Nepal’s textile and clothing form a key export item, providing reliable sources of import-driven economy. The primacy of trade over the production, fuelled by neo-liberal policy since the early 1990s, largely halted the expansion of manufacturing sector considered the basis of economy. The ready-made garment industry had thrived in the country during the 1980s, with the funding of Indian exporters, who chose Nepal for its production after their country imposed quota limit on its products. But the booming mass-produced garments suffered a steep decline in the foreign market owing to several factors such as expiry of WTO’s Agreement on Textiles and Clothing and the Multifibre Agreement that had granted Nepali garment a duty-free access to the US market, among others. The matters pertaining to the unethical practice and quality of Nepali garments also hurt its prospect in the global market.
Despite the state’s policy to keep its hands off the industrial activities, textile manufacturers have been able to sustain their industries against all odds, especially the illegal imports of raw materials and finished products via unregulated Nepal-India border. Of late, focus has been given to quality instead of quantity. Quality garments find niche market on the global scale. Buyers are inclined to pay for expensive items if they are of higher quality. There are lesser preferences for fast fashion chain in which cheap clothes are manufactured quickly and sold in large quantities to catch fashion trends. Still, there is a sense of quandary – the country has earned revenues from both the export and imports of the cloth and garments. Nepal exported cloth and garments worth Rs. 12.6 billion in the fiscal year 2021/22 and Rs. 10.5 billion in the current fiscal year.
On the other hand, the country imported textile and clothing worth Rs. 35.8 billion in nine months of this fiscal. Last year, it was Rs. 56.02 billion. Around Rs. 18 billion came in revenue from the imports of textiles and clothing (T&C) goods. Around 250 textile industries are running across the country, with over 50,000 people getting employed in the sector. Although Nepal government has prioritised the T&C industries, textile manufacturers are not happy the way the state treats the manufacturing industries. They have been demanding that the government control the illegal import of T&C goods. There is around 80 per cent illegal trade of T&C inside the country. The total consumption of cloth and cloth-related products stand at Rs 600 million but the legal imports and domestic production is only Rs. 100 billion. An average Nepali needs 30 metres of cloth annually.
In order to promote the domestic T&C industries, it is essential to minimise imports of T&C items through the strict regulation of the open border. In the past, the country had imposed 15 per cent customs on the imports of cloth but the rate was brought down to 5 per cent with the enforcement of South Asian Free Trade Area (SAFTA), leading to the closure of many textile industries. Nepal Textile Industries Association (NTIA) has demanded that the government should impose 10 per cent excise duty on cloth and garments and waive of the duty for the domestic products to enhance their competitive edge. Like in other South Asian countries, Nepal should also provide discounts on the interest of bank loan and electricity tariff, subsidy on the technology transfer and cash incentives on cloth and garment exports to promote their productions and exports.