Nepal, Lipulekh, and pragmatism

In May 2015, China and India signed an agreement to augment border trade via the Nepali territory of Lipulekh Pass. This was done during Indian Prime Minister Narendra Modi’s state visit to China. Nepal, a Landlocked Least Developed Country (LLDC), was a mere spectator.

Last week, India’s Minister of Defense Rajnath Singh inaugurated an 80-km-long strategic road from Dharchula (Uttarakhand) to Lipulekh, which will serve as the shortest route to Kailash-Mansarobar from New Delhi. Nepal’s Ministry of Foreign Affairs (MoFA) issued a press release ‘regretting’ the inauguration.

India has been deploying its Indo-Tibet Border Police (ITBP) force at Kalapani since 1962, something Nepal has termed an action against the letter and spirit of Sugauli Treaty (1861). In the past 60 years, Nepal’s economic development has progressed at a snail’s pace and the country has lacked an ability to maintain an assertive neighborhood policy with its two giant neighbors.

Beijing enthusiastically welcomed Modi in May 2015, calling him ‘Indian Nixon’, sparking hope of greater collaboration between the two giants. But it was disheartening for Nepalis as the ‘Indian Nixon’ was violating Nepal’s sovereignty by signing a controversial agreement with China without Nepal’s involvement.

Haidian district in Beijing, which hosts three world-class universities—Tsinghua, Peking and Renmin—is undoubtedly the most vibrant intellectual hotspot of China. A huge number of Nobel laureates and global leaders visit Haidian on a daily basis to deliver lectures and take classes in these universities. The area is full of debates on China’s past, present and future, including Chinese President Xi Jinping’s potential as ‘China’s Mikhail Gorbachev’.

I brought up the painful topic of the 2015 Joint Statement during one of those debates. The statement had clearly violated Nepal’s sovereignty, and I was disturbed by the actions of our two neighbors. In the end, I and some other friends of Nepal decided to recommend to the Nepali Embassy in China hosting of high-level forums that discussed important topics for Nepal, most importantly those concerning its sovereignty.

Informally, I was told that the Nepali embassies around the world are short of cash to host such forums. “It costs a lot to host such events in Beijing and we don’t have the money,” shared a Beijing-based senior Nepali diplomat. “When we are perpetual guests at tables hosted by other countries, how can we assert our own issues?” he questioned.

Moreover, Nepal rarely appoints ambassadors on merit basis, and that is where the issue gets worse. These ambassadors cannot convince or fight with the MoFA for funds. The flip side is, even the financial resources in the basket of these embassies are poorly managed.

This issue is largely linked to the country’s state capacity. “If the Nepalese government cannot increase state capacity, the state itself could gradually dissolve,” wrote Robert D. Kaplan in his influential book, The Revenge of Geography: What the Map Tells Us About Coming Conflicts and the Battle Against Fate’ (2011). He further writes that China and India could play a new version of the Great Game in the Himalayas.

The only way to manage these Great Game players is to increase our capacity both in economic and military terms. Nepal needs to be economically powerful to give its embassies enough funds for incidental expenditure. Had the Embassy of Nepal in China raised the issue of Lipulekh in Beijing’s high tables in 2015, who knows, perhaps China would have been more careful about stepping on Nepal’s sensitivities in the future.

Nepal saw 15 different prime ministers and 40 governments in the past six decades. But the issue of Kalapani remains unsolved and the country’s economic stagnation continues. This can be attributed among other things to the tendency of our leaders to seek personal favors from abroad, particularly India.

A poor and politically unstable Nepal has only one option out of this three-dimensional problem. That is to enhance its economic power by making its people the most wanted consumers of Indian and Chinese goods. “Above all a pragmatist” when dealing with stronger powers, as Machiavelli would advise. The most pragmatic way is to build a country of 30 million indispensable consumers. If we have to make a small investment for this, for instance in hosting important discussions and debates abroad, it will be well worth it.  

This article was first published in The Annapurna Express on May 13, 2020. 

