GSJ: Volume 12, Issue 7, July 2024

ISSN 2320-9186

GSJ: Volume 12, Issue 7, July 2024, Online: ISSN 2320-9186

www.globalscientificjournal.com

INDIA-NEPAL TRADE RELATIONS:

A COMPREHENSIVE ANALYSIS

HIMAL THAPA
himalthapa0504@gmail.com

Introduction

India and Nepal share a historically significant and multifaceted relationship characterized by deep
cultural, economic, and geopolitical ties. Trade between the two countries is vital for their
economic growth and political stability. This paper examines the historical context, recent
developments, key agreements, challenges, and future prospects of India and Nepal trade relations.

Historical Context

The trade relationship between India and Nepal dates back to the 1950 Indo-Nepal Treaty of Peace
and Friendship, which established a close and mutually Beneficial economic relationship. This
treaty allowed for free movement of people and goods between the two nations and laid the
foundation for subsequent economic interactions.Over the decades, the relationship has evolved,
with numerous trade agreements aimed at enhancing bilateral trade. However, despite These
efforts, challenges such as trade imbalances and infrastructural constraints have persisted.

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GSJ: Volume 12, Issue 7, July 2024
ISSN 2320-9186

Recent Developments

In recent years, there have been significant efforts to bolster India-Nepal trade relations. Key
developments include:

Power Trade Agreement (2024)

In January 2024, Nepal and India signed a landmark agreement to export 10,000 MW of electricity
from Nepal to India over the next decade. This deal is expected to attract investment into Nepal’s
hydropower sector and provide a stable revenue stream. However, it has also faced domestic
criticism regarding the terms and potential impact on Nepal’s water resources.

Experts of the energy sector term the agreement as a major breakthrough to promote the market for electricity
produced in Nepal

High Impact Community Development Projects (HICDPs)

Both countries agreed to increase the budget for HICDPs from NPR 5 crore to NPR 20 crore,
focusing on infrastructure and community development projects in Nepal.

Cross-Border Transmission Lines

The inauguration of three new 132 kV transmission lines aims to facilitate the Transfer of
electricity between the two countries, enhancing energy connectivity and supporting the growing
power trade.

Cultural and Educational Exchanges

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GSJ: Volume 12, Issue 7, July 2024
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New agreements have been made to promote cultural and educational Cooperation, reflecting the
deep cultural ties. This includes the launch of the Munal Satellite, a collaborative project between
Nepal Academy of Science and Technology and India’s New Space India Limited under ISRO.

Key Trade Sectors

Hydropower
Nepal’s vast hydropower potential is a cornerstone of its trade relations with India. The long-term
power trade agreement signed in 2024 is a testament to this Potential. However, the deal has
sparked controversy and legal challenges in Nepal regarding its terms and impact on national
interests.

Agriculture
Agriculture remains a vital sector in bilateral trade. India is a major market for Nepalese
agricultural products, including rice, maize, and tea. Efforts to boost Agricultural exports are
crucial for reducing Nepal’s trade deficit with India.

Manufacturing and Industrial Goods

Trade in manufacturing and industrial goods is another important aspect. India Exports a wide
range of industrial goods to Nepal, including machinery, vehicles, And pharmaceuticals.
Enhancing industrial cooperation can further strengthen economic ties.

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GSJ: Volume 12, Issue 7, July 2024
ISSN 2320-9186

Challenges

Despite the positive developments, several challenges persist in India-Nepal trade Relations:

Trade Imbalance
Nepal faces a significant trade deficit with India. In 2021-22, Nepal’s imports from India were
worth USD 8.6 billion, while its exports were only USD 2.4 billion. Efforts to diversify Nepal’s
exports are ongoing, but structural differences in the economies pose challenges.

Infrastructural Constraints
Inadequate infrastructure, particularly in terms of transportation and logistics,hampers trade
efficiency. Improving cross-border infrastructure is essential for smoother trade flows.

Regulatory and Policy Issues

Differences in regulatory frameworks and bureaucratic hurdles can impede trade harmonizing
regulations and simplifying procedures can enhance trade efficiency.

Political and Legal Challenges

The politicization of bilateral agreements and legal challenges, such as those surrounding the
power trade agreement, can create uncertainty and hinder the implementation of trade deals.

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GSJ: Volume 12, Issue 7, July 2024
ISSN 2320-9186

Future Prospects

The future of India-Nepal trade relations appears promising, with several initiatives aimed at
deepening economic cooperation. Key areas of focus include:

Enhancing Hydropower Cooperation

Continued investment in Nepal’s hydropower sector and the development of new cross-border
transmission lines will be crucial for expanding energy trade.

Promoting Agricultural Trade

Efforts to boost agricultural productivity and export capacity can help reduce the trade imbalance
and improve food security in both countries.

Infrastructure Development
Joint infrastructure projects, such as road and rail connectivity improvements, can enhance trade
efficiency and support economic growth.

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GSJ: Volume 12, Issue 7, July 2024
ISSN 2320-9186

Conclusion

India-Nepal trade relations are characterized by deep-rooted ties and significant Mutual benefits.
Recent developments, including the power trade agreement and Infrastructure projects, underscore
the commitment of both nations to strengthen Economic cooperation. However, addressing
challenges such as trade imbalances, Infrastructural constraints, and regulatory hurdles will be
crucial for sustained Positive relations. As Nepal and India continue to navigate their economic
Partnership, a balanced approach that addresses the concerns of all stakeholders will be essential
for fostering long-term prosperity.

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GSJ: Volume 12, Issue 7, July 2024
ISSN 2320-9186

REFERENCE

Asian Institute of Diplomacy and International

Affairs](https://www.aidiaasia.org/2024-visit-nepal-assessment)

KathmanduPost
(https://kathmandupost.com/national/2024/02/04/electricity-trade-deal-

Vivekananda International Foundation]

(https://www.vifindia.org/article/2024/march/04/india-nepal-relations)

Nepal Rastra Bank](https://www.nrb.org.np/)

Trade and Export Promotion Centre, Nepal](https://www.tepc.gov.np/)

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