Nepali Times
State Of The State
A fine imbalance


Critics of globalisation have long held the view that a free trade regime between unequal partners inevitably degenerates into the exploitation of the weaker by the stronger. The power purchase agreement between Snowy Mountain Engineering Corporation (SMEC) and Power Trading Corporation of India over the 750MW West Seti hydropower project is the latest illustration of that concept.

Free market favours the strong because that's where bigger profits are to be made. Mediated by the Australia-based multinational SMEC, which has been sitting over the West Seti license for well over a decade, Indians will now get clean energy at a price lower than what Nepalis pay and a regulated flow downstream for free.

SMEC must have done its sums well: their management needn't worry about investing in a high-risk, earthquake prone zone. India's economy is projected to grow by 7.5 percent in the coming decade and this is probably what tipped the balance.

The irony is that we Nepalis are somehow supposed to celebrate that at long last a huge reservoir will finally permanently submerge a remote valley on the border of Doti, Achham and Bajhang. On the other hand, our balance of payments with India is now so precarious that we could really do with royalty from the project.

There was a time when Indo-Nepal trade used to be fair for both partners. Until two years ago, Nepal Rastra Bank held a comfortable reserve of non-convertible currency (Indian Rupees) of about Rs 26.42 billion. That would have been enough to pay for nearly six months worth of imports from India even today. Then it started to go wrong, seriously wrong. India resorted to using selective and self-serving tariff, non-tariff and subsidy barriers to squeeze out Nepali exports.

It all began with the so-called renewal (actually, it was a revision that changed the basic spirit of the treaty) of the 1996 Indo-Nepal Trade Treaty that placed quantitative restrictions on major Nepali export items to India such as vanaspati ghiu, acrylic yarn, zinc oxide and copper wire. Together, these four items comprised about 30 percent of the value of Nepali exports to India. This was followed by quarantine restrictions on the export of fresh Nepali vegetables. The tradition of Palpa ginger farmers selling their produce in Gorakhpur then buying food-grains in Butwal on their way back home has all but stopped.

Highly subsidised Indian rice freely being imported in Nepal has pauperised the Nepali peasantry, in addition to making the balance of payment further askew in favour of India. You don't have to look at globalisation to see how wealth can be transferred from the poorer to the richer trade partner. The most recent example is the way India has strangled the export of Nepali pashmina-a product that entails some real value addition-illustrating the futility of the doctrine of competitive advantage in transactions between asymmetric trading partners.

Nepal Rastra Bank data on Indo-Nepal trade isn't very reliable, largely because the quantum of unauthorised trade between these two countries is often larger than official trade. But even the available information indicates a serious crisis. Nepali exports to India plummeted to Rs 26.91 billion last year from Rs 27.96 billion the previous year. Meanwhile, our imports surged from Rs 44.12 billion the previous year to Rs 56.12 billion last year, pushing the negative balance of payment from Rs 16.16 billion to Rs 29.21 billion.

Nepal's Indian currency reserves have fallen from last year's Rs 25 billion to an alarmingly low Rs 6.12 billion in October, prompting the government to allow the import of additional items from India against dollar payment.

In view of the figures and the trend that they indicate, Nepal Rastra Bank Foreign Exchange Chief's statement: "We are in comfortable position to meet the demand and there would be no shortage of Indian currency", sounds a little less than reassuring. Tormented by the Maobadis, people have already fled from the hills and mountains of Nepal to India, taking their savings with them. All this is putting tremendous strain on the free convertibility between the Nepali and Indian rupees. If Indians continue to be unfriendly buyers, even the devaluation of the Nepali rupee will not work.

Amidst all this, Indian envoy Shyam Sharan announced in Janakpur this week that his government has ambitious plans to assist in the development of border regions of Nepal. Such a gesture of goodwill from a friendly neighbouring country needs to be welcomed wholeheartedly. But wouldn't addressing the balance of payments gap be a more sustainable way to improve relations?

Sincerity in bilateral trade gives flesh and blood to international commitments like WTO and SAFTA. Much after the Maobadis have made their peace with the Kathmandu regime or decided to settle in some Indian hill station, the chronic challenge of correcting the Indo-Nepal trade imbalance will still remain. Mutual understanding is unavoidable in trade between unequal partners.

Now that the delay in the agr?ment over Karna Dhoj Adhikari has been settled, our new ambassador in New Delhi has his work cut out for him.

(11 JAN 2013 - 17 JAN 2013)