Vol. 04, Issue 01,January2019 Available Online: www.ajeee.co.in/index.php/AJEEE
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A STUDY OF INDO-NEPAL FORMAL TRADE WITH CHANGING ENVIRONMENT Ajay Kumar Yadav
Research Scholar, Faculty of Commerce (Ph.D)
Department of Applied Economics and Business Administration, RDVV Jabalpur (M.P.) Abstract - Formal trade refers to legal trade which all activities are recorded in economic statistics and is also included in national income. Due to India and Nepal being a neighboring country and the open of the border of both the countries, there is immense scope of trade here. Nepal generally imports more from India.Import and export take place formally between the two countries. Nepal is more dependent on doing business with India.
However close to China, Nepal has to depend on India; the main reason is Nepal's geographical, political and cultural relationship with India. The objective of the research is to investigate fee practice of informal trade between two countries, to identify fee scope and areas of improvement in Indo-Nepal trade, to know the Import-Export trend between both Countries and to identify the Scope and areas of improvement in Indo-Nepal Trade relationship etc. for full fill the objectives of this research various data are collected. Nepal is more dependent on doing business with India. However close to China, Nepal has to depend on India; the main reason is Nepal's geographical, political and cultural relationship with India.When both countries do import-export to each other, both countries have to pay custom duty and tax at the time of import-export. This is the evidence of formal trade. Last five years data of formal trade of top 10 commodities from year 2014-15 to 2018-19 are described which help to fulfill the objectives of the study.
Recently, Nepal is seen leaning more towards China than India. Its main reason for this is the changed political situation of Nepal. In today's time, India and Nepal are both secular countries. But a few years ago both countries used to be Hindu nations. Ever since the formation of the Communist government in Nepal, it has had a bad impact on the trade and tourism sector of India and Nepal. India, being a neighboring country of Nepal, keeps an eye on every change that is happening in Nepal and due to it Nepal India is affected by change, that is why India continues to interfere in Nepal's politics.
There is great contribution of formal trade in economic development of
Nepal. India has the highest amount of funds in Nepal's development work and after spending so much money, India does not leave Nepal so that Nepal can become a third country and make all kinds of training, technical training from India.
More than 60 percent of Nepal's trade is concentrated in India and its foreign direct investment originates from India.
On 31 July 1950, a treaty was signed between Nepal and India which was called as Indo-Nepal Peace-Friendship Treaty.
The border towns where large volume of such trade takes place were identified in the first phase. It is found that large volume of formal trade takes place in the following border areas:-
Table No. 1 Formal trade Boarder
S. No. Indian boarder check-post Nepalese boarder check-post
1 Bairgania Gaur
2 Banbasa Mahendranagar
3 Barhni Krishnanagar
4 Bhimnnagar Setobadha
5 Bhitamore (Sursand) Jaleswar
6 Dharchula Dharchula
7 Galgalia Bhadrapur
8 Gauriphanta Dhangadhi
9 Jarwa Koilabas
10 Jayanagar Siraha, Janakpur
11 Jhulaghat Mahakali
12 Jogbani Biratnagar
13 Katerniyaghat Rajapur
14 Khunwa Taulihawa
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15 Kunauli Rajbiraj
16 Nautanwa/Sunauli Bhairahawa
17 Naxalbari/Panitanki Kakarbhitta
18 Nelpalgunj Road Nepalgunj
19 Raxaul Birgunj
20 Sonabarsa Malangawa
21 Sukhia Pokhari Pashupatinagar
22 Tikonia Prithvipur/Sati (Kailali)
Formal trade refers to legal trade which all activities are recorded in economic statistics and is also included in national income. Due to India and Nepal being a neighboring country and the open of the border of both the countries, there is immense scope of trade here. Nepal generally imports more from India.Import and export take place formally between the two countries. Nepal is more dependent on doing business with India.
However close to China, Nepal has to depend on India; the main reason is Nepal's geographical, political and cultural relationship with India.When both countries do import-export to each other, both countries have to pay custom duty and tax at the time of import-export.
This is the evidence of formal trade.
Formal trade is doing between both countries through above Table No.1 Mentioned Boarder Customs. Exports to Nepal in India decreased to 44.03 INR Billion in January from 44.75 INR Billion in December of 2019.
Formal trade refers to legal trade which all activities are recorded in economic statistics and is also included in national income. Due to India and Nepal
being a neighboring country and the open of the border of both the countries, there is immense scope of trade here. Nepal generally imports more from India.Import and export take place formally between the two countries. Nepal is more dependent on doing business with India.
