Nepalese foreign trade/ Foreign trade of Nepal [Updated 2024]

Nepalese foreign trade/ Foreign trade of Nepal:

Foreign tradeplays a very important role in the economic development of a country. It promotes economic development by improving competitive capacity, expanding market, and providing modern technology and machinery for the industrial and agricultural sector. Therefore, it is also considered as the vehicle of economic development.

Before 1951 AD, Nepal's foreign trade was only with India and Tibet. But after 1951 AD, Nepal's trade relation expanded with many other countries of the world like Japan, USA, Germany, Malaysia, Singapore, Thailand, Kuwait, France, Bangladesh, Spain, etc. Nepal's foreign trade is rapidly increasing but the rate of increase in import is higher than export.

Growth of Nepalese foreign trade:

Before 1951 AD, Nepal‘s trade relation was only with India and Tibet. The decline of the Rana regime in 1951 AD was the turning point of Nepalese foreign trade. After this, the foreign trade of Nepal has run systematically with many countries of the world and the volume of trade has also increased. During the fiscal year 1956/57, the total export of Nepal was equivalent to Rs. 9.5 crore and the total import was equivalent to Rs. 17 crores. The total volume of trade was equivalent to Rs. 26.5 crore. But now, it has increased thousands of times.

Nepal's export, import, the volume of trade, and trade deficit are increasing rapidly. But the rate of increase in import is higher, than the rate of increase in export. Consequently, Nepal's trade deficit is very high and increasing rapidly every year. The persistent deficit in foreign trade is due to the low production of export-oriented goods and higher import of consumer goods. In order to reduce this deficit, the Production of competitive goods should be increased, which will help to increase export and reduce import.

Growth of Nepalese Foreign Trade (Rs. in Crores)

Years	Exports	Imports	Trade balance	Trade Volume
2073/74	7304.9	99011.3	- 91706.4	106316.2
2074/75	8136.0	124510.3	- 116374.3	132646.3
2075/76	9711.0	141853.5	- 132142.6	151564.5
2076/77	9770.9	119679.9	- 109909.0	129450.5
2077/78	14112.4	153983.7	- 139871.3	168096.1
2078/79	20003.1	192044.8	- 172041.7	212047.9
2079/80 *	10479.6	105838.6	- 95358.9	116318.2

* indicates first 8 months data

Source: Economic Survey 2022/23

Composition of Nepalese foreign trade:

The composition of Nepal's foreign trade can be explained by dividing into the following two headings:

1. Composition of export:

The major exportable goods of Nepal are woolen goods, carpets (hand-knotted woolen), Nepalese paper and paper products, readymade garments, handicrafts, ornaments, Pasmina, pulses, cardamom, medical herbs, etc. These goods are exported to India and other countries like USA, China, Germany, UK, etc.

2. Composition of import:

The major goods imported in Nepal are various finished goods, semi-finished goods, raw materials of industry, machinery, equipment, chemical fertilizers, petroleum products, gold, electrical goods, readymade garments, etc. These goods are imported mainly from India, China, and other Asian countries.

The direction of foreign trade of Nepal:

Before 1951 AD, Nepal's foreign trade was limited only with India and Tibet The trade with India formed 95 percentages and the remaining trade was with Tibet. The trade with overseas countries was almost nil. The major reasons behind the concentration of Nepalese trade with India were: Nepal bordering by India, open border with India, and similarities in language, culture, religion, tradition, etc. But now, Nepal‘s trade relation is with many overseas countries besides India and China. But India is still a major trading partner of Nepal.

Other countries include USA, Germany, Japan, UK, France, Italy, Spain, Switzerland, Belgium, etc. Besides India and China, Nepalese products are exported to USA, Germany, Japan, Bangladesh, the UK, France, Italy, Spain, Switzerland, Belgium, etc. Similarly, besides India and China, Nepal imports from Singapore, UK, UAE, Malaysia, Kuwait, etc. 

Nepal has also not been successful in the commodity-wise trade diversification. Nepal has more than 90 percent of foreign exchange earnings from commodity exports that come from mere seven commodities: readymade garment, carpet, pulses, handicrafts, leather, medicinal herbs, and paper products. In recent years, the export of these products is also declining.

Problems of Nepalese foreign trade:

1. Landlockedness:

Nepal is a landlocked country. It is bordered by India from three sides: east, west, and south and by China from the north. Therefore, Nepal has no direct access to the sea and it has no seaport. Goods are to be exported to different countries either using the land of India or through air transportation. Both of these are very expensive.

2. Low export and high import:

The production of exportable commodities is very limited in Nepal. There are very few goods which Nepal has been exporting such as woolen carpets, ready-made garments, handicrafts, herbs and shrubs, tea, coffee, etc. But the export of these goods is declining in recent years. On the other hand, Nepal's import is very high in comparison to export.

3. Low-quality goods:

The goods produced in Nepal are of low quality because of the use of inferior inputs and backward technology. Such goods cannot compete with foreign products. Therefore, it is very difficult to sell these goods in the international market.

4. Improper trade policy:

Before 1990, the Government of Nepal had adopted import substitution and protectionist policy. But after 1990, the Government of Nepal adopted a liberal trade policy. But this trade policy does not seem favorable to Nepal because of the uncontrolled flow of foreign goods into Nepal.

5. The high cost of production:

The cost of production in Nepal is very high in comparison to our neighboring countries: India and China. The causes behind the high cost of production in Nepal are the use of primitive technology, inefficient labor, imported raw materials, inefficient, equipment, etc.

6. Lack of publicity and advertisement:

Publicity and advertisement plays a very important role in the promotion of export trade. But, Nepal is not able to publicize and advertise its products in the international market. As the domestic goods are not published in the international market in an attractive way, the speedy and satisfactory development of Nepal's export trade could not take place.

7. Low production:

Low production is one of the major problems of Nepalese foreign trade. There are very limited economic activities in Nepal. The industrial base and necessary infrastructure are not well developed. There is still a lack of energy, transportation, communication, skilled and trained manpower, etc.

8. Slow industrial development:

The pace of industrial development in Nepal is very slow. The industrial sector of Nepal is still in undeveloped and infant stage. Because of long political instability and transitional period, there is not smooth functioning of the industrial sector and there is also a decline in industrial production. The export-oriented industries are not fully reliable and most of them are seasonal in nature.

9. Lack of trade diversification:

There is a lack of diversification of Nepalese foreign trade. It is concentrated on limited goods and countries. Nepal's more than 60 percent of trade is only with India. Nepal is also backward in commodity-wise trade diversification.

10. Tough competition with foreign goods:

There is a free the flow of foreign goods in the Nepalese market. These are especially Indian and Chinese goods which are cheaper and superior in quality in comparison to Nepalese products. So, Nepalese market is highly dominated by the products of these countries.