About Commerce Wing

1. Commerce Wing looks after India-Nepal exchanges in trade, transit and investments. It also looks after bilateral cooperation in water resources sector and power sector. In addition, it oversees cooperation in civil aviation and tourism sectors. Commerce Wing also monitors the implementation of infrastructure projects financed by Government of India’s Lines of credit (through EXIM Bank of India).

Commercial and Economic Relations:

2. India is Nepal's largest trade partner and the largest source of foreign investments, besides providing transit for almost entire third country trade of Nepal. India accounts for about two-third of Nepal’s merchandise trade, about one-third of trade in services, one-third of foreign direct investments, almost 100% of petroleum supplies, and a significant share of inward remittances on account of pensioners, professionals and workers working in India.

Bilateral Framework for Trade and Transit

3. The bilateral framework for trade is anchored on the India-Nepal Treaty of Trade and Agreement of Co-operation to Control Unauthorized Trade - 2009. Both Treaties were automatically renewed in October 2023. The Trade Treaty allows Nepal unilateral duty-free access to the Indian market.

4. India and Nepal also have a Treaty of Transit, which confers transit rights through each other’s territory through mutually agreed routes and modalities. Its revised version was signed on 1 June 2023 for a period of 7 years and then will be auto-renewed for further period of 7 years. The Treaty and the LoEs associated with it allow Nepal’s merchandise to move seamlessly through India’s road, railway, inland waterways and ports network..

5. The India-Nepal Rail Services Agreement (RSA) 2004 governs the rail-freight transport between the two countries. An LoE (Letter of Exchange) to the RSA was signed in June 2021 to liberalize the India-Nepal rail-freight traffic and bring it in line with latest operational and infrastructure status of Indian and Nepali Railways. The LoE has allowed market forces to come up in the rail freight segment and increased efficiency and cost-competitiveness, eventually benefiting Nepalese traders, transporters and the consumer.

6. India comprises about 64.1% of total trade of Nepal, equating to $8.66 billion USD (Nepali FY 2022-23). In Nepali FY 2022-23, it is notable that India is Nepal’s largest export destination, receiving an overwhelming 67.9% of its total exports. Nepal’s other large export destination are the United States, Germany, Turkey, France, the UK, Australia, Italy, Japan and Canada. Nepal’s exports mainly constitute edible oil, coffee, tea and jute.

[Source: Nepal Rastra Bank and Ministry of Commerce and Industry, Govt of India]

7. Nepal is India’s 18th largest export destination in 2023, up from 28th position in 2014. Main exports from India to Nepal are petroleum, iron & steel, automobiles, machinery, cereals, etc. Open border and connectivity projects have been major facilitators of increased India-Nepal trade. Exports from India constitute almost 22% of Nepal’s GDP.

[Source: Ministry of Commerce and Industry, Govt of India]

8. India-Nepal merchandise trade statistics over the past few years are given below.

Indian Financial Year (April to March)
Figures in US$ million

9. Open border and connectivity projects have been major facilitators of increased India-Nepal trade. Government of India is providing assistance for development of cross-border trade related infrastructure. It includes upgradation of four major Integrated Check Posts at Birgunj-Raxaul, Biratnagar-Jogbani, Bhairahawa-Sunauli and Nepalgunj-Rupediya to international standards; upgrading approach highways to the border on the Indian side; upgrading and expanding the road network in the Terai region of Nepal; and, broad gauging and extending rail links to Nepal. Integrated Check Posts at Birgunj and Biratnagar are fully functional. Being built under Indian grant assistance, mirror ICPs in Rupaidiha (India) and Nepalgunj (Nepal) have been inaugurated. Ground breaking ceremony of the mirror ICPs in Sunauli (India) and Bhairahawa (Nepal) have also been conducted. An MoU on the construction of another ICP in Dodhara Chandani in Nepal under Indian grant assistance was also signed on 1 June 2023.