However close to China, Nepal has to depend on India; the main reason is Nepal's geographical, political and cultural relationship with India.When both countries do import-export to each other, both countries have to pay custom duty and tax at the time of import-export.
This is the evidence of formal trade. Last five years data of formal trade of top 10 commodities from year 2014-15 to 2018- 19 are described as under which help to fulfill the objectives of the study:
1. INDIA’S TRADE WITH NEPAL (US
$ MILLION)
Data collected to know the total export to Nepal and total import from Nepal from year 2009-10 to 2018-19 for analysis of trade trend of export and import which helped to identify total trade and total balance are described as under:
Table No.1 Data of total export and import
Year Export to Nepal Import from Nepal Total Trade Trade balance Trade balance ratio (%)
2009-10 1,533 453 1,986 1,081 54%
2010-11 2,168 513 2,682 1,655 62%
2011-12 2,722 550 3,272 2,172 66%
2012-13 3,089 543 3,632 2,546 70%
2013-14 3,592 530 4,122 3,062 74%
2014-15 4559 640 5199 3919 75%
2015-16 3903 471 4374 3432 78%
2016-17 5454 445 5899 5009 85%
2017-18 6613 438 7051 6175 88%
2018-19 7766 508 8274 7258 88%
Source: Directorate General of Foreign Trade, Ministry of Commerce, India On analysis of above table no.1 Export
and Import trend of India with Nepal is given. Since 2009-10 India has had a trade surplus with Nepal, which has been increasing over the year. India export has been positively increasing from year 2009 to 2019 where import trend from Nepal is
in increasing and decreasing order.
According to above table for India point of view it is great that the export trend of India to Nepal is increasing year by year but in import there is normal change over the year.as comparison to export there is low change in import trend. In the period
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3 2009-10 to 2013-14 the average trade balance ratio increased from 65% to 83%
in the period 2014-15 to 2018-19. The growing trade deficit has been a major
cause of concern for Nepal. A point worth nothing is that there is has been a sharp drop in number of items exported from Nepal to India.
Table No.2 Data of Top 10 Exported Items of India to Nepal (2018-19)
S.No. HS Code Commodity Value(US$ Million)
1 271019 Other Petroleum Oils And Oils Obtained From
bituminous Minerals etc. 1,166
2 720719 Other Products Containing By Wt.<0.25% Of Carbon 532
3 271012 Light Oils And Preparations: 286
4 271119 Other In Gaseous State : 252
5 100630 Semi/Wholly Milled Rice W/N Polished/Glazed 221 6 871120 Motor cycle etc. with reciprocating internal combustion
piston engine of cylinder capacity>50 cc to 250 cc 182 7 720839 Flat/hot-rolled iron/steel, in coli’s, width >=600mm, not
pickled,<3mm thickness
142 8 721391 Bar & rods, hot-rolled circular cross-sect on measuring
<=8mm in diameter 141
9 252310 Cement Clinkers 133
10 300490 Other - Medicaments put up in measured dos s or in
forms or packing for retail sale 132
Total Value 3,187
Source: Directorate General of Foreign Trade, Ministry of Commerce, India On analysis of above table no.2, in year
2018-19, India’s top 10 exports to Nepal at the HS-6 classification of items included top 1st is Petroleum oils obtained from bituminous Minerals which value is US$ 1166 Million, top 2nd is products containing by wt. < 0.25% of carbon which value is US$ 532 Million, top 3rd is Light Oils which value is US$ 286 Million, top 4th is Gaseous which value is US$
252 Million, top 5th Wholly Milled Rice which value is US$ 221 Million, top 6th is Motor cycle piston engine of cylinder which value is US$ 182 Million, top 7th is Flat/hot-rolled iron which value is US$
142 Million, top 8th is Bar & rods, hot- rolled circular which value is US$ 141 Million, top 9th is Cement Clinkers which value is US$ 133 Million and top 10th is Other - Medicaments which value is US$
132 Million are given.
Hence on above analysis it is clear that in year 2018-19, the total value of top 10 commodities India’s exported to Nepal is US$ 3,187 Million. India’s top 1st item exports to Nepal at the HS-6 classification is Petroleum oils obtained from bituminous Minerals and top 10th item is Other - Medicaments out of 4422 exported items( Commodity).
