Is Nepal’s Trade with China Rising While India Still Dominates?

New Delhi, Sep 11 (NationPress) India’s geographical proximity, established trade agreements, duty-free access for numerous goods, and efficient land transit routes have solidified its position as Nepal’s largest trading partner.

In contrast, trade pathways connecting Nepal to China are still underdeveloped, with the annual trade volume with China, estimated at $724 million, being just a small portion of what Nepal trades with India.

According to a statement from the Nepal embassy on May 8, bilateral trade with India surpassed $8 billion in the fiscal year 2022-23.

During the 2022-23 fiscal year, imports from India exceeded $7 billion, while exports to India were approximately $755 million.

Despite this, signs of a subtle shift are emerging.

In the first nine months of the fiscal year 2023-24, total exports from Nepal fell by 3.7 percent compared to the same timeframe in the previous fiscal year, as reported by the online news portal nepsetrading.

“This decline in exports is primarily due to a substantial drop in exports to India, down by 6.2 percent,” the report noted, adding, “On the other hand, exports to China surged dramatically by 232 percent.”

However, this still constitutes “a small fraction of total exports.” Exports to other nations also saw a decrease of 2 percent.

While total imports during the same period experienced a decline of 2.8 percent, including a 3.2 percent drop from India, imports from China significantly increased by 33.4 percent.

Since the Communist leaders took charge in Nepal, the government has shifted its focus toward China, a move observers attribute to their shared political ideologies.

Notably, when the now-resigned Prime Minister of Nepal, K. P. Sharma Oli, made an official visit to China at the end of 2024, the media reported it as “a strategic departure from tradition,” wherein Nepali leaders typically visited India first after assuming office.

This shift is seen as indicative of the changing landscape of Nepal’s foreign policy.

Throughout all this, trade and economic conditions have struggled amidst ongoing political protests, resulting in frequent governmental changes.

“Nepal's trade is at a critical juncture. Once a leading exporter of agricultural products, the nation now grapples with sustaining its own needs for essential commodities, including paddy, milk, and sugarcane,” stated Sumit Bikram Rana, Program Director at The Himalayan Dialogues.

In an article for The Himalayan Times in March, he called for Nepal to concentrate on establishing itself as a competitive supplier in Indian markets, rather than merely viewing India as a dominating exporter.

Historically, Nepal was a net exporter of paddy, sugarcane, and lentils, but it now imports essentials like wheat, sugar, and cooking oil.

Key agricultural challenges include fragmented landholdings that hinder large-scale farming, inadequate storage and logistics, underdeveloped agro-processing facilities, and a lack of reliable irrigation.

Consequently, Nepal’s agricultural exports have stagnated, even as supplies from China and India inundate local markets, further discouraging domestic producers.

The World Bank forecasts Nepal's economy will grow by 4.5 percent in FY2025, an increase from 3.9 percent in FY2024, despite the significant natural disasters expected in late 2024. This growth is anticipated to be fueled by heightened domestic trade, hydropower output, and paddy production.

It remains to be seen how the country will navigate the fresh wave of protests sweeping through.