AIDIA Asia Conclave 2016

PM Oli’s Visit to India: Trade, Transit, Business and Investment Opportunities

Hotel Annapurna, Kathmandu, 21st March 2016


1.    Abstract

The programme was meant for businesspersons, diplomats, policymakers, politicians and analysts including those who are keen to follow developments related to India-Nepal relations. Nepal and India sealed a seven-point deal during a meeting between Prime Minister KP Sharma Oli and his Indian counterpart Narendra Modi at Hyderabad House in New Delhi. These nine agreements and Letters of Exchange that are incorporated in a seven point deal are on a wide range of bilateral issues, including energy trade, transit facilities, cultural exchanges as well as road construction and post-earthquake reconstruction support. It is of prime significance to have discussed and debated the outcomes of the PM’s visit and AIDIA Asia Conclave 2016 attempted to accomplish the same.


2.    Introduction – AIDIA

The Asian Institute of Diplomacy and International Affairs (AIDIA) is an independent, non-partisan foreign policy think-tank based in the highly geo-strategic Himalayan region. It’s headquarter is Kathmandu Nepal. AIDIA aims to lead a new era in foreign policy and international relations and reflects the unstoppable rise of the Asian continent as the key stakeholder in the economic, strategic and geo-political equations of the present day world.

AIDIA provides a platform for policy makers, academicians and industry leaders from around the world to come together to debate, discuss and share their views on the contemporary geopolitical and geo-economics issues confronting the international community. We seek to do this by facilitating effective engagement through the various activities in order to inform, educate and initiate the involvement of Nepal's youth in foreign policy debates and decision-making. AIDIA is actively engaged in providing policy analysis, facilitating diplomatic dialogue and promoting entrepreneurial engagement among all major actors and institutions native to or that have an interest in Asia.


3.    Introduction – Embassy of India at Kathmandu

Indian Embassy opened in Kathmandu in December, 1947. Shri Surjit Singh Majithia was the first Ambassador of India to Nepal from 1947 to 1949. Till date there have been 22 Ambassadors and Shri Ranjit Rae is the 23rd Ambassador of India to Nepal. Till 1954, the present President’s Residence (Shital Niwas) was the Embassy of India. It was in 1954 that the Embassy of India was shifted to its present location at Lainchor. At the moment, the entire Embassy offices are located within the same premise.


4.    Introduction – NICCI

Nepal India Chamber of Commerce and Industry (NICCI) is a non-governmental organization with the legal status of a non-profit making and autonomous entity. It was formed with ad-hoc Committee in 1993 and registered with District Administration office, Kathmandu on August 29, 1994 (13 Bhadra 2051).


Since the Chamber is a bi-national organization of Nepalese businessmen and industrialists having business relations with India and Indian business community doing business with Nepal, the primary aim of NICCI is to promote Joint Venture Investment and economic relations between Nepal and India through the good bilateral relations and co-operation subsisting between the two countries. NICCI also helps Indian companies to find partners for trade and manufacture in Nepal. It is a forum to discuss and resolve problems and issues faced by the member organizations, and it also represents them to appropriate authorities to work on industry-related issues.


Presently, it has 167 members from leading Nepalese and Indian companies and Indian Joint Venture companies. It is the only body established in Nepal for the mutual benefit of India and Nepal in terms of trade and commerce.


5.    The Programme – AIDIA-Asia Conclave

AIDIA-Asia conclave is the premier program of the Asian Institute of Diplomacy and International Affairs (AIDIA), which will be held once in every two months. It is a premier gathering of the high profile politicians, businesspersons and diplomats from Asia to talk on regional issues. The prime objective of the conclave is to provide a platform for discussion and debate on regional issues pertaining to Asia. AIDIA-Asia Conclave attempts to gather diplomats and politicians from different Asian countries for discussion and debate on topics that are relevant and timely. Nepal is a focal point in this regard from which one member is always a part of the debate and discussion. AIDIA Asia Conclave can be an influential catalyst, which aids to solve problems arising at a particular time in collaboration with the impressive ideas and vision of SAARC members. Cooperation among Asian countries will help to achieve immensely untapped potential of the people in the region. The conclave will act as a bridge to share ideas and vision of some of the most influential and esteemed personalities, which can help in building future partnerships and links for mutual development.


AIDIA provides an opportunity to speak on regional issues in the conclave and attempts to make the debate and discussion fruitful by highlighting innovative solutions to pressing problems facing the region. Our objective is to strengthen the social, economic and political ties between Nepal and other countries in Asia.