10. In previous Financial Year, important developments launch of RuPay card in Nepal, signing of LOE to Rail Services Agreement, signing of MoU on fertilizer supply from India to Nepal and progress in power sector cooperation are likely to further boost bilateral trade. In order to further enhance digital financial connectivity between the two countries, an MOU between NPCIL India and NCHL of Nepal for facilitating cross-border digital payments has been exchanged on 1 June 2023. 11. An Inter-Governmental Committee (IGC) meeting on trade, transit and cooperation to control unauthorized trade between India and Nepal at Secretary-level is held on regular intervals. It is a platform to discuss and resolve issues relating to bilateral trade between India and Nepal, transit facilities provided by India to Nepal to facilitate trade with third countries, investment promotion, improvement of infrastructure at land customs stations, day-to-day problems in regulation of Nepalese traffic-in-transit, issues related to Indian investment in Nepal, etc. Another mechanism, the Inter-Governmental Sub-Committee (IGSC, Joint Secretary-level) is also held regularly and usually precedes the IGSC. The last meetings of the IGC and IGSC were held via videoconference on 7 Dec 2020 and 3-4 Dec 2020, respectively.

Transit of Nepal’s 3rd Country Trade

12. Nepal’s transit trade, for third countries, is routed through the ports of Kolkata/Haldia and Vishakapatnam. In addition, Nepal’s trade with and through Bangladesh also transits through India. LoE on Operationalisation of Vishakhapatnam Port (Amendment in the Treaty of Transit) for traffic-in-transit between Vishakhapatnam Port and Nepal was signed in February 2016 during the visit of Prime Minister of Nepal to India. Commensurate amendments in the Railway Services Agreement were also made. Since then, it has facilitating movement of transit traffic between Vishakapatnam Port to Nepal (ICD Birgunj) and providing additional transit facilities.

Trade and Transit during the Pandemic

13. When most borders around the world remained closed, the India-Nepal trade routes continued to be open and robust. In fact, after an initial slowdown in April 2020, the trade flows between India and Nepal quickly picked up, and steadily began to exceed even long term averages.

14. During the same period, almost 100% of Nepal’s overland trade – with India and rest of the world – took place through customs stations on the Indian border, which remained open throughout and in both directions. Even during the pandemic’s 2nd wave, we were able to keep the flows open, which included large quantities of Covid-19 related medicines, critical supplies and equipment.

Indian Investments in Nepal

15. Indian Investment in Nepal: India is the largest source of investment into Nepal, accounting for more than 33.3% of the total FDI stock of Nepal, which is worth nearly USD 641 million. There are about 150 Indian ventures operating in Nepal engaged in manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries. Indian companies and investments have played a key role in Nepal’s national economic journey by contributing to industrialization, employment generation, government revenue and export earnings.

[Source: Nepal Rastra Bank]

Water Resources Sector

17. Cooperation in water resources primarily concerning the common rivers is an important area of cooperation. A large number of small and large rivers flow from Nepal to India and constitute an important part of the Ganges basin. These rivers have the potential to become major sources of irrigation and power for Nepal and India. A three-tier bilateral mechanism established in 2008, to discuss cooperation in water resources, flood management, inundation-control and hydropower development between the two countries, has been working well.

18. The Koshi Agreement (signed in 1954 and revised in 1966) and Gandak Agreement (signed in 1959 and revised in 1964) represent the first major agreements on India-Nepal cooperation in water resources sector. These were aimed at flood-control, irrigation and power generation for the benefit of both India and Nepal. Last India-Nepal Joint Committee on Kosi and Gandak projects (JCKGP) took place in Patna, India from 12-13 April 2022. Another landmark agreement, The Mahakali Treaty signed in 1996 between India and Nepal provides for equitable use of the waters of the Mahakali river for both countries, including through implementation of Pancheshwar Multi-purpose Project which will provide irrigation, flood-control and power to both India and Nepal.

19. As part of bilateral cooperation on flood-management, river training works on Kamala, Bagmati and Lalbakeya rivers were completed under Indian grant-assistance amounting to NRs 4.85 billion (more than INR 300 crores). These works benefit several millions of people inhabiting the watersheds of these rivers in India and Nepal. Mutually-agreed emergency works have also been funded by Govt. of India on other rivers to minimize the danger of inundation. Government of India has also been proactive in providing relief material to flood-affected areas in Nepal, constituting yet another area of India-Nepal cooperation in this sector.

20. The last meeting of Joint Committee on Water Resources (JCWR) was held on 23 September 2022. Last meeting of Joint Committee on Inundation and Flood Management (JCIFM) took place in Kathmandu on 13-14 March 2022.