Purchasing power

This article was first published in The Kathmandu Post, Dec 16, 2016

Potential power exporters in Nepal have received a jolt from the new Guidelines on Cross-Border Trade of Electricity released last week by the Indian government. The policy has limited open access to the Indian market for Nepali power producers and foreign investors other than those from India. India’s new policy framework affects Nepal’s aspiration to attain double-digit economic growth through hydropower. The government has planned to develop 10,000 MW including export-oriented and domestic-oriented projects in the next 10 years to fuel economic growth. The question now is whether Nepal can fulfil that aim by developing only domestic-oriented hydropower projects. Yes, it can do so with the right rebalancing policy response to Indian interests in water resources in the region. 

India has highlighted that cross-border energy trade involves issues of strategic, national and economic importance in the new guidelines. This is a manifestation of India’s strategic interests in water resources in the region. Blocking unlimited and open access to the Indian power market serves India’s goal of having a stronger say in the utilisation of water resources in the region. Nepali power producers and investors from third countries will be hesitant to invest in Nepal’s hydropower sector due to limited markets. This is what the Nepal government has to focus on. 

The new guidelines are against the spirit of the power trade agreement (PTA) signed between Nepal and India in 2015 following Indian Prime Minister Narendra Modi’s visit to Nepal in 2014. The PTA was signed establishing a formidable ground that Nepal would have access to the Indian power market regardless of the nature of the investment in power generation. But now, the guidelines have not only eroded the prospects of hydropower development in Nepal but also hit the spirit of regional power trade in South Asia. 

Core of Nepal-India relations

Nepal’s economy is heavily dependent on India from the energy security perspective, and this will become even more complex in the coming days. Hence, the guiding principles of hydropower development in Nepal should be, one, ensuring national energy security and, two, shifting from dependence to independence from the Indian economy. Investment in hydropower development has a direct relationship with Nepal’s resource utilisation and national security. The state should help Nepali investors invest in hydropower development regardless of access to the Indian market. The Nepali private sector has to work in tandem with the government to invest in the energy sector and expand the domestic power market. 

The core of Nepal-India relations is water resources. India is interested in Nepal’s water resources. This is not wrong, but what is crucial here is whether Nepal’s leaders will be able to protect the country’s strategic interests while serving Indian interests. India desperately needs water to irrigate vast farmlands in Uttar Pradesh state. The new guidelines complement India’s plan to use water from Nepal for irrigation purposes eventually. Nepal does not win by keeping Indian lands dry, but it will lose if it fails to identify what strategic direction it should take in river-basin management and utilisation of water resources. 

Domestic power market

Nepal’s annual peak power demand is estimated at 1,385.3 MW. The Nepal Electricity Authority (NEA) has predicted that the average annual electricity demand will grow by 9 percent and peak demand by 8.85 percent. Currently, the supply of electricity from the integrated national grid amounts to 855 MW, and the shortfall is met by imports from India. Nepal’s economy has faced a power crisis since 2006. It has crippled the country’s industrial growth and slowed the ongoing shift from traditional to commercial sources of energy. In an environment where even the existing industries are not running at full capacity because of power shortages, there is no incentive for new industries to enter the market. Industrial growth remained at an average of 2.1 percent in the last one decade thanks to the energy crisis. There are signs of structural changes in Nepal’s economy—the contribution of the industrial sector is declining while that of the service sector is increasing. The service sector grew at an average of 5 percent in the last decade, but it also suffers from a lack of adequate power.

A sizeable portion of the rural population has not been able to enjoy the benefits of electricity. Only 76.3 percent of the population has access to electricity. Rural households have been denied opportunities to replace traditional fuels for lighting, better schooling, TV, radio and internet, improved health care and access to information, knowledge and learning. They cannot start home businesses or micro enterprises like milling and drying due to the lack of electricity. 

Against this backdrop, there is a potential market for the electricity that is expected to be produced in Nepal. There is, therefore, a strong economic rationale as well as imperative for investing in the power sector to remove the most critical barrier to economic growth and job creation. Supplying adequate and reliable electricity is a national priority and a growth driver that supports the realisation of the national goals of Vision 2030 including Sustainable Development 

Goals (SDGs).