Table No.3 Data Top 10 Imported Items in India from Nepal (2018-19)
S.No. HS Code Commodity Value(US$
Million)
1 151190 Refined palm oil and its fractions 45
2 220299 Other sweetened flavoured waters 43
3 090831 Cardamoms: neither crushed nor ground: 32
4 392690 Other articles of plastics 31
5 090240 Other black tea (fermented) and other partly fermented
tea : 29
6 531010 Unbleached woven fabrics of jute/other textile baste fibers
25 7 630510 Sacks and bags for packing made of jute or of other
textile baste fibers of heading no.5303 21 8 721720 Wire of iron/non-alloy steel, plated/coated with zinc 21 9 721041 Corrugated products, otherwise plated/coated with zinc 19 10 550932 Multiple(folded)/cabled yarn containing>=85% of
acrylic/mod acrylic staple fibers 15
Total Value 281
Source: Directorate General of Foreign Trade, Ministry of Commerce, India
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4 On analysis of above table no.3, in year 2018-19, India’s top 10 imports from Nepal at the HS-6 classification of items included top 1st is Refined palm oil and its fractions which value is US$ 45 Million, top 2nd is sweetened flavoured waters which value is US$ 43 Million, top 3rd is Cardamoms (Alaichi) which value is US$
32 Million, top 4th is articles of plastics which value is US$ 31 Million, top 5th is black tea (fermented) which value is US$
29 Million, top 6th is Unbleached woven fabrics of jute which value is US$ 25 Million, top 7th is Sacks and bags for packing, made of jute which value is US$
21 Million, top 8th is Wire of iron/non-
alloy steel, plated/coated with zinc which value is US$ 21 Million, top 9th is Corrugated products which value is US$
19 Million and top 10th is Multiple(folded)/cabled which value is US$ 15 Million are given.
Hence on above analysis it is clear that in year 2018-19, the total value of top 10 commodities India’s imported from Nepal is US$ 281 Million. India’s top 1st item imports from Nepal at the HS-6 classification are refined palm oil and its fractions and top 10th item is Multiple (folded)/cabled out of 609 imported items (Commodity).
Table 4 Total Additional Trade Potential between India and Nepal (US $ Million)
S.No. Trade India's
Export to Nepal India’s Import
from Nepal Total Trade
1 Current Trade (2019-20) 6028 603 6631
2 Maximum Additional Total Trade Potential 2009 121 2130 Source: Researcher calculations based on data of Directorate General of Foreign Trade, Ministry of Commerce, India
Nepal is small and inland country which is basically based on import of goods due to limited resources. Nepal mostly imported goods from India. It is clear from Import-export statistics that India is largest trade partner of Nepal. The trade potential exercise reflects that Nepal has limited scope for reducing its trade deficit as there is adequate potential to further expand its exports to India. On the other hand, India’s untapped potential to export to Nepal is significantly higher.
There is huge difference of import and export ratio between India and Nepal.
On analysis of the above table no 4. the results of the exercise show the existence of an estimated additional trade potential of around US$ 6,631 million, if the two countries were to import from each other what they import from the rest of the world. Of this total trade potential, India’s export potential to Nepal accounted for US$ 2,009 million and its import potential from Nepal accounted for US$ 121 million.
Table 5 Comparison of Applicable Rate of Duty under SAFTA and Indo-Nepal Bilateral Agreement
S.No. Tariff Rates Number of Items
1 Zero Duty 9
2 Specific Duty 10
3 SAFTA Duty is more than Bilateral Rate of Duty 47 4 Bilateral Rate of Duty is more than SAFTA Duty 17
5 Total 83
On analysis of above table no 5, The exercise of identifying items with the highest potential was extended to include top 50 items at the HS-6 level of classification. These items when expanded at the 8-digit level covered 83 items (Appendix A). An examination of the tariff rates applicable to these 83 items with export potential items from India to
Nepal indicates that there is an “anomaly”
in the imposition of tariff rates under SAFTA and the Indo-Nepal bilateral trade treaty. For 17 items, the duty applicable under the bilateral trade treaty is higher than the SAFTA rate. This anomaly needs to be addressed so that India gets the benefits of SAFTA under its bilateral trade agreement.
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Table 6 Nepal’s Top Five Import Partners Countries Year 2014-15
S. No. Name of Partner
Country Value in (000NPR) % of Total Import
1 India 507,561,578 76%
2 China 99,281,429 15%
3 UAE 37,743,723 6%
4 Indonesia 14,782,291 2%
5 Thailand 10,002,571 1%
Total 669,371,592 100%
Source: https://www.customs.gov.np/(Government of Nepal, Ministry of Finance, Department of Customs)
On analysis of above table no.6 in year 2014-15, Import Data of Nepal shows top 5 exporter partners countries. On above table top 1st exporter partner of Nepal is India which total export percentage to Nepal is 76%, top 2nd is china which total export percentage to Nepal is 15%, top 3rd is UAE which total export percentage to Nepal is 6%, top 4th is Indonesia which total export percentage to Nepal is 2% and 5th is Thailand which total export percentage to Nepal is 1%.
