, it can tap into the markets of India and China, two of the world’s most populous countries, at once.

Moreover, there is always the local Nepali market. If there is any doubt about the return on investment in Nepal, one can look at the success stories of Ncell, Dabur, Unilever, Surya Nepal, which have done wonders in Nepal with relatively small investments.

There are ample opportunities in the hydropower sector too. Indian companies have already entered Nepal’s hydropower projects. Nepal has a potential to generate 83,000 MW of hydropower, which is yet to be fully explored.

There is also great potential for building an east-west railway along the southern length of Nepal, as well as a north-south highway that would facilitate India-China trade. Imagine – people coming to Nepal to climb Mount Everest take a cable car from the base camp to the Mahabharata Mountains, from where they take a bus to the Terai of Nepal to enjoy the breathtaking views of the mountains. From the Terai, they get a direct express train to the Taj Mahal. Who wouldn’t want to take such a trip? Imagine – people visiting Bodh Gaya take a bullet train to India’s Buddha Circuit and reach Lumbini, Nepal, from where they take a helicopter to trek to the great Boudhanath Stupa in Kathmandu and the northern Himalayan monasteries of Mustang.

Embarking on a tourism journey will add a new chapter to the Nepal-India friendship. This is an area that can strengthen the economies of both countries.

For a country like Nepal, the economic returns from tourism can be unprecedented. It can make Nepal’s reconstruction efforts self-reliant and sustainable. The Nepal-India Intergovernmental Committee (IGC) has reviewed all areas of bilateral trade and economic relations.

The IGC is a bilateral mechanism aimed at strengthening trade and business relations between the two countries. The agenda included discussions on issues such as electrification of Raxaul-Birgunj railway, review of transit and trade agreements, proposals for amendments to existing agreements, coordination of standards and gradual development of trade infrastructure. Both sides also reviewed issues related to mutual market access, IPR and tax. In addition, at the request of the Indian side, the Nepali side has said that it is positive to review the document on reclassification of products such as ‘IPAQE 28’ in its technical system.

The Indian side informed about the problems seen in milk exports in Nepal. The Nepali side has agreed to positively consider the request made by the Indian side for dairy products such as whey, cheese, which are not produced in sufficient quantities in Nepal.

The recently concluded IGC meeting welcomed bilateral initiatives to strengthen seamless cross-border connectivity between Nepal and India, including through the construction of new integrated check posts and railways.

The two sides expressed their commitment to further enhance bilateral connectivity, reflecting a shared vision of prosperous bilateral trade. The two sides have agreed to form a joint working group to discuss online clearance with Nepal and the South Asian Free Trade Area (SAFTA).

Article 4 of the treaty currently provides that both countries shall not impose basic customs duties and quantitative restrictions on primary goods produced in each other. In addition, the current protocol of the treaty provides for the prohibition of re-export of goods produced in third countries to each other, but there has been a demand from the private sector to provide re-export facilities for some goods.

This is especially true given the increased cost of importing such goods that are available cheaply in India from third countries. The Nepal-India Trade Treaty also provides for the prohibition of granting lesser facilities to each other than those granted by a treaty agreement with a third country. Traders have been complaining that India is obstructing the export of Nepalese goods by showing the standards of the Indian quality mark. Therefore, the Nepali private sector expects India to recognize the certificates issued by the government agencies of both countries and to provide support in capacity building. In this context, the Nepal-India Chamber of Commerce and Industry (NICCI) has urged the Nepal-India Inter-Governmental Committee (IGC) on Trade, Transit and Cooperation to combat illicit trade to be implemented expeditiously.

The recently concluded meeting took positive note of the outcome of the bilateral mechanism for strengthening trade and investment relations, which comprehensively reviewed the entire gamut of bilateral trade and economic relations, including mutual market access issues, IPR and duty-related issues.

The IGC also discussed issues such as review of transit treaties and trade agreements, proposed amendments to existing agreements, harmonization of standards and coordinated development of trade infrastructure including electrification, thus giving hope for a new impetus in the trade and transit sector.

India’s decision to supply 200,000 metric tonnes of wheat as requested by Nepal, request for Jatamasi – root extract; Sugandhakokilala berry extract; The list of processed goods (plant products) also includes Sugandhawal Rhizome Extract and Timur Berry Extract, which is a welcome move by India. The Indian side highlighted the problems seen in milk exports to Nepal.

It has been agreed that the Nepali side will positively consider the request of the Indian side for dairy products including whey, cheese, which are not produced in sufficient quantities in Nepal.

It is positive that the meeting welcomed the bilateral initiatives aimed at strengthening seamless cross-border connectivity between India and Nepal, including the construction of new integrated check posts and railways.

Both sides expressed their commitment to take bilateral contacts forward, reflecting a shared vision of prosperous bilateral trade. Both sides agreed to form a joint working group to discuss the approval of the online COO with Nepal and SAFTA.

Since India is Nepal’s largest trade and investment partner, its contribution to Nepal is expected to further strengthen the economic and commercial relations between the two countries.

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