Pathway for power sector

The pathway would entail basin-wide development of hydropower generation and transmission in a planned way. The investment portfolio has to be an optimal mix of run-of-the-river and storage projects; domestic-oriented projects; hydropower and alternate energy projects; and generation, transmission and distribution projects. But accelerated power development would require a series of reforms and administrative streamlining particularly in the areas of (i) Land acquisition, resettlement and rehabilitation policy, (ii) Environmental (forest) clearance and disaster resilience, (iii) Benefit sharing and local participation, (iv) Project bidding, licensing, project development agreement (PDA) and PDA negotiation framework, (v) Project financing agreement, project financing regulations and sovereign guarantee policy, (vi) PPA, power tariff, wheeling charge and tariff regulation and (vii) Credit worthiness of the NEA, its unbundling, power trading and power market development. 

As massive investments will be required to implement the accelerated programme of power development, the investment climate and ease of doing business need to be made favourable and consistent with global business practices to attract sufficient foreign direct investment (FDI) inflows, public resources need to be leveraged to build public-private partnership and 

financial sector development and reform need to be expedited to mobilise internal resources. The immediate priority in the sector, however, is to remove transmission bottlenecks, reduce system losses and place power trading with India by 

rebalancing the policy framework, which may require cross-country harmonisation of relevant systems and practices keeping in mind its new approach to cross-border electricity trade.

Cleaning the drainage

This article was first published in The Kathmandu Post, March 24, 2017

In the last three months, Nepal hosted three mega summits: the Power Summit, the Infrastructure Summit and the Investment Summit. The central message was that Nepal needs to attract foreign investment to overcome infrastructure deficits and attain the desired double digit economic growth rate. Political forces also reiterated their support for this initiative, and committed to facilitating the investment process in the priority sectors of energy, agriculture, tourism and infrastructure. 

Is FDI enough?

Investors from eight countries pledged investments totalling $13.5 billion in the Investment Summit. The question is whether an inflow of FDI alone will trigger the economic take off required to attain and maintain a double digit economic growth rate. It is necessary to sustain this growth rate for a decade for Nepal to be a middle-income country by 2022. 

Nepal is beset by numerous problems that hinder prosperity; almost everyone from bureaucratic, political, academic and development sectors can pinpoint different obstacles. What’s more, everyone has a set of recommendations on how the country should be developed, and everyone believes that there is someone to blame. Several development partners and academicians have made policy recommendations that the government is trying to implement; however, this has not yet helped to accelerate economic development. National pride projects have been delayed, capital expenditure is low and the productive sector is sluggish. Large sections of the society are disappointed with the governance of Nepal’s current political parties, and claim that they are responsible for the sad state of affairs. However, the emergence of some new political parties with fresh leadership has led to renewed political initiatives. 

Against this backdrop, it is important to focus on one particular area to bring about change so as to embark on the road to economic prosperity. This entails an understanding of Nepal’s current problems from the perspective of behavioural economics. The reason behind this proposition is the fact that Nepal’s development activities have been in limbo, not due to the lack of resources, but because of the behavioural tendencies of Nepal’s politicians, bureaucrats, development workers and citizens. I am drawing this conclusion based on my visits to over two dozen districts in the last three months, during which I interacted with local people, representatives from local government bodies, and development workers at the ground level. 

communities clean to building small infrastructure. 

From the beginning of modern Nepal, the economy has been subject to political transitions. All political systems have been unable to address the structural problems impeding economic growth. While reforms in the early 1990s were instrumental in effecting positive change, they neglected to address problems of land use patterns and rent-seeking mentality. Thus, government policies have been unable to match people’s expectations. Perhaps the second generation of reform initiatives currently underway will do better. 

While policy reform initiatives are undoubtedly a foundation for economic development, they are not enough. These policy reform initiatives need to be accompanied by a change in the deep-rooted structural socio-economic Nepali mindsets. The lahure mentality of Nepali society is ever present. In earlier days, youths used to leave for India in the hope of military recruitment, or for employment in the Indian labour market. Now, they aspire to leave for South Korea, Japan, Europe and America, or to get a job in the Middle East and Malaysia. There are few incentives for young people to stay in Nepal.

Despite exponential technological advancements and the creation of efficient tools for agriculture activities, Nepal’s agriculture sector remains at the subsistence level. Tools for commercialising agriculture and starting agro-businesses are unfeasible when people in the Tarai lack simple irrigation systems. And although pompous slogans abound in the tourism sector, there are no well-planned tourist destinations. Trekking routes lack standard safety measures, and historic places such as the Gorkha Durbar, Lamjung Durbar, and the Janaki Mandir are in a state of dilapidation. 

