Nepali Times
Economic Sense
That sinking feeling


At least we agreed on something. But, this Beed and others of our ilk, dear reader, agree that it is becoming a bad habit in this part of the world to agree to talk, and then agree in talks to talk again.

After the fourth round of talks between India and Nepal on the trade treaty, diplomat-speak says there is \'progress'. Fair enough, but where on earth are we progressing? With less than a month to go before the 5 December deadline, that perennial South Asian rope trick will be pulled out-miraculously, things will be sorted out, wrapped up etc. But, a few months down the line, or when the treaty comes up for renewal next, someone will realise that an adequate solution was not found and we will have to go through this whole painful pussyfooting again.

For India especially the commerce ministry, renewing this treaty is not a priority. The WTO summit in Doha is priority number one right now, as that is where India's interests lie. The commerce ministry is working more under pressure from the country's External Affairs Ministry.

Of course, it is in Nepal's interest to sort out this matter post haste. But rather than deal with it preemtively, we procrastinated. We have forgotten the embargo days of 1989, which resulted almost solely due to Nepal's late-firing national synapses. This time around, the blame lies not only with the government, but also the apex bodies of Nepali trade and industry. The private sector, after intervening in trade matters so successfully in 1996, has returned to being the dumpy handmaiden of less competent, if higher bodies. Five years ago, the efforts of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) and the Confederation of Indian Industry (CII) expedited the process, and Nepal also managed to get a pretty nice deal.

There seems to be a sense on the other side that Nepal has become complacent, and that we cannot be trusted to make good on our commitments to curtail smuggling of goods to India. This, together with India's own domestic industry pressuring the government for protectionism has meant real complications. Indian domestic industries, like those in Nepal, have enjoyed protectionism in various forms, and now with the WTO regime nearing, they are nervous. The situation has already become pretty nightmarish with the invasion of Indian markets by cheaper quality Chinese goods. Unfortunately for us, domestic Indian industries are venting their spleen on poor us. What other explanation is there for such a hue and cry about a \'surge' in Nepali exports that continue to be on the wrong side of the decimal, compared with total Indian imports.
For Nepal, the sops provided by the 1996 renewal of the treaty have been good for those businesspeople who have taken advantage of the loopholes. Overnight, businessmen engaged in informal trade with India became \'industrialists'. Only a few multinationals came, as the industrial and business environment never became conducive. The increase in investments from reputed Indian and multinational companies envisaged during the 1996 renewal never materialised. Nepal missed a great opportunity for industrialisation and rapid economic growth.

The treaty renewal discussions have centred only on issues relating to value addition. Other major issues for Nepal remain buried in the arguments on content percentages. We need to get the issue of the railway link to Birgunj before the machinery and equipment from the dry port finishes its vanishing act. (See "Treaty time", #55) Nepali exports from taxation by Indian provincial governments. For instance, a luxury tax of 20 percent is imposed on tea by the West Bengal government. This provision should, of course, be reciprocal.
Right then, to work. Speed is of the essence.

(11 JAN 2013 - 17 JAN 2013)