The unprecedented anti-Indian nature of the Kathmandu riots last week couldn't have come at a worse time for Nepal's tourism industry and trade. Indian tourists had just started trickling back after the hijacking one year ago, and trade with India was beginning to see a big spurt in Nepal's favour. Last week could change all that. Indian visitors and investors are seriously spooked. Flights from India are nearly empty again, most hotels and casinos are deserted, and Indian business houses which were gearing up to set up manufacturing bases in Nepal in 2001 are now not likely to come.
Although the street protests of 26-27 December were indiscriminate, and Nepali businesses were also stoned, the most vicious and organised attacks were against Indians, Indian-owned businesses, Nepalis of Indian origin and Madhesis from the tarai. An executive at a Nepal-India joint venture told us: "Doing business here was bad enough. Now it has become worse. Security is deteriorating, government policies are becoming more regressive, and now we have to look around before heading out to work."
The absence of Indian tourists, known for their spending sprees during their Nepal holiday, will be felt most seriously by shopping centres and supermarkets, casinos, hotels, restaurants and airlines. Roughly 34 percent of all tourists in Nepal used to be from India, and this had dropped by 30 percent even before last week's riots. The fact that the anti-Indian demonstrations got wide play in the Indian media, especially cable television, will not help matters.
Things are going to be even more devastating for trade. Nepal's exports to India have registered exponential growth since the new trade and transit treaty was signed in 1996. Overall trade with India grew by more than 80 percent in 1998-90, and Nepal's exports to India have grown an astounding six-fold since 1996. One third of all foreign investment in Nepal is Indian-there are 164 Indian joint ventures here. If this growth in formal trade between India and Nepal is hurt, the only people who will benefit will be smugglers and back-alley dealers.