6.    The Project Rationale – PM Oli’s India Visit: Trade, Transit, Business and Investment Opportunities

Nepal and India sealed a seven-point deal during a meeting between Prime Minister KP Sharma Oli and his Indian counterpart Narendra Modi at Hyderabad House in New Delhi. These nine agreements and Letters of Exchange that are incorporated in a seven point deal are on a wide range of bilateral issues, including energy trade, transit facilities, cultural exchanges as well as road construction and post-earthquake reconstruction support. It is of prime significance to have discussed and debated the outcomes of the PM’s visit and AIDIA Asia Conclave 2016 attempted to accomplish the same.


The two prime ministers among other things inaugurated the 400 KV Muzaffarpur-Dhalkebar transmission line for supply of Indian electricity to Nepal under an Indian credit line of US$ 13.5 million, signed an Memorandum of Understanding on utilisation of a US$ 250 million grant component of India for post-quake reconstruction which was pledged during the donors’ conference for four identified sectors (housing, health, education and cultural heritage) and signed another MoU related to strengthening the road infrastructure in the Tarai.


Similarly, two LoEs on transit routes were exchanged to simplify traffic of goods between Nepal and Bangladesh while transiting via India; and utilisation of Vishakhapatnam Port of India. Besides, two other LoEs, allowing rail transport to and from Vishakhapatnam to Nepal and to operationalise rail transit facility through Singabad of India for Nepal-Bangladesh trade were exchanged.


These agreements apart from others signed in the areas of culture and heritage signify an invaluable opportunity that the two nations encounter with regard to forging ever closer ties. Significantly, the impetus that will be provided to trade and business opportunities by better connectivity will have unparalleled benefits for development of Nepal’s economy. The access to Visakhapatnam port and operationalization of the railway line to Bangladesh in this regard are of major importance as these will not just enhance the volume of trade between the two countries but will also improve third country trade for Nepal. It is AIDIA’s firm belief that good neighbourly relations between Nepal and India can have multi-faceted advantages for economic growth and development and this program will be provide a thrust in that direction.


7.    Project Report

The event began by a brief introduction of the program by Mr. Jay Nishant, Patron of AIDIA, who was the moderator for the event. The first speaker to address the gathering was Mr. Ravi Shankar Singh, Jt. Secy., Ministry of Commerce, Nepal.


Mr. Ravi Shankar Singh began his remarks by stating that Nepal imports around 4000 items from India and exports merely 500 items of which 17% are agricultural products. He pointed to the huge trade deficit of NRs 444 billion between the two countries and added that additional problems faced by Nepal with regard to trade included a high cost of trade transaction and a rise in informal trade and black marketing. He pointed to the four Letters of Exchange (LoEs) and an important agreement signed between the two countries that pertains to trade, transit and investment including provision to use the Visakhapatnam port for bilateral and third country trade as well as an additional transit option by Nepal, provision for rail transport connectivity from Vizag port to the dry port in Nepal at Birgunj, rail transit facility to Bangladesh, simplification of trade modalities and procedures at existing transit and customs points and a Power Trade Agreement consisting of Joint Investment and Power Trade.

Mr. Singh pointed to some of the needs that could significantly improve the trade ties such as infrastructure upgradation at customs points, harmonization of standards and procedures and the role of the private sector for improving exports.


Dr. Sanjay Sharma, Jt. Secy., Ministry of Energy, speaking after Mr. Singh hailed the decision for constituting the Nepal-India Joint Technical Team that would analyze the feasibility and operationalization of a cross-border transmission line and provide a visionary and futuristic planning for project. He alluded to the potential of the Action Plan on Electricity drafted by his ministry that has an ambitious aim of generating 10,000 MW of power in a decade’s time in Nepal. He mentioned that government was the key facilitator in this regard and urged the private sector to come forward for power generation as it is the private sector’s domain. He quipped that the government’s responsibility was to develop storage of reservoirs, build transmission lines, roads, etc. Dr. Sharma said that the reason for the slow pace of industrialization in Nepal is a gap in the supply and demand for energy. He stated that due to a lack of industries in the country, the demand is ostensibly low and that leads to a lack of electricity generation by the Nepal Electricity Authority.

One of the major challenges Dr. Sharma identified in the development of the hydropower sector is lack of equity investments either from outside the country or within it and provided solutions to this challenge in the form of introducing reforms in the economy to improve investment climate, devise instruments such as Public-Private Partnership (PPP), Joint Ventures (JV’s), etc. with businesses investing from both India and Nepal and big businesses to come forward and take the lead, to discuss and sort out problems for a continuous engagement between both sides.


