How trade dependent are we (Nepal) to India?

We all know Nepal is significantly dependent on India by the mere fact that we are a landlocked country surrounding on three sides by India.  The topographical nature of the country gives us little choice but to rely on India for the passage of the bulk of our global merchandise trade.  The recent visit by Prime Minister Modi has brought Indo-Nepal relations to the forefront and I thought it might just be a good exercise to map out our dependence on India. I will let the charts do their own talking and let you make your own conclusions.  Keep in mind that these official statistics do not capture the informal trade that happens along the border every day.  All data has been taken from the Quarterly Economic Bulletin 2014-04 published by the Nepal Rastra Bank (NRB), the central bank. The data for the last fiscal year is only for 3 quarters.

Figure 1: Total Exports and India's share in Total Exports

Figure 2: Total Imports and India's share in Total Imports

Figure 3: Trade and Import to Export Ratio: All countries

Figure 4: Trