Talks for both agreements were concluded during the visit of Nepalese PM Madhav Kumar to New Delhi in August 2009.
For the first time, India has allowed goods consignments to and from Nepal through Delhi, Mumbai, Kolkata and Mumbai airports. Four more land-customs routes have been approved to facilitate trade with Nepal, taking the total tally to 26.
The India-Nepal trade treaty, which was first signed in 1950 has been updated regularly. The trade treaty was last updated in 1996, but with a provision to review it after every five years. As per the new norms, the treaty will now be reviewed every seven years.
The new treaty retains the positive features of the previous one and has some additional features, commerce minister Anand Sharma said after signing the treaty.
Under the new treaty, Nepal will export additional primary goods duty free to India without any cap on the quantity, which includes wheat flour, bran, husk, bristles, herbs, stone aggregates, boulders, sand and gravel.
The updation of the treaties comes in wake of Nepal insisting on removal of trade barriers and greater access to the Indian market.Meanwhile, China has been making considerable inroads into the economy of Nepal, a trend which made India uncomfortable.
According to the treaty, trade between the two countries in rupee terms will now be at par with convertible currency like dollar and euro. This will lead to easier reimbursement of duties like central excise. This will make imports from India cheaper for Nepal. Indian companies that have presence in Nepal include Dabur, Hindustan Lever, Asian Paints, Bajaj Auto and ITC. "The treaty will lead to enhanced manufacturing activity in Nepal, which will increase jobs," said a commerce ministry official.
"The treaty will add to the trade volumes between the two countries," said Rajendra Mahato, Nepalese minister of commerce and supplies.
Both nations also updated the Agreement for Cooperation to Control Unauthorised Trade by adding on reciprocal basis norms that will promote trade. "India can afford to support trade facilitating measures with countries like Nepal. The new changes to the treaty will lead to incremental benefits," said S Sen, principal advisor, Confederation of Indian Industry.
A panel of officials at the joint secretary level has been set up for fast tracking operational issues of the trade treaty. For the 13-year period ending March 2009, Nepalese exports to India expanded 11 times and stood at Rs 4,100 crore. On the Indian side, exports to the neigbouring country increased six times in the same period and stood at Rs 16,400 crore.