Dr. Govind Pokharel, Former Vice-Chairperson of the National Planning Commission, remarked at the beginning of his address that just a face-to-face direct dialogue between the premiers of the two countries was a big achievement in itself following many months of exacerbated tensions due to the border blockade. He said that this was a successful indicator to begin with and the agreement and LoE’s that accompanied the visit were additional outcomes He mentioned that many MNC’s including Statcraft, Standard Chartered, etc. were threatening to withdraw investment from Nepal given the precarious internal situation in Nepal but hoped that PM Oli’s India visit and subsequent assurances from both sides might have stemmed that from happening. He mentioned the operationalization of Muzzafarpur transmission line under the Power Trade Agreement of 2014 and the provision of importing power from India through its use. He argued that the LoE’s and Agreement signed during PM Oli’s visit will have been successful if the trade deficit between Nepal and India reduced and FDI and exports from Nepal to India increased.


H.E. Mr. Deep Kumar Upadhyay, Hon’ble Ambassador of Nepal to India, stated three important aspects of that shaped the contour of the visit. Before dwelling upon these, Mr. Upadhyay mentioned that the visit was timely under the given circumstances and promised to yield positive dividends for the future. The first of the three aspects highlighted by the Hon’ble Ambassador covered simplification of trade which covered elements ranging from trade facilitation measures to reducing tariffs such as physical connectivity, infrastructure development at border points, harmonization of standards across customs points, faster rate of transit and easing of non-tariff barriers to trade. Secondly, he expressed that Nepal should not doubt India’s intentions and that India was acting in the interest of Nepal and its own self and that India wanted mutual prosperity and stability in Nepal. Thirdly, he stated that the feeling of enmity or a conflict between Nepal and India was not in anybody’s favour and is just going to worsen things further. Therefore, he hoped that the partnership between the two countries can kick-off in a better, more robust and trustworthy manner.


Hon’ble Rajan Bhattarai, Member of Parliament and Member of the Eminent Persons’ Group that accompanied PM Oli to India, spoke about the utility of keeping things together with one’s neighbor and quipped the famous saying that one can change one’s friends, but one can’t change one’s neighbours and need to be able to cope with them. He said that Nepal should look forward to not just deepening and benefitting from the relationship with India in terms of trade and investment but it should also adopt multilateral expanded relations approach to achieve its potential. In fact, he stressed that such an approach would also benefit India and not only the two countries, the entire region should devise such an approach to foreign policy based on pragmatism and mutual benefit that can contribute to shared prosperity of the region.


Mr. Shakti Sinha, Chairperson, South Asian Institute for Strategic Affairs, Private Secretary to Former Indian PM. A.V. Vajpayee & Director, India Foundation, began his address by remarking that the fulcrum of Indi’a foreign policy under the leadership of PM Modi is regiona economic integration which aims at fostering mutual economic prosperity and the countries in the region should reap maximum benefits of this policy by swimming together and a failure to do would mean that they’ll have to sink separately. He thereafter remarked that 65% of Nepal’s formal trade takes place with India apart from a large volume of informal trade that exists between the two countries. He also mentioned that the worrisome attitude expressed by earlier speakers and many commentators in Nepal regarding the trade deficit with India isn’t rooted in sound economic and that politics should be separated from economics. Giving the example of China-India trade deficit, Mr. Sinha noted that India has had a trade deficit with China over the last 67years which currently stands at USD 45 billion (more than half of India’s total trade deficit) – almost 2% of the Indian GDP. He added however that it is important on India’s part to do something to change the optics of the issue and be sensitive towards concerns of Nepal. Giving the example of a well-performing Bangladeshi economy, he pointed to the fact that Bangladesh has had a trade deficit with India for years but it has turned that to its advantage by establishing itself right at the centre of the global value chain. He added that Bangladesh now has trade surpluses with countries in the EU and other Western countries and this came about due to the tactic of turning the trade deficit with India in its own favour by developing local industry in leather and textiles. There is an efficiency of arrangement and value additions along the supply chain in Bangladesh which allows different countries to be a part of the Bangladesh growth story through FDI and trade. By highlighting that value addition across the supply chain primarily comes from FDI, Mr. Sinha said that India is a massive exported of FDI with an outlay of USD 15 billion in 2007 and USD 19 billion in 2009. Most of this FDI however goes to countries like Singapore and Mauritius (although these are rarely the final destinations and are primarily used for their tax-conducive environments) and a mere USD 400 million is invested in South Asian countries. He said that Nepal can benefit immensely from a portion of this outflow of investment by staking a claim to it and creating an investor-friendly environment in Nepal. 