No clear policy frameworks

Recent discussions have proposed ways to bring in billions of FDI in diverse sectors, highlighting the fact that these investments could complement the goal of economic development. These discussions focus on Nepal becoming a ‘bridge’ between China and India, thus establishing a trilateral mechanism for cooperation among the three countries. This would facilitate Nepal’s participation in China’s One-Belt, One-Road (OBOR) initiative and create a regional energy cooperation mechanism in South Asia. These are external factors that could accelerate the economic growth rate; however, none of these are in the implementation phase. The government lacks a clear framework to execute plans connected with foreign policy. Though the economy is in need of an immediate push, the implementation of these mechanisms and the subsequent results seem distant. 

Behavioural perspective

People at the local level have a tendency of staying idle, with the expectations that the state will provide something. However, the state often fails to meet even the basic expectations of these people. Instead of initiating and participating in ‘doable’ activities, individuals and communities have a proclivity for refraining from such enterprises expecting things to be done by the government. While it is the responsibility of the government to meet the expectations of its citizens to a certain level, there is an increasing reliance on the state to do everything, from keeping 

Political instability and corrupt leaders are the main causes of Nepal’s socio economic backwardness. Leaders and politicians exhibit a general lack of responsibility towards the nation’s economic development. One of the reasons behind this mindset could be that the incentive structures have been distorted right from the beginning, with the opening up of the economy in the early 1990s. While some development initiatives have been taken by the people, such initiatives are on a very minimal scale. The inflow of FDI and the resultant development of infrastructure will certainly lead the country towards economic development. But behavioural change in our public and private sectors are prerequisites for such advancements. 

Nepal’s development bottleneck is not due to a lack of resources or policies per se. It is largely owing to the behavioural problems plaguing our leaders, bureaucrats and people in general. A large number of improvements could be made efficiently, and without state intervention. Development is a matter of conscious realisation where every individual works to improve the larger society. In the absence of this conscious realisation, nothing can help. 

