Nepali Times Asian Paints
Economic Sense
The long monopoly


For many in India, the Indian finance minister's latest budget performance was close to a perfect ten. The mood in industry circles is jubilant-the Sensex, the index of the Bombay Stock Exchange (BSE), registered a 177-point increase.
Nepal can learn a lot from this budget. Firstly, that maybe we should acknowledge that reforms are here to stay and secondly, that the model is globalisation. We need to formulate bold new labour laws and we can easily nick a few ideas from India as to how to make them industry-friendly. We need to set in place educational loan schemes and rationalise the taxation system.

Now for the bad part-the real meaning of the Indian budget for the future of the Nepali economy. Import regulations have been tightened to provide Indian industry with the protection it's been demanding, and a new provision requires that the maximum retail price (MRP) be indicated on exports to India. This means trouble for many Nepali industries, because their products will now have to meet the MRP stipulations laid down by Indian excise laws. These are pretty stiff non-tariff barriers, which require that importers have to declare the retail value of goods. Interestingly, the creation of this barrier is contrary to the WTO's rules on valuation, which stipulate that the value of goods be determined by the logistics of the transaction, rather than what they are retailed at.

Equally worryingly, our days of generating revenue through the trade in gold are numbered. The new budget has lowered the import duty on gold to a mere IRs 250 per ten gm. This, combined with the easing of foreign exchange regulations, ensures that there's little reason for gold to find its way into India from Nepal. The long monopoly of gold imports on government revenues is over. We need to find another product to create the right combination for smuggling.

The Indians even have a sense of humour about their defensiveness. The Indian finance minister, Yashwant Sinha, attempted to liven up the proceedings when he came to "edible oils and allied imports": "We shall move swiftly whenever any perceptible threat on account of imports is noticed."

There have been huge increases in the customs duty on various forms of edible oils and refined oils, as well as crude oil imported by vanaspati manufacturers. Indian oil lobby in India has got out of a slippery situation, where their business was apparently threatened by imports from Nepal.

There's even more disturbing news for the long term for Nepal-duties on agricultural products have also been hiked. The import duty on tea alone has been doubled. Here, domestic production is close to outstripping demand, and Nepali tea growers were eyeing the Indian market. How profitable the tea industry will remain, and for how much longer is something to think about.

To be sure, budgets are statements of intent, and what the people behind them have in mind might be quite different from the interpretations put forth in offices and factories in Raxaul or Jogbani. But still, it is hard to be persuaded that we won't be affected by this budget. The changes to the Customs Tariff Act-the new guidelines related to the MRP and imports-will probably hit us the hardest. We've seen how long it takes official notification to get from Patna to Raxaul. There will be some anxious moments for Nepali businesses before they know the exact changes that will affect them.

We also must wait for more fine-tuned analyses in the Indian press to see other repercussions the budget may have for us. This Beed has gone on a little about the negative impact of the budget on Nepali industry. There's a glimmer of hope, though-the Indian budget is pro-business, is strategically targeted at achieving a specific growth rate. Nepal might well benefit from the spillover. We saw a boom in our economy when India went into the first phase of economic reforms-we can only hope this will happen again.

(11 JAN 2013 - 17 JAN 2013)