Indian state govts against bilateral trade: Experts

Activities of Indian state governments that go against the spirit of bilateral trade agreement are affecting Nepal-India trade, experts said on Tuesday.
“Nepali exporters are facing different hurdles due to intervention by the Uttar Pradesh government," Prof Bishwambher Pyakuryal, a seasoned economist, said. “The cost of economic non-cooperation is very high in the region. It´s even higher in the bilateral trade.”
Speaking at a workshop on ´Breaking Down Barriers to Regional Trade and Cooperation in South Asia´ here on Tuesday, Pyakuryal said the union government of India should clarify these issues. “We have been told by leaders of Uttar Pradesh to contact them rather than officials of the union government. Is this what we need to do?” he questioned.
The workshop, which was organized jointly by the South Asia Watch on Trade, Economics and Environment (SAWTEE), and International Finance Corporation (IFC), mainly focused on non-tariff barriers.
“The non-tariff barriers are intense than the tariff barriers in the South Asia region," Dr Posh Raj Pandey, trade economist and chairman of SAWTEE, said.
Highlighting the major issues behind low intra-regional trade, Pandey spelled out three types of deficit lurking in the region. “Trust deficit, trade deficit and institutional deficit are pulling us back," Pandey said. "We have to work on first increasing the trust among us and enhance the institutional capacity."
There is deficit in many areas, Dr Ratnakar Adhikari, regional trade expert at SAWTEE, said. “Infrastructure deficit and vision deficit are the other factors hindering regional trade. The trade barriers in this part of the world are unique and we have to handle them with care," Adhikari said.
Nepal has comparative edge in hydropower but that has not been realized yet. Tasheen Sayed, country manager of the World Bank, said that there should be investment in the development of cross-border infrastructure such as transmission lines. "Nepal can benefit from the energy sector," Sayed said. "World Bank is focusing on development of transmission lines in the cross-border area between Nepal and India.”
Meanwhile, David Gould, chief economist at the South Asia Region Office of the World Bank, presented a paper on ´Regional Trade and Cooperation in South Asia´.
"The asymmetry of the size of the economy in the South Asia Region is also a major reason for low intra-regional trade," Gould said in his paper.

CAPITAL FLIGHT AND NEPAL

This Commentary was first published in the The Reporter Weekly

"I am surprised to know this figure," Economist Dr. Madan Kumar Dahal said when I shared with him the total amount of illicit financial outflows from Nepal in the last decade ending 2009. The report-- 'Illicit Financial Flows from Developing Countries Over the Decade Ending 2009' –released recently says that total amount of illicit financial outflow from Nepal is estimated to be US $ 6.040 billion during the period.

Trade mispricing, proceeds of corruption and bribery are cited as the three major drivers of illicit financial outflow from Nepal by the report.  Available information suggest that the trade mispricing contributes 83 percent of total l outflows from Nepal. This study by Global Financial Integrity (GFI) tracks the amount of illegal capital flow from 157 countries. The GFI has ranked all the countries on the basis of volume of total illicit financial outflows and Nepal is placed 83rd.

The total illicit financial outflow from Nepal is around 7.25 percent of our Gross Domestic Production (GDP) compared to the same time period.  The amount of money thus lost is enough to run  almost two fiscal years if the amount is compared with that  of the  annual budget of  the government.

The  GFI has taken into account  the balance of payments (BoP), bilateral trade, and external debt data reported by member countries to the International Monetary Fund (IMF) and World Bank while preparing the report. Dr Dahal who is also an expert in Macro Economics, says that this report throws a challenge to the government to  trace the way, and destination of the capital flight and those responsible for it.  Senior officials from Ministry of Finance (MoF) and Nepal Rasrta Bank (NRB) were reluctant to be quoted.

The enactment of the Anti-Money Laundering Act-2008 and Anti-Money Laundering Regulations-2010 together with the establishment of Financial Information Unit (FIU) within the Nepal Rastra Bank (NRB) may be taken as attempts to deal with the problems of illicit financial outflows. But these acts, regulations and units do not appear as effective when Nepal is losing more due to trade-mispricing. The average contribution of trade-mispricing in Asia is just 53.9 percent where as in Nepal's case, the figure is well above -- 83 percent—the mark.

The illicit financial outflow has become a global problem that the governments from different countries are trying to address. But the same cannot be said about Nepal. While some  cases of anti-money laundering in the supreme court of Nepal  filed few months back have taken their own time, government bailing out the  VAT fraud case worth billions of rupees—of late by transferring the investigating officials en masse—makes its intentions clear.

GFI, an NGO based in Washington DC defines illicit financial flows as 'proceeds from both illicit activities such as corruption (bribery and embezzlement of  national wealth), criminal activity and the proceeds of licit business that become illicit when transported across borders in contravention of applicable laws and regulatory frameworks.  And it has its own impacts. The illicit capital flight doesn't only create the illegal problems, but also weakens the capacity of economic indicators of reflecting the situation.