India needs to carefully tackle vital issues with Nepal

Ashok B Sharma

India should cautiously play its diplomatic cards in the emerging situation in neighbouring Nepal and resolve all vital issues including those relating to the farm sector, like massive duty free imports of vanaspati and taming of flood-prone rivers that pass through both the countries.

India should convince Nepal that both the countries can move towards a common economic zone for mutual benefit. Already, India has begun moving in this direction by signing the Indo-Nepal Trade Protocol Treaty allowing imports from Nepal against zero duty.

With a view to checking imports of cheap palm oil from Malaysia and Indonesia, the duty on refined RBD palmolien was hiked to 85 per cent and on crude palm oil (CPO) to 75 per cent. But this hike has failed to check indirect import of Malaysian and Indonesian edible oils into India through Nepal. Nepal imports cheap CPOs from Malaysia and Indonesia against zero duty and after processing into vanaspati it is imported into India against zero duty. In this situation, India should advise Nepal to impose import duty on edible oils, as done by India. This will solve the issue of cheap imports of vanaspati from Nepal amicably.

India should, in return, assure more Indian investment in Nepal. Already many Indian companies like Hindustan Lever, Dabur, Colgate-Palmolive, Kodak India, Berger Paints have either set up their subsidiaries in Nepal or have tied up with firms in Nepal. Many vanaspati units in Nepal are owned by Indians. India should also offer technical assistance to its neighbour for developing agriculture.

Another area where joint effort is required is in taming flood-prone rivers that flow through both the countries. The downstream waters of these rivers cause floods in the plains of eastern Uttar Pradesh and Bihar every year at the peak of the monsoon season causing colossal damage to crops. If these rivers are tamed by constructing dams, it will not only stop the recurrence of floods but will also be able to generate hydel power benefiting both in the process.

Domestic industry in India has alleged that cheap duty free imports of vanaspati has been entering the country under the Indo-Nepal Trade Protocol Treaty. After the withdrawal of the provision ‘rules of origin’ from the trade protocol in 1996, there has been a surge in imports adversely affecting domestic units. In the current year, vanaspati import is likely touch the level of one lakh tonne as it has gone up to 8,000 tonne per month from 1,200 tonne per month in 1996-97.

The trade protocol is likely to end by December, this year. A new trade treaty with Nepal has to be in place soon. Of course, the terms of the new treaty will depend much upon the emerging situation in Nepal. However, it is learnt that India is trying to negotiate imposition of a 30 per cent value-addition clause or fixing import quota or reverting back to the ‘rules of origin’ clause in the new trade treaty.

The vanaspati industry has suggested to the government that either imports from Nepal be put under negative list or a duty of 40 per cent be imposed. But all these measures may not help solve the problem. Nepal has already stated that products exported to India carry 38 per cent value addition and India should continue with the policy of importing Nepalese goods against zero duty. The only way out is to create a common economic zone, with Nepal imposing similar import tariffs as being done by India.

In the current situation, India should try and gain the confidence of the monarchy, the elected government and the Nepalese people.