Nepal is a small country with a population of about 24 million and an area of approximately 1,47,181 sq km. It has a per capita GDP of about $225 and is among the poorest countries in the world. Nepals economy is pre-dominantly agricultural. Water is its biggest natural resource and it does not have any mineral resources.
Nepal is a landlocked country. It lies between two giants, India and China. Much of Nepals politics and economics, and the psyche of the people, is affected by the fact that its two neighbours are the two dominant players in Asia.
During the past two years, Nepal has suffered greatly and in many ways. During 2001-02, GDP growth was negative (-0.5 per cent) and during 2002-03 there was a mild recovery to 2 per cent. There was a decline in manufacturing and a slow down in the service sector including trade and tourism. September 11, 2001 only made things worse. Tourist arrivals are reported to have dropped by as much as 40 per cent.
Nepal has a special relationship with us. The border is practically open. Even where there is some control (to prevent smuggling), the border is notoriously porous. Of all exports from Nepal, 60 per cent is to India and of all imports into Nepal 42 per cent is from India. Nepal has a modest level of trade with some countries but, surprisingly, none with other South Asian countries. If we look at trade between Nepal and the Saarc, 99 per cent of Nepals exports is to India and 98 per cent of its imports is also from India.
Nepals dependency on external help is pathetic. It depends on the Overseas Development Assistance, that is aid doled out by the developing countries. It depends on IDA, the assistance from donors organised by the World Bank. And it depends on the heavily-indebted poor countries initiative. While some debt relief has been provided to 27 countries, Nepal is still outside this initiative. In the hope of gaining market access, Nepal has just become a WTO member.
During this period of economic crisis, the Nepalese politics also turned into a nightmare. King Birendra and most of his family were killed in a bizarre tragedy. His brother, King Gyanendra, succeeded him and has tended to be a more assertive ruler. There was a succession of prime ministers. Eventually, Parliament was dissolved. The army is in virtual control. There is a rebellion led by Maoist insurgents. There was a brief period of cease-fire, but it did not hold for long. The Maoists are reported to be in control of large parts of the hinterlands. Their aim is to over throw the monarchy and the ruling oligarchy.
The oligarchy a clutch of families related by marriage, the most important being the Ranas is the object of hate among a large majority of Nepalese. The Ranas virtually rule Nepal, they are enormously wealthy in a very poor country, their children study in the best schools in India and Britain, and they holiday abroad.
Since 1951, India has cultivated friendship with this Himalayan kingdom. Not the least among the reasons for doing so is the fact that Nepal is a Hindu country! A formal treaty of trade was concluded in 1951 and modified and renewed in 1961, 71 and 78. It was obvious that Indo-Nepalese trade cannot be on a reciprocal basis, so non-reciprocity was built into the treaty in 1971. Nepalese goods with local content of 90 percent was given duty-free access. In 1993, the local content requirement was reduced to 50 percent. All this did not help Nepal boost its exports to India. The first major break through was made in 1996. The requirement of local content was replaced by a certificate of manufacture. Nepals exports to India surged from Rs 228 crore during 1996-97 to Rs 1,698 crore during 2001-02. In fact, Nepal is having a favourable trade balance with India after 1998-99.
Undeniably, there was some misuse of the provision for certificate of manufacture.
Goods produced in other countries, notably China, use Nepal as a transit and find their way into India under the duty-free regime. Indian manufacturers cried foul. The number of offending goods was small, they could have been easily isolated and taken out of the 1996 facility, and subjected to duty. Instead, New Delhi forced Kathmandu to renegotiate the treaty. A new treaty for five years was signed on March 2, 2002 and the certificate of manufacture norm was replaced by the value addition criterion. In respect of some sensitive items, quotas were fixed for duty- free imports. The new regime is really a throw back to 1971.
The Nepalese government and Nepals business community deeply resent the change. They think, and not without reason, that New Delhi has abandoned the principle of non-reciprocity. Nepals exports to India account for less than 1 per cent of Indias total imports and is more or less matched by its exports to Nepal. So, why abandon non-reciprocity The brain behind the new treaty is believed to be Brajesh Mishra who is reported to have told Kathmandu that trade concessions could henceforth be extended only on a reciprocal basis.
New Delhi is making a mistake. Kathmandus other neighbour, Beijing, has come forward to extend aid and other concessions to it. Although not in a big way yet, Beijing has the capacity and the political shrewdness to exploit any opportunity that may present itself. The Maoists are reported to be receiving help from China.
The strife in Nepal has already spilled over into our Terai region. We have a very large presence in Nepal our mission is the largest, but it does not appear that South Block is paying enough attention to the grave situation in the Himalayan kingdom.
Lord Pashupatinath has four faces looking towards four directions and one looking upwards. The King, the army, the political parties and the Maoists seem to represent the four faces of Nepal. Like Lord Pashupatinath, they are looking towards four different directions. Unless there is some convergence among two or three of the key players, the situation in Nepal is likely to deteriorate.
A neighbour in distress or disarray does not bode well for India. When Bangladesh (just before its birth) was caught in a war, over 10 million refugees poured into India. Because Bangladesh is still very poor, many hundreds cross over to the country every day. When the LTTE and the government were waging a war in Sri Lanka, thousands of Lankan Tamils fled to India. The lesson is that it is in our interest to help our neighbours remain politically stable and help in their economic growth. Hence the Gujral doctrine, which unfortunately seems to have been abandoned.
Tail piece: Did you know that the Maldives, the smallest among the Saarc countries, is the most prosperous, and its people have the highest per capita income
(The author is a former Union finance minister)