The Himalayan nation imported automobiles worth NPR 21.84 billion in the first two months of the current fiscal year 2021/22. The spike in automobile imports is mainly attributed to the increase in purchase of electrical vehicles.

According to the Department of Customs (DoC), vehicles worth over NPR 11 billion were imported just in the Nepali month of Bhadra (mid-August to mid-September). In the previous month, the automobile imports stood at NPR 10.14 billion.

The nation witnessed massive import of electrical vehicles in the last two months after the government announced tax benefits for green vehicles.

In the reviewed period, Nepal imported 143 units of electrical vehicles, a huge increase from last fiscal.

In the entire last fiscal, the nation imported 131 electrical vehicles.

Even the ruling party has allocated NPR 1.76 billion budget to purchase vehicles for government offices. It is twice the amount allocated under the heading in the FY 2020/21 budget.

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According to the Customs Department’s latest Foreign Trade Statistics, Nepal’s export earnings from mid-July to mid-October increased by 14.41 percent to NPR 27.16 billion compared to the same period, last year.

In the same period, Nepal spent NPR 334.9 billion on imports, registering a reduction by 10.34 percent.

Nepal has projected a decline in imports and increase in import earnings for the third successive month in the current fiscal. The overall trade volume also reduced to NPR 362.11 billion from NPR 397.33 billion during the same period last year.

Factors Responsible for the Reduced Trade Deficit

According to trade analysts, the decreased trade deficit is attributed to the government’s policy to reduce imports, decrease trade, increase in palm oil exports and a long-lasting monsoon.

“The country has been witnessing a gradual decline in imports after the government jacked up import duties on luxurious goods including vehicles and imposed restrictions on some products,” said economist Gyanendra Adhikari.

As part of its efforts, the Nepal Government doubled the excise duty on automobile imports and increased the down payment on automobile loans by 50 percent of the vehicle value.

“The data paints a rosy picture of a rise in exports, but the figures have risen mainly because traders have been importing crude palm oil and refining it for export to India. The seasonal export of cardamom has also pushed up the numbers ,” Adhikari further said.

During the review period, Nepal export palm oil worth NPR 5.7 billion compared to shipments worth NPR 374 million last year.

Cardamom exports increased to NPR 707 million from NPR 687 million in the previous year.

On the other hand, Nepal has witnessed a decrease in the import of commodities such as ginger, iron wire, non-alloy steel, scarves, shawls, textile floor coverings and woolen carpets.

Adhikari says that Nepal’s imports shrunk due to the fall in trade volume on account of high interest rates on overdraft loans and a prolonged monsoon.

Fat and milk-based oil imports have also declined drastically due to import restrictions and fuel imports have fallen by NPR 7.52 billion compared to last year.

Nepal has also held a series of trade talks with neighboring countries such as Bangladesh, Bhutan, India and China, resulting in a reduced trade imbalance.

“This has also enabled the exporters to benefit from the simplification in the transit operations and eased the customs procedures in these countries,” said Dhakal.

Export Incentives

The government had also increased the export incentives on Nepal’s major exportable items to 3-5 percent from 1-2 percent from December 2018.

According to the Industry, Commerce and Supplies Ministry , the government provides export incentives to the goods having at least 50 percent value addition inside Nepal.

Dhaka cites factors such government’s revision in the rate of export incentives, simplification of the banking procedures to receive the incentives and extension in the basket of exportable goods for the incentives for a decreased trade deficit in Nepal.

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According to data from the Department of Customs, Nepal imported commodities worth NPR 1.42 trillion in the last fiscal, whereas it’s revenue earned from exports stood at NPR 97.11 billion.

Even though the export rate – 19.36 percent exceeded the country’s import rate – 13.93 percent in the last year, Nepal’s increasing trade deficit is become a matter of serious concern.

Nepal exports to imports ratio fell to 1:14:6 in the last fiscal year while the export earnings were NPR 97.11 billion. This amounts to an import of goods worth NPR 14.6 for every rupee earned on exports.

Of trade done with 157 countries, Nepal has a trade deficit with 134 countries and a positive trade balance with 23 countries including Afghanistan NPR 14.29 million, Central African Republic NPR 275.85 million and Maldives NPR 6.2 million.

On the other hand, Nepal has projected the highest trade deficit with India and China, NPR 855.19 billion and 203.4 billion, respectively.

Nepal imports and exports with India stood at NPR 917.92 billion and NPR 62.73 billion, respectively. While with China, the imports and exports stood at NPR 2.1 billion and NPR 205.52 billion respectively.

Even though the government has adopted the measure of restricting imports, the trade deficit has further deepened in the last few months.

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The visit comes as a follow-up to Nepal Prime Minister KP Sharma Oli’s April visit to India, who had then discussed with the Indian side about the development of Indo-Nepal inland.

The first phase of related discussions was held in Kathmandu, where it was decided that a Nepali technical team will visit India to conduct an infrastructure study on Indian waterways.

Briefing the team’s agenda, Nepali officials in New Delhi said, Nepal Water & Energy Consumption (NWEC) Joint Secretary Madhav Belbase along with the team of technical experts will visit different Indian inland waterways to study their infrastructure and learn how Nepal will benefit from them.

Following this, the Nepali team will meet and discuss the possibilities with the Indian team.

Inland Waterways Under Construction:
India has already begun working on building infrastructure to develop inland waterways from Kolkata to Varanasi via the River Ganga. The Indian Government and the World Bank together have invested over INR 54 billion for this part of the project.

The project encompasses the construction of multi-modal terminal stations in Varanasi, Sahibganj in Bihar and Haldia in Kolkata.

The terminal in Varanasi is due for completion in November 2018.

On completion, Nepali cargo from third-world countries can be transported from Kolkata to Varanasi and then be sent through rail and road links to Birgunj and Bhairahawa.

Officials say that this project is important and will pave way for imports and exports of big cargo including raw materials.

The Kalughat terminal near Patna is another feasible option. Currently under construction, the terminal will facilitate cargo imports up to the Narayani river.

A multi-modal terminal in Haldiya of Kolkata, which is underway, will enable transportation of 2.18 million ton every year. The project is due for completion in December 2019.

Alternative in Consideration
According to officials, the two neighboring countries are considering a few alternatives for the modality of waterways:

• India has proposed the shipment of cargo with the help of big vessels from Kolkata to Kalughat in Bihar from where they can be transported to the Nepali border on smaller ships
• Nepal can also transfer the goods through the 180-km Kalughat-Raxaul road link.
• India proposed the movement of goods on big vessels between Kolkata-Sahibganj waterway and later transfer them to small ships to the Nepal border
• Nepal can also import goods by road through the 150-km Sahibganj-Manihari-Birgunj corridor
• India has also proposed the transfer of goods through cross-border railway lines which are under-construction

The two countries Prime Minister Visits, the Trade-Treaty and more recently the BIMSTEC Summit have paved the way for many interesting projects between the two countries including railways, cargo tracking and waterways which stand as proof of both countries efforts for regional co-operation and individual development.

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