Migration and Nepal’s Economy: The Paradox of Development
August 13, 2023
02 March, 2017
The economy of Nepal has seen a substantial growth since the 2000s with the development of carpet and garment industries and the subsequent rise in exports. Despite registering positive figures in terms of trade with third countries, the country being landlocked has meant that accessibility to new avenues for trade remains one of its key concerns. To overcome the challenge posed by geographical barriers, Nepal has an agreement with India which enables the country to use the ports in Kolkata and Haldia in West Bengal for its external trade.
According to terms of the agreement signed, the goods can enter India via the border points located in Biratnagar, Birgunj, Bhairahawa and Nepalgunj which can then be ferried using cargo trucks and railways. The top export destinations of Nepal apart from India are the United States, China, Germany and the United Kingdom.
Over the years, the growing trade of Nepal coupled with traffic congestion and procedural delays at the Kolkata and Haldia ports gave rise to the need to access the third port. This demand was fulfilled on Prime Minister KP Sharma Oli’s visit to New Delhi last year when the Indian government allowed Nepal to use Visakhapatnam for third-country trade. But the viability of using a port located 1,436 km away from the country as against the distance of 704 km to the Haldia port has been a matter of intense debate.
Feasibility of Vishakhapatnam port
A close scrutiny of the facilities on offer at the Vishakhapatnam port dispels any concerns of the port not being feasible. As a matter of fact, preliminary studies have estimated that Nepal will be able to export an additional 25,000-30,000 TEUs of cargo every year because of the move. Besides, the Vishakhapatnam port is a deep-water port capable of handling vessels with a draft up to 17 meters as against the seven meters at Haldia port. This not only means that bigger cargo vessels can be docked at the Vishakhapatnam port but also that there will be a substantial reduction in ocean freight cost.
The port will also offset one of the major disadvantages of the Haldia port where cargo had to be first taken to Singapore and reloaded into smaller vessels before they are allowed to enter India. Because of this, the overall costs for using the port in West Bengal are much higher even though the cost to transport 30 tons of cargo is pegged at INR 72.29 as against INR 97.65 from the Vishakhapatnam port. Also, additional charges like high fees levied by container freight stations, demurrage and the delay in releasing cargo containers when taken into account reduce the feasibility of the ports in West Bengal. They also lack required storage space and modern infrastructure. According to a study conducted by Nepal Freight Forwarders Association (NEFA), transportation of goods from Nepal to Kolkata port constitutes 75 percent of the total trade cost and 87 percent of the total time taken is consumed in transit.
The figures are staggering and so are the material losses to Nepal when solely relying on the riverine ports in West Bengal. The Vishakhapatnam port has to a considerable extent addressed this incongruity by putting in place effective mechanisms. The port is fully automated and equipped with most modern infrastructure. This has eliminated the procedural delays of the Kolkata and Haldia ports because of the enormous amount of paperwork that was required to be done.
Due to such efficient streamlining of services, it only takes half a day to unload cargo as against the two and a half days taken at the ports in West Bengal. The round trip will be completed in 17 days as opposed to the 20 days taken from the Kolkata port. This is expected to save a minimum of INR 13,000 freight charges for every container.
Correspondingly, in view of the distance that has to be traversed from Birgunj, India has agreed that freight trains that can travel at a speed of 100 kmph with 90 boxes will be used to move containers. The Vishakhapatnam port has also assured that it will start one scheduled train a week to Nepal once the flow of goods from Nepal attains a steady pace. The agreement at present provides for the transport of cargo through rail routes connecting Vishakapatam to Jogbani and Birgunj. Four road routes have also been identified in order to increase accessibility and attract traffic.
The way ahead
The advantages of the Vishakhapatnam port far outweigh the facilities offered at the Haldia or the Kolkata port. But that does not in any way indicate that third country trade for Nepal from Vishakhapatnam port is devoid of any challenges. The absence of a Consulate General Office in Vishakhapatnam is bound to give rise to many procedural delays once the traffic increases. It also means that for any grievance redressal, the concerned party will have to approach the embassy in New Delhi which will eventually affect the efficiency of trade.
There is also room for further negotiation with Indian railways to cut down the freight charges. Even a small reduction in the present rates can significantly increase the feasibility of using Vishakhapatnam port for Nepal’s external trade with the eastern region.
Apart from this, Nepal should actively push for the realization of the proposed Eastern Economic Corridor of India that would give the country access to Paradip port in Odisha. The project will also open up the plethora of opportunities for Nepal in terms of economic development as it will be an important link in the trade route that will connect India and China. It will help the country overcome the geographical barriers and play a bigger role in defining the political equations of the region.
( LekshmiParameswaran is an Assistant Editor at Bharat Niti, New Delhi)
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