On wrong track

First published in Republica Daily

Nepal-China-India
Last January, the Department of Industry (DoI) released updated statistics showing that China had overtaken India to become the largest contributor of foreign direct investment (FDI) to Nepal over the previous six months. Does this increased FDI inflow from China mean anything at all, or is it just another statistic? Is it time for Nepal to rethink its economic and political ties with its two giant neighbors?
Yes, we believe this is the right time.
It is naïve to believe that China and India are interested in a prosperous and stable Nepal. The only thing they care about is their interests, whether security-related or geostrategic. The idea of being a ‘vibrant bridge’ between the two rising economies seems a distant fantasy, since Nepal can neither bring them to a common table, nor are they interested in any such mechanism.
Traditionally, compared to China, Nepal has been much closer to India. But Nepal needs to revisit at least the last few decades and evaluate what it gained by being closer to India. Nothing!
If Nepal wants to speed up its economic development by attracting FDI from both China and India, first it has to maintain ‘equi-proximity’ with the two neighbors. Nepal needs to work on scientific management of its border with India, and India needs to support Nepal in the same since border issues have been a major problem for both the countries.
The establishments of China and India are not very interested in dealing with Nepal and acknowledging it as a partner in development. Rather, both of them are inclined to deal with Nepal through their intelligence agencies and bureaucracy. Nepal has to understand this and be firm in dealing with its neighbor with clarity and respect. This is also the reason Nepal should maintain an organized border with India.
It can be argued that Nepal has gained a lot from the open border, but it has also lost a lot. In bilateral talks, Indian officials use issues of illegal re-export of beetle nuts and Chinese umbrella to Indian market to bully Nepali government officials. It is reported that Nepali businessmen import lentils from India and re-export to Bangladesh. Officials at Indian Embassy in Kathmandu try to humiliate Nepali officials for letting businessmen carry out these illegal imports, but do not take action against Indian businessmen who export those lentils illegally in the first place.
The South Block does not hesitate to deploy officials in its Kathmandu embassy to deal with journalists, opinion makers, and of course, businessmen and political cadres. Officials at the Indian Embassy allegedly distribute money from their drawers. But their beneficiaries would rather cover their eyes than admit this dirty truth.
Coming to China, it does not seem interested in dealing with Nepal as a special case and as a neighbor. Rather, it puts Nepal in the basket of ‘least developed countries’ along with many African countries. A good example is China’s decision to provide zero-tariff facility to 7,787 goods and services from all LDCs. China does not give any special treatment to Nepali goods and services—in which Nepal has comparative advantage—that it does not give to other LDCs. China is more interested in African countries to counter the West and prove its rising economic and political power in world politics.
In September 2013, Prof Wang Jisi from Peking University gave a talk in Beijing, China’s dilemma: marching West, thinking East. He mentioned India and other neighboring countries like Burma several times as he talked about China’s development, its foreign policy and neighbors, but there was no mention of Nepal. When asked about his views on Nepal, he briefly stated that Nepal is important to China because of Tibet. This shows that China and Chinese scholars are not much interested in Nepal.
Nepal neither has military strength to compete with its neighbors, nor the ability to deploy intelligence officials in Beijing, Delhi or border areas. Being a poor country between two giants, it has let itself be used by its ‘friendly neighbors’. Sometimes, they seem gentle and sometimes anything but..
Political parties should understand that the country’s future relies largely on their policies. They are the ones who should steer the country’s economy and politics.
The China-Nepal-India trilateral cooperation proposed by Nepal in 2010 has been taken very lightly in both Beijing and Delhi. That means neither country is ready to sit down with Nepal again. China and India are emerging giants in world politics. The two compete in many areas, from trade to military strength. Nepal should understand there is no space for it in the same table. It should not take any kind of action to please the southern neighbor at the cost of alienating the northern neighbor, or vice-versa.
Nepal should understand that having a scientifically organized border with India and allowing Chinese investors into Nepal without the fear of India is the only way of filling the infrastructure gaps. If Nepal allows India to build a 1,450 km highway in Tarai with its own contractors, then why not let China build a railway network in northern Nepal?
This does not mean Nepal should allow its land to be used by either power as they want. But if it wants to maintain equidistance with its neighbors, it should be more organized in dealing with India. The long relationship with India didn’t help us develop, but rather made Nepal more vulnerable, both politically and economically. Now it is time to be more professional and diplomatic with both neighbors and focus on building the country’s economy.
Poudel is a graduate student at Tsinghua University and Sapkota is a PHD candidate at Renmin University in Beijing

Stay the course

Currency peg with India

The International Monetary Fund (IMF) in its 2012 report makes an explicit remark that the exchange rate peg of Nepali rupee (NRs) with Indian rupee (IRs) has served as a pillar of macroeconomic stability in Nepal. India is the largest trading partner of Nepal, a small open economy.

The current freefall of IRs has made us contemplate whether we should terminate or revalue the currency peg with India. In 2003, IMF had issued a study paper stating that Nepal may want to rethink the currency peg, but that would not be a good idea given the impact of Indian economy on Nepal and the open border. Moreover, some pragmatic economic factors should be borne in mind while revisiting Nepal’s currency peg with India.

The historical background of the peg is one factor we need to take into account. There was a floating exchange rate system between the two countries from 1932 to 1960. This created a lot of uncertainty, which had negative effect on our economy. There were several money exchangers in different parts of the country. Speculation and hoarding of currencies was rampant, while the market was not operating as expected since money changers made people’s lives difficult.

Since early Shah Period, Nepal has relied heavily on India for its foreign trade—more than two-third of its foreign trade is with India now. Prior to 1932, the metallic currency of Nepal was valued at NRs 128 NRs for IRs 100. The rate was fixed in 1877 by the then Rana Prime Minister Ranoddip Singh. The exchange rate had remained constant until 1932. It had been quite stable from 1960 to 2002 when the rate saw seven adjustments, the last one in February 1993. That adjustment of NRs 1.60 equaling IRs 1.00 prevails to this day.

At that time, one US dollar was equivalent to NRs 49. Both the Nepali and Indian economies, including the global economy, have witnessed massive changes in the last two decades, mostly owing to the 2008 global financial crisis. But the exchange rate between the two currencies has stayed the same. The Indian economy started progressing after sweeping liberalization by the minority government of P V Narasimha Rao in 1991. The Nepali economy started falling after a record growth rate of 7.5 percent during the fiscal 1993/94.

