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
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
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
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
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)
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.
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.
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.
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 67.1Source: Trade Promotion Centre
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
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
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.
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.
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.
Problems Trade imbalance Inadequate market Frequent revision in duties and rules Administrative and Procedural Complications and delays Unauthorized trade Understanding and Good faith
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