Give Greater Impetus To Foreign Trade

In this global context, no country is self-reliant. As such, countries around the world are engaged in trade with one another. Those that have or produce surplus goods export them, while those that have demand for goods that they do not produce or produce inadequately import them. Imports and exports of goods – and services – are a worldwide phenomenon. Some countries are getting rich through foreign trade with a positive balance of trade, while others are struggling with a downturn in their economies having to relying on imports for the fulfilment of their domestic requirements. 

Before 1951, Nepal’s trade was confined to India and Tibet. Till that time, the country was like a closed book. Most of other countries did not know the country. After the advent of democracy, the country had a chance to be gradually introduced to other countries as well. With this, trade with other countries also gradually grew. Nepal is a country whose foreign trade is vastly dominated by imports. The country is rich in natural resources. The country is predominantly agrarian as around 67 per cent of its population depends on agriculture and allied activities such as livestock farming. But it is an irony that the country has to import even agricultural products. 

Trade partners

Nepal has trade partners all over the world. However, its major trade partners include SAARC countries; China, Indonesia, South Korea, Malaysia, Japan, Argentina, etc.; and European countries in the Euro Area that have adopted the euro (Austria, Belgium, Germany, Greece, Italy, the Netherlands, Spain, etc.). The Euro Area countries have robust economies and Nepali products are in demand in the Euro Area. The country, however, carries out the lion’s share of foreign trade with India, our immediate neighbour.  Nepal basically exports textiles, garments, carpets and suchlike products, whereas it imports oil, gold, iron, steel, clothes, pharmaceutical products, cement, electronic goods, food, fuel, vehicles and the like. But the country’s imports far predominate over its exports. That is why the country has been experiencing a trade deficit over the years.

During last fiscal year (2079/80), Nepal carried out a total foreign trade of Rs. 1,768.87 billion, out of which imports were to the tune of Rs. 1,611.73 billion and exports were to the tune of Rs. 157.14 billion. The trade resulted in a trade deficit of Rs. 1,454.59 billion. The trade deficit was huge as the imports constituted 91.12 per cent against 8.8 per cent for the exports. However, as compared to the trade deficit during the fiscal year 2078/79, the trade deficit for last fiscal year was lower by 15.45 per cent. During the fiscal year 2079/80, the government tightened imports to ease pressure on the dwindling forex reserves. During the fiscal year 2078/79, imports stood at Rs. 1,920.45 billion, whereas exports stood at 200.03 billion, resulting in a trade deficit of Rs. 1,720.42 billion.   

The trade figures are not favourable. This shows that Nepal is heavily dependent on imports to meet its domestic demand for consumption. This has weakened the country’s economy. On the other hand, this is a kind of boon. The country’s economy is dependent on remittances, taxes and foreign aid and grants. Despite a huge trade deficit, the country can raise revenue from import taxes. When imports decline, revenue from taxes also declines. However, this is not a healthy trend. Having an adverse balance of trade all the while does not bode well for the country’s economy. There are challenges galore in Nepal’s foreign trade. Political instability, natural disasters, lack of an industrial base and dismal progress in the agriculture sector are some of the major challenges that are besetting the foreign trade. 

Although the country has made some headway in building economic and industrial infrastructure, it is not enough. It is high time the government explored the factors behind the adverse balance of trade, studied the trade trends around the world and formulated strategies accordingly. It would be deplorable to note that the government has failed to give adequate priority to the agriculture sector, as a result of which people are being displaced from the agriculture sector. There is a growing trend of abandoning arable land, which has led to lower agricultural production and productivity.

On the other hand, the government has not taken any initiative in reviving the closed factories. With the advent of multi-party democracy in Nepal in 1990, many factories were unionised by the political parties. Owing to inability to bear the pressures from the party-affiliated unions and other factors, many factories collapsed, making the country heavily dependent on foreign countries even for the goods that used to be manufactured by these factories. Instead of reviving such factories, the government seems inclined to rely on imports to meets its domestic requirements. 

Protectionist policy

The government should adopt protectionist policy. The government should encourage the establishment of factories that produce goods for domestic consumption. Such factories should be provided with various incentives so that import substitution is made possible. Technology is not a problem now. It can be imported. With sophisticated technology, quality goods can be produced. But the government should have political will. Political will is something that is glaringly lacking. 

When imports dwindle, the government gets worried that revenue from taxes will decrease. But by increasing exports, the government can earn more revenue. By expanding the industrial and agricultural bases, more and more employment opportunities can be created. This could prevent the burgeoning migration of Nepali people to foreign countries. Moreover, this may bring the balance of trade in the country’s favour. Therefore, the government, policymakers and other stakeholders should be serious about improving the foreign trade by focusing on increasing imports. 

(Maharjan has been regularly writing on contemporary issues for this daily since 2000.)