The question of whether to revalue or end the pegged exchange rate regime is not new. It had surfaced a couple of years ago as well. The then Finance Minister, Surendra Pandey, and Finance Secretary had to make a statement that the exchange rate would not be changed immediately. Today, voices are rising that the country should gradually prepare to end the pegged exchange rate regime with India by consolidating its domestic economy. That could be an option, if we could strengthen our economy.

But before jumping to end the pegged exchange rate, we need to look at how the two economies have evolved in the last couple of decades. Now, the pessimism over the sluggish growth of the Indian economy has compelled foreign investors to pack up, resulting in the fall of IRs. However, the Nepali economy that was struggling to maintain a mere four percent economic growth must remember that the Indian economy grew at five percent even at its lowest.

Meanwhile, our economy faces two-way pressures, one from the trade that we do in IRs, and another from the trade in convertible currency (US dollar). Here, we have to think about our import basket, which is mostly full of Indian goods, mainly petroleum products and automobiles. Due to the freefalling currency, Nepal Oil Corporation (NOC) has already asked for a loan worth NRs 4 billion for petroleum imports.

A statement from the governor of the Central Bank that the exchange rate should not be tampered with at the moment is understandable. The peg with IRs is good for the economy; it forestalls the possibility of currency speculation of the kind witnessed during 1932-1960. Nonetheless, we do not have the luxury to sit back and do nothing as the currency continues to fall without a foreseeable end.

The governor is floating the option of import substation, but that would be a dangerous step, maybe even suicidal in the long run. Import substitution mechanism, which had been adopted by Jawaharlal Nehru in India after Independence in 1947, had taken Indian economy to a deadend. Nepal government, rather, needs to work on reducing the size of informal economic activities, which constitutes around 40 percent of total economy today.

Some government officials and economists are in favor of increasing the export basket, which is not a viable option either. Our goods and services cannot be competitive in the global market unless we have smooth electricity supply to our industries. And this we cannot do for the next four to five years.

The government has to work with the Central Bank to identify measures needed to take advantage of this situation. There are several steps that the government can take, such as streamlining remittance flow into productive sector, launching different programs to lure foreign tourists, and even asking Non-Resident Nepalis to invest in productive sectors while the US Dollar is appreciating.

There are several steps that the Central Bank can take to make the situation favorable for the country, though it cannot do anything directly to accelerate growth. The double digit inflation hitting people’s lives hard can be tackled by the Central Bank through different measures. Neither readjustment of the exchange rate, nor termination of currency peg will favor domestic economy. People’s sentimental reasons for terminating the currency peg with India should be countered with sound economic reasoning.

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.

Nepal-India power trade deal delayed

Signing of the Nepal-India Power Trade Agreement (PTA) has hit a snag with India seeking more time to study Nepal´s proposal.
Though Nepali officials proposed to discuss the contents of the proposed Memorandum of Understanding (MoU) on bi-lateral electricity trade at the seventh meeting of the Nepal-India Joint Committee on Water Resources (JCWR) being held in Kathmandu, participating Indian officials said they need time to study the proposal.
“Nepal-India power trade agreement is likely to be delayed as Indian officials have sought more time to study the proposal,” said a Nepali official who participated in the JCWR meeting that concluded on Friday.
Nepal had submitted a draft of MoU on PTA to India in 2009 before sitting for talks. The fifth meeting of JCWR held in Pokhara in November 2009 had decided to finalize the draft. The signing of PTA would have paved the way for laying cross-border transmission line and power trade between the two countries.
The Nepali side had also drawn the attention of Indian officials about implementation of the first phase of 400 kV Dhalkebar-Mujaffarpur cross-border transmission line. The transmission line is to be developed and operated by the private sector.
The bilateral meeting dwelled on a host of pending issues such as Pancheshwar Multipurpose Project, Tanakpur Barrage, Tanakpur-Mahendranagar Link Road, Koshi High Dam Project, Gandak Project and Naumure, among others.
“The Indian government needs some more time to review and respond to the terms of reference (ToR) of Pancheshwar Development Authority (PDA) as the Indian finance ministry has offered suggestions on clause 17 regarding exemption of taxes and duties on equipment and materials to be used in the projects,” reads the minute signed by officials of both the countries.
Energy Secretary Hari Ram Koirala from the Nepali side and secretary of the Indian ministry of water resources Dhruv Vijay Singh signed the minute.
Similarly, Indian officials have said it would take some more time for securing forest clearance approval for one kilometer section of the Tanakpur-Mahendranagar Link Road that passes through a forest in Uttrakhand, India. However, the meeting has decided to appoint RITES Ltd India for preparing the Detailed Project Report (DPR) for the remaining section of the road parts.
Meanwhile, Nepali side also demanded that the issue of compensation for 10,306 bighas of private land damaged by the Koshi project be resolved at the earliest.
Nepali side also picked up the issue of crop damages and other problems caused by western main canal of the Gandak Project. However, India refused to discuss the issue further stating that it had already been dropped during the third meeting of Joint Committee on Koshi and Gandak Projects (JCKGP).

