Trade deficit with India, China crushes Nepal

June 7th, 2008 - 4:06 pm ICT by IANS  

By Sudeshna Sarkar
Kathmandu, June 7 (IANS) Traditionally described as a yam caught between two boulders, the deprecating simile is now coming true for Nepal with its rising imbalance in trade with its two giant neighbours India and China crushing the economy of the instability-racked nation. In the nine months of the current fiscal, Nepal’s trade deficit with India has risen by 40 percent to Nepali Rs.75.5 billion (over $1 billion), said the Himalayan nation’s apex bank, Nepal Rastra Bank (NRB).

While exports from the subcontinent rose by 22.6 percent to over Rs.104 billion, Nepal’s own export was a meagre Rs.28.7 billion, or 8.3 percent.

In 2005-06, the imbalance amounted to Rs.45.6 billion while 2006-07 saw it climb further to Rs.53.7 billion.

Faced with a crunch of Indian currency in a country where both the Indian and Nepali rupee were used freely in the past, NRB has been compelled to sell its dollar reserves to buy Indian currency.

This fiscal, the apex bank sold $1,050 million to buy Indian currency worth Rs.41.8 billion.

In the last fiscal, it had sold $930 million and $600 million in the previous year.

The steep rise in fuel prices is the major contributing factor as oil imports from India account for roughly one-third of Nepal’s imports from India.

In the days to come, the deficit is feared to widen further given the recent hike in fuel prices in India.

The trade with Nepal’s northern neighbour China has left the Himalayan nation in further disarray.

The Sino-Nepal trade volume currently stands at $4,010 million. While the giant neighbour sells goods worth about $386 million, Nepal is struggling with the export of a mere $15 million.

China is keen to do better business with South Asia and is eyeing Nepal as a conduit. Beijing’s five-year plan to take the Tibet railway right up to the border of Nepal is intended to pursue this ambition.

With the Saarc (South Asian Association for Regional Cooperation) countries vying for better road, rail and sea links between the member countries, China will be able to tap the regional market better through Nepal.

The onslaught is likely to affect the conduit country badly.

Already deluged by sub-standard but cheap Chinese goods, Chinese industries have been strangulating Nepal’s industries, which are not competitive and plagued with labour trouble.

Also, unlike Nepal that falls backwards in its bid to please its bigger neighbour, China has stringent visa regulations and often closes the Tatopani border between north Nepal and China, causing misery to Nepali businessmen.

Though the Maoists, who emerged as the largest party after the April election, have promised to begin an economic revolution, their bitter feud with the other parties over the formation of a new government raises doubts about their ability to live up to their word.

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