There is a general perception of experts that India is facing an appearing threat from the growing dominance of China in Nepal’s domestic markets.
However data shows that China’s exports share to Nepal is Just 15% where India Share is 76%. Hence as per analysis of data, we can say that there is strong relation between Indo-Nepal trades. And China dominance will not affect to Indo- Nepal trade relation.
Table 7 Nepal’s Top Five Import Partners Countries
Year 2015-16
S. No. Name of Partner Country Value in (000NPR) % of Total Import
1 India 483,307,764 76%
2 China 116,116,215 18%
3 UAE 16,950,192 3%
4 Switzerland 11,238,833 2%
5 Indonesia 10,972,047 1%
Total 638,585,051 100%
Source: https://www.customs.gov.np/(Government of Nepal, Ministry of Finance, Department of Customs)
On analysis of above table no.7 in year 2015-16, Import Data of Nepal shows top 5 exporter partners countries. On above table top 1st exporter partner of Nepal is India which total export percentage to Nepal is 76%, top 2nd is china which total export percentage to Nepal is 18%, top 3rd is UAE which total export percentage to Nepal is 3%, top 4th is Switzerland which total export percentage to Nepal is 2% and 5th is Indonesia which total export percentage to Nepal is 1%.
There is a general perception of experts that India is facing an appearing threat from the growing dominance of China in Nepal’s domestic markets.
However data shows that China’s exports share to Nepal is Just 18% where India Share is 76%. Hence as per analysis of data, we can say that there is strong relation between Indo-Nepal trades. And China dominance will not affect to Indo- Nepal trade relation.
Table 8 Nepal’s Top Five Import Partners Countries
Year 2016-17
S.No. Name of Partner
Country Value in (000NPR) % of Total Import
1 India 641,423,632 78%
2 China 129,878,417 15%
3 UAE 29,198,697 4%
4 Thailand 13,350,297 2%
5 Indonesia 11,836,415 1%
Total 825,687,458 100%
Source: https://www.customs.gov.np/(Government of Nepal, Ministry of Finance, Department of Customs)
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6 On analysis of above table no.8 in year 2016-17, Import Data of Nepal shows top 5 exporter partners countries. On above table top 1st exporter partner of Nepal is India which total export percentage to Nepal is 78%, top 2nd is china which total export percentage to Nepal is 15%, top 3rd is UAE which total export percentage to Nepal is 4%, top 4th is Indonesia which total export percentage to Nepal is 2% and 5th is Thailand which total export percentage to Nepal is 1%.
There is a general perception of experts that India is facing an appearing threat from the growing dominance of China in Nepal’s domestic markets.
However data shows that China’s exports share to Nepal is Just 15% where India Share is 78%. Hence as per analysis of data, we can say that there is strong relation between Indo-Nepal trades. And China dominance will not affect to Indo- Nepal trade relation.
Table 9 Nepal’s Top Five Import Partners Countries
Year 2017-18
S.No. Name of Partner Country Value in (000NPR) % of Total Import
1 India 814,101,622 80%
2 China 159,987,082 16%
3 France 20,836,404 2%
4 Viet Nam 13,529,549 1%
5 Thailand 13,134,988 1%
Total 1,021,589,645 100%
Source: https://www.customs.gov.np/(Government of Nepal, Ministry of Finance, Department of Customs)
On analysis of above table no.9 in year 2017-18, Import Data of Nepal shows top 5 exporter partners countries. On above table top 1st exporter partner of Nepal is India which total export percentage to Nepal is 80%, top 2nd is china which total export percentage to Nepal is 16%, top 3rd is France which total export percentage to Nepal is 2%, top 4th is Viet Nam which total export percentage to Nepal is 1% and 5th is Thailand which total export percentage to Nepal is 1%.
There is a general perception of experts that India is facing an appearing
threat from the growing dominance of China in Nepal’s domestic markets.
However data shows that China’s exports share to Nepal is Just 16% where India Share is 80%. Hence as per analysis of data, we can say that there is strong relation between Indo-Nepal trades. And China dominance will not affect to Indo- Nepal trade relation.But for this India's Government have needed to make faithful and strong relation with Nepal government. And need to establish own goodwill in Nepalese government mind.