Import of additional power from India to take 4 months

It will take up to four months to import power from India even though the Indian government expressed commitment to export additional 55 MW power to Nepal during President Dr Ram Baran Yadav´s five-day visit to southern neighbor, officials said.
"People might have to wait for the next four months for the load-shedding hours to actually go down," said Rameshwar Yadav, managing director of the Nepal Electricity Authority (NEA).
Yadav, who will visit India next week to arrange logistics for the import of electricity from India, attributed the delay to transmission line constraints. "Our existing transmission lines have the capacity to import around 180 MW," Yadav said. "But it would take around four months to fix some technical issues."
Nepal currently imports a total of 115 MW of electricity from India. "However, we will import additional electricity from India in this very dry season," Yadav said, adding that his visit to India will focus on other mid-term plans for load-shedding reduction.
India had agreed to provide a total of 200MW electricity to Nepal during Prime Minister Baburam Bhattarai´s visit last year. "We will have meetings with officials from Power Trading Corporation of India (PTC) to push them to work speedily in expanding transmission lines on the Indian side," Yadav said.
Additionally, during the meeting, the team will also discuss speeding up the process of upgrading Dhalkebar-Muzaffarpur (400 KVA) transmission line. "We have almost completed work on our part," Yadav told Republica. "We will now ask Indian officials to speed up their work."
In November 2009, NEA and Indian stakeholders -- PTC, Infrastructure Leasing & Financial Services (IL&FC) and Power Grid Corporation of India Ltd (PGCIL) -- had set May 2010 as the deadline for completion of the Power Purchase Agreement (PPA) and financial closure of the project. However, nothing has been completed so far.
"Absence of cross-border transmission line is a major bottleneck for power trade between the two countries," Yadav said. "We will focus on completing the task of financial closure of the project."
Meanwhile, independent experts claim that the import of power from India will not materialize during this dry season. "There are several technical problems," a hydropower expert said. "India´s commitment has come just as a courtesy to show that India is concerned about Nepali peopl

Private sector to meet UP chief minister over herb export row

A delegation from Nepali private sector is meeting Akhilesh Yadav, chief minister of the Indian state of Uttar Pradesh in a bid to discuss issues related to trade and transit between the two countries including the trade of medicinal herbs that has come to grinding halt since the last three months from the Nepalgunj customs.

“The meeting will focus mainly on connectivity and quarantine,” Bhawani Rana, vice president of Federation of Nepali Chambers of Commerce and Industry (FNCCI) told Republica on Tuesday. “However, we will raise the acts of state-government of UP which has prevented export of herbs from Nepalgunj customs since three months against the spirit of bilateral trade treaty.” 

The medicinal herbs worth around Rs 350 million has been stuck in the Nepalgunj customs after UP introduced a new law contravening the bilateral trade treaty between the two countries. 

According to Rana, who will lead the team, the meeting is aimed at resolving the problems Nepali exporters face in different areas of border between Nepal and India. “We will also raise the issues created by different laws of state-government of UP,” Rana said. 

For instance, export of medicinal herbs is at a standstill following the UP government´s introduction of new law compelling exporters to get license from Department of Forest (DoF) of state government to export medicinal herbs. 