Moving on to the issue of trade, Mr. Shakti Sinha gave a well explained analysis of the informal border trade that takes place across Indo-Nepal border with goods traded from India into Nepal being primarily sourced from Indian states of Up, Bihar and West Bengal and those reaching India from Nepal coming from other countries like China, Japan, Thailand, Hong Kong and Singapore highlighting the fact that third-party trade dominates Nepal-India trade. Adding on to his remark about informal trade, he highlighted the benefits of informal trade which motivates traders to use this route instead of a formal one. These advantages are in the form of face-to-face interaction with the trader, risk mitigation and quality assurance, easy dispute settlement procedures of an informal nature, the inefficiency of formal trading regimes, low transaction costs, little or no procedural delays and small consignment size. He pointed to the benefits of easing procedures and making trading easier along the lines of informal trading in order to improve the trade volumes through the formal inter-country route. He also added that there exist microeconomic impediments to trade and investments which need to be worked upon.


Towards the end of his address, Mr. Sinha focused on the Power Sector in Nepal and how it can take cue from Bhutan in this direction by bringing efficiency and clarity in its policies regarding the hydropower sector. He said that 75% of Bhutan’s energy needs are met with the help of hydropower and that the sector contributes 40% to government revenues and 25% towards the GDP. India itself was adding 15000 to 20000 MW of electricity every year to meet its growing energy needs and needs to develop capacities for power generation in East and Northeast India which contribute 12% and 3% towards total power production respectively despite the existence of a much larger capacity of hydropower generating resources. He said that through Joint Investment Ventures and Foreign Direct Investment, India can play a major role in Nepal’s power sector which has the potential to not only become power-sufficient if it manages to tap this potential but also a power-surplus country exporting electricity to India, Bangladesh and other neighbouring countries.


H.E. Mr. Ranjit Rae, Hon’ble Ambassador of India to Nepal, speaking at the end of the program, agreed with Mr. Sinha’s remark about separating politics from economic. However, he remarked that in order to move forward in the area of economic relationship, there needs to be a political consensus for economic reforms. Citing the example of Japan and China and the inherent queasiness they exhibit with regard to each other politically, Mr. Rae highlighted the fact that there are 125 Japanese companies in China and a multi-layered indispensable trade partnership. He expressed his strong belief that political decisions shouldn’t come in the way of economic development. He added that an intergovernmental Joint Commission needs to be set-up at the Commerce Secretary level between the two countries in order to streamline this process of economic advancement. The Ambassador also stated that India’s investment in Nepal up until now has been very profitable but there is paltry new investment coming from India to Nepal currently. He asked everyone to ponder over the reasons as to why this was the case and why there isn’t much FDI flowing into Nepal from other sources too and if it is why the amount is so insignificant. He exhorted the government of Nepal to think about the measures to be taken to attract new investment from India as Indian investment has been the benchmark in Nepal. He also inquired if there is or can there be an increase in investment in Nepal without its continued special partnership with India as most countries in Europe and Southeast Asia continue to view India’s investment in Nepal as the benchmark driver for their own investments. He encouraged the two countries to have a problem-solving approach towards bilateral challenges and invited Nepal’s business and diplomatic community to improve the image of investment climate of Nepal by conducting road-shows in major cities of India and advertise there to attract the attention of Indian companies and businessmen.


8.    Conclusion and Outcomes

The program provided an opportunity to the experts, diplomats and delegates to address the significance of PM Oli’s visit to India in the bilateral context. It also gave space to generating new ideas to solve the bilateral issues through intellectual debate and engagement between both the parties. The event focussed on concrete deliverables that could further the progress of the unique and incomparable partnership between Nepal and India. It had as its most important agenda, the improvement and strengthening of the relations between India and Nepal. Through the discussions and networking offered by the program, the business communities of the two countries as well as the government representatives got a chance to resolve any nagging issues from the past and frame the future course of action by taking immediate steps in improving the present status of economic relations by smoothening the inflow and outflow of trade, investment and creating sustainable business links between entrepreneurs across both sides of the border


Kathmandu, the 23rd March, 2016




 PM Oli’s India Visit: Trade, Transit, Business and Trade Opportunities

Official banner for the event



Special Guests and Panellists at the program



Delegates/Businesspersons at the PM Oli’s India Visit program


Mr. Shakti Sinha, the Key Note Speaker for the program expressing his views


                 H.E. Mr. Ranjit Rae, Ambassador of India to Nepal in discussion with Mr. Shakti Sinha



A panoramic view of the program


© Copyright 2016-17 by the Asian Institute of Diplomacy and International Affairs, all rights reserved. All materials appearing in the above report may not be reproduced or stored in a retrieval system without prior written permission of the publisher and in no case for profit.