Power Sector Cooperation

21. The Joint Vision Statement on Power Sector Cooperation issued on 2 April 2022 during visit of Prime Minister of Nepal to India, laid out a comprehensive roadmap for bilateral cooperation in the sector. Its key pillars include joint development of power generation projects in Nepal, development of cross-border transmission infrastructure, bi-directional power trade, coordinated operation of the national grids and institutional cooperation in sharing latest operational information, technology and know-how. The Vision Statement acknowledged the role Indian investment can play in Nepal's renewable power sector to benefit both the countries. The Statement also directed concerned officials on both sides to expedite the bilateral discussions towards early finalization of the Pancheshwar Multipurpose project’s DPR. In this regard, various bilateral mechanisms are taking place in full swing.

22. The Power Trade Agreement that was signed in 2014 established a Joint Steering Committee (JSC) and a Joint Working Group (JWG) at Secretary/Joint Secretary levels, respectively. The 10th meeting of these mechanisms took place on 17-18 February 2023 in Mount Abu, India and covered issues related to power trade, building of cross-border transmission lines, upcoming power projects and also prospects for cooperation in renewable energy.

23. Power trade is one of the three main pillars of India-Nepal power sector cooperation as envisaged in the Joint Vision Statement issued on 2 April 2022. In February 2021, India issued the Procedure for Approval and Facilitating Import/Export Cross Border of Electricity by the Designated Authority (CBET Procedure), thereby streamlining the regulatory regime and procedure for electricity trade with and through India. In May 2021, Nepal became the first country to benefit from this Procedure when Nepal Electricity Authority entered into an arrangement with NTPC Vidyut Vyapar Nigam Ltd. to buy power in real time from Indian Energy Exchange.

24. In October 2021, Central Electricity Authority, which is the Designated Authority under the CBET Procedure, approved the sale of up to 39 MW of power from two generating stations in Nepal to India. Till 2023 (wet season), India has approved total 631 MW of power export from Nepal to India. The start of these exports from Nepal to India under the CBET Procedure marks a crucial milestone in bilateral cooperation and is likely to bring significant economic benefits to both the countries. Government of India has also assured decision to facilitate the first trilateral power transaction from Nepal to Bangladesh, through Indian grid with an export of upto 40 MW of power.

25. Power Transmission Lines: An India-Nepal Joint Technical Team (JTT) was constituted in 2014 for preparation of a long-term integrated power transmission plan covering projects up to 2035. The 14th JTT meeting took place on 20 January 2023 at New Delhi. There are around 11 transmission lines between the two countries but the bulk of power trade takes place through Muzaffarpur-Dhalkebar 400KV Double Circuit line.

26. Muzaffarpur-Dhalkebar 400KV line: This line was launched by Prime Ministers of India and Nepal during the latter’s state visit to India in February 2016. The Nepal portion of the 140 km long line was built under an Indian LoC (line of credit) of USD 13.5 million. On 11 November 2020, the line was successfully charged to its full capacity. However, due to low distribution capacity of Dhalkebar substation and limited integration with rest of the grid, the actual power transmitted was less (up to 350 MW). With the operationalizing of Dhalkebar substation on 1 Feb 2021, the line can now operate at its full capacity. Dhalkebar has thus acquired the potential to become the major gateway for cross-border electricity trade in South Asia.

27. Two additional 132 kV cross-border transmission lines between Kataiya (India) - Kusaha (Nepal) and Raxaul (India) - Parwanipur (Nepal), built with GoI grant assistance, were completed in 2017. Both sides have decided to increase the capacity of these two lines through stringing of additional circuits. Several new cross-border lines are also under various stages of planning and execution, such as the New Nautanwa-Mainhiya line the Nanpara-Kohalpur line, etc. Ground breaking of the Gorakhpur-Butwal transmission line was carried out on 2 June 2023. This is a 400 kV quad moose line and is the 2nd major cross-border transmission line being built under joint venture between POWERGRID India and NEA Nepal.

28. India has also supported the construction of power transmission lines within Nepal through Lines of Credit funding via the EXIM Bank. These include major projects like Koshi corridor and the Modi-Lekhnath line & substations which are nearing completion. The 132 KV Solu Corridor project was jointly inaugurated on 2 April 2022 by both the Prime Ministers of India and Nepal during visit of Prime Minister of Nepal to India. Solu Corridor is a 90 km long, 132 kV Double Circuit power transmission line and substation project connecting parts of North-Eastern Nepal with the national electricity grid. It is a USD 29 million project financed by Government of India’s Line of Credit, funded by EXIM bank of India and executed by India’s Mohan Energy Corporation Private Limited under EPC model.