Such a provision was introduced against the spirit of bilateral trade treaty between Nepal and India that ensures free movement of all goods of Indian or Nepali origin in each other´s territory, without subjecting them to any quantitative restrictions, licensing or permit systems.

The export has not resumed even after the exporters knock the door of the India embassy in Kathmandu. Embassy officials had said that the export would resumed by Monday after the exporters appealed for facilitation last week. According to Thapa, 7,000 to 7,500 tons of medicinal herbs are exported from the Nepalgunj customs point to India.

Herbs exports from Nepalgunj to resume in 3 days

The Indian government has indicated that exports of medicinal herbs that came to a grinding halt few months back following introduction of a new law by the state-government of Uttar Pradesh (UP), contravening the bilateral trade treaty, will resume in a few days.

Officials at the Indian Embassy in Kathmandu Thursday assured Nepali traders that exports of their consignments will resume within three days, following the government´s diplomatic initiation to resolve the problem.“

"The embassy officials said we would be able to export medicinal herbs worth of Rs 300 million stuck at Nepalgunj customs point two months ago within three day”," Madhukar Thapa, president of the Jadi Buti Association of Nepal (JBAN), told Republica. Exporters on Thursday held a meeting with embassy officials during which request to take immediate steps to prevent their products from decaying was placed.

In this regard, the embassy has asked for a list of names of products so that it can communicate with the concerned agency in the central government and state-government back in India“ "We are pursuing the issue so that exports of medicinal herbs can resume as soon as possible,”one of the embassy officials said preferring anonymity“ "However, it will take a bit longer to change the law that has been imposed by the UP government."

The exports of medicinal herbs from mid- and far-western regions came to a grinding halt after the UP government made it mandatory for Nepali exporters to acquire a license from UP´s Department of Forest to continue exports.

Such a provision was introduced against the spirit of bilateral trade treaty between Nepal and India that ensures free movement of all goods of Indian or Nepali origin in each other´s territory, without subjecting them to any quantitative restrictions, licensing or permit systems.

The exporters had last week met Prime Minister Dr Baburam Bhattarai and asked him to take initiatives to solve the problem.

According to Thapa, 7,000 to 7,500 tons of medicinal herbs are exported from the Nepalgunj customs point to India. "We have been reassured that the medicinal herbs which are now lying at the customs point won´t decay due to the procedural hurdles that were created by the UP government," Thapa said, after the meeting at the embassy.

Provide Rs 1.25 billion for Janakpur-Bijulpura railway project, PAC tells MoF

Public Account Committee of the Parliament has directed Ministry of Finance (MoF) to provide Rs 1.25 billion to the Department of Railway (DoR) within a week so that it can acquire land for the construction and expansion of Janakpur-Bijulapura railway track, which India has agreed to develop.
"The committee directs MoF to allocate the required budget for land acquisition within a week," Ram Krishna Yadav, chair-person of the committee said after a hearing on Monday. The DoR said it needs Rs 1.25 billion for completing the land acquisiton process.
"The committee also directs the Ministry of Physical Planning and Works (MoPPW) to distribute compensation to the land owners within a month," said Yadav.
Project to develop Janakpur-Bijulapura railway track was agreed between Nepal and India in February 2010, when President Ram Baran Yadav visited India. Under the project, the Indian government agreed to upgrade the existing 51-km long railway track to broad gauge and extend it up to Bardibas, a major junction along the East-West Highway.
But the project has stalled since the MoPPW placed the project in least priority. As a result, the MoF had been reluctant to provide budget for the project.
On Monday, however, MoF officials said the ministry was trying its best to arrange budget within this fiscal year. The committee, after hearing the MoF officials, instructed the ministry to manage the required fund by pooling the unspent budget from other projects.
Lawmakers in the committee also asked Minister for Physical Planning and Works Hriyedesh Tripathi to raise complications that he faced due to diverse status of land owners with Prime Minister Dr Babu Ram Bhattarai and sort out the problem.
Tripathi said the land being acquired by the government was agricultural land. "If we did not compensate the farmers right away, the locals will simply not handover the land to us. This will only subject us to difficulty," said he, demanding release of complete fund at one go.
According to DoR, it needs to acquire a total of 220 hectares of land from Janakpur to Bijulpura to upgrade the existing track.