Table 10 Nepal’s Top Five Import Partners Countries
Year 2018-19
S.No. Name of Partner Country Value in (000NPR) % of Total Import
1 India 917,922,211 78%
2 China 205,518,639 17%
3 UAE 35,366,448 3%
4 Indonesia 18,206,545 1%
5 France 19,853,450 1%
Total 1,196,867,293 100%
Source: https://www.customs.gov.np/(Government of Nepal, Ministry of Finance, Department of Customs)
On analysis of above table no.10 in year 2018-19, Import Data of Nepal shows top 5 exporter partners countries. On above table top 1st exporter partner of Nepal is India which total export percentage to Nepal is 78%, top 2nd is china which total export percentage to Nepal is 17%, top 3rd is UAE which total export percentage to Nepal is 3%, top 4th is Indonesia which total export percentage to Nepal is 1% and
5th is France which total export percentage to Nepal is 1%.
There is a general perception of experts that India is facing an appearing threat from the growing dominance of China in Nepal’s domestic markets.
However data shows that China’s exports share to Nepal is Just 17% where India Share is 78%. Hence as per analysis of data, we can say that there is strong
Vol. 04, Issue 01,January2019 Available Online: www.ajeee.co.in/index.php/AJEEE
7 relation between Indo-Nepal trades. And China dominance will not affect to Indo- Nepal trade relation. But for this India's Government have needed to make faithful and strong relation with Nepal government. And need to establish own goodwill in Nepalese government mind.
2 CONCLUSIONS
India and Nepal being a neighboring country, along with this there is a strong economic, religious, cultural and political relation between the two countries. India has surrounded Nepal on three sides, China on one side. From a cultural point of view, Nepal is important for India and for India Nepal. Due to the neighboring country, due to political changes in Nepal, it also has a great impact on the India- Nepal trade relationship. Recently, Nepal is seen leaning more towards China than India. Its main reason for this is the changed political situation of Nepal.
formal trade means the business where all business is done in writing. And the record of that business is with the government. All the income and all the expenses that come from formal business are added to the government's income and total expenditure, that business is called formal business. Under formal trade the expenditure and income made by them is included neither in the total expenditure of any country nor in the national income.
There is a very close relationship between India and Nepal. There is a strong trade relationship between the two countries.
Maximum imports of Nepal depend on India. That is, Nepal fulfills its needs from India. Nepal imports and exports from India through various ports and customs.
Income from formal trade between India and Nepal adds to the national income of both countries. Cultural, economic, political and social relations between Nepal and India are very strong. This relationship has been established for centuries, but in the changing times of time, there is a bit of sourness between the two countries. And the main reason for this is the proximity of the Communist Party of Nepal and China.India point of
view it is great that the export trend of India to Nepal is increasing year by year but in import there is normal change over the year.as comparison to export there is low change in import trend. In the period 2009-10 to 2013-14 the average trade balance ratio increased from 65% to 83%
in the period 2014-15 to 2018-19. The growing trade deficit has been a major cause of concern for Nepal. A point worth nothing is that there is has been a sharp drop in number of items exported from Nepal to India.In year 2018-19, the total value of top 10 commodities India’s exported to Nepal is US$ 3,187 Million.
India’s top 1st item exports to Nepal at the HS-6 classification is Petroleum oils obtained from bituminous Minerals and top 10th item is Other - Medicaments out of 4422 exported items( Commodity).In year 2018-19, the total value of top 10 commodities India’s imported from Nepal is US$ 281 Million. India’s top 1st item imports from Nepal at the HS-6 classification are refined palm oil and its fractions and top 10th item is Multiple (folded)/cabled out of 609 imported items (Commodity).For 17 items, the duty applicable under the bilateral trade treaty is higher than the SAFTA rate. This anomaly needs to be addressed so that India gets the benefits of SAFTA under its bilateral trade agreement.Hence as per analysis of data, we can say that there is strong relation between Indo-Nepal trades. And China dominance will not affect to Indo- Nepal trade relation.But for this India's Government have needed to make faithful and strong relation with Nepal government. And need to establish own goodwill in Nepalese government mind.On analysis of year 2018-19, Import Data of Nepal shows top 5 exporter partners countries. top 1st exporter partner of Nepal is India which total export percentage to Nepal is 78%, top 2nd is china which total export percentage to Nepal is 17%, top 3rd is UAE which total export percentage to Nepal is 3%, top 4th is Indonesia which total export percentage to Nepal is 1% and 5th is France which total export percentage to Nepal is 1%.