29. Arun III Project (900 MW) is a flagship project between India and Nepal in the power sector. It is a peaking run-of-river project located on the Arun River in Sankhuwasabha district of Province 1 in eastern Nepal. It is an export-oriented project and was awarded to India’s SJVN Limited on build-own-operate-transfer basis for a period of 30 years including construction period. The foundation stone of the Project was laid by the two Prime Ministers in May 2018. Once complete, it will be Nepal’s largest power project.

30. SJVN Ltd. signed a Project Development Agreement with Investment Board of Nepal for the development of Lower Arun HEP (669 MW) to be located downstream of Arun III. On 16 May 2022, during the visit of Prime Minister of India to Nepal, SJVN Ltd signed an MoU with Nepal Electricity Authority for joint development of Arun-4 HEP which would be located upstream of Arun 3 HEP.

31. The 900 MW Upper Karnali HEP was awarded to India’s GMR. The project is currently in pre-construction phase and the developer is undertaking activities related to land acquisition, compensation, financing and power purchase discussions, in close supervision of the Investment Board of Nepal.

32. NHPC and IBN signed an MoU on 18 August 2022 for development of West Seti + SR6 (1200 MW) of Hydroelectric Project. NHPC, India and VUCL Ltd, Nepal signed an MoU for the development of 480 MW Phukot-Karnali Hydroelectric Project on 1 June 2023.
 

Petroleum

33. The Raxaul-Amlekhgunj across border petroleum pipeline project is a 41-kilometer pipeline to transport petroleum products from India to Nepal. The project aims to connect Indian Oil Corporation’s regional depot at the bordering Indian city of Raxaul with Nepal’s biggest fuel storage based in Amlekhgunj. An inter-governmental MOU was signed on 24 August 2015. Indian Oil Corporation and Nepal Oil Corporation also signed an MOU on 25 August 2015. It is South Asia’s first cross-border petroleum products pipeline.

34. Constructed and funded by Indian Oil Corporation Ltd., the pipeline was remotely inaugurated by the two Prime Ministers on 10 September 2019. Within a short span of being made operational, the pipeline is able to save Nepal Oil Corporation nearly NRs. 15 crores a month. The pipeline created a record by supplying 100 million liters of diesel to Nepal in a single month in December 2020.

35. MoU for construction of petroleum supply infrastructure by laying the new pipeline between Siliguri and Jhapa, extension the existing oil pipeline from Amlekhgunj till Chitwan, as well as construction of two greenfield terminals at Chitwan and Jhapa, was signed on 1st June, 2023. Foundation stone for the Phase-II of the Motihari-Amlekhgunj Pipeline in Chitwan was laid on the same day.
 

Civil Aviation

36. The bilateral cooperation in this sector is governed by the India-Nepal Air Services Agreement which was signed on 16th February 2010 to facilitate air traffic between the two countries. 30000 seats per week have been allocated to each side in each direction.

Tourism

37. India is the largest source country for tourism into Nepal. Indians visit Nepal for its lofty mountains, hospitality and cultural diversity. A large numbers of Indians are also attracted to Nepal for religious tourism. The same is true for the Nepalese who visit tourist places, shrines and temples located in the farthest corners of India.

38. A Memorandum of Understanding (MoU) on Cooperation in the field of Tourism was signed between the two Governments on 25 November, 2014 in Kathmandu. The MoU aims to deepen and broaden cooperation in the field of tourism and also promote cooperation and direct communication between the stake holders of tourism and hospitality industry for enhancing tourism cooperation and strengthening economic development and employment generation.

Lines of Credit

39. GOI has agreed to provide four lines of credit to the Government of Nepal for US$ 100 million, US$ 250 million, US$ 550 million and US$ 750 million. These lines of credit were signed in June 2006, September 2007 and September 2016, for execution of infrastructure development projects as prioritized by Government of Nepal. Last India-Nepal LOC Review Meeting took place in Kathmandu on 10 August 2023.

40. India’s Lines of Credits have financed 36 road projects, another 6 projects in hydropower and transmission lines and several others in housing and reconstruction, which are spread all across Nepal. Many of these projects are either completed or are nearing completion, including some iconic projects such as Solu Corridor Transmission Line, Koshi Corridor Transmission Line, Muzaffarpur - Dhalkebar Transmission line, Devighat hydroelectric project etc. It has been decided to fund Bheri Corridor, Nijgadh-Inaruwa and Gandak Nepalgunj Transmission lines and associated substations under LOC at an estimated cost of US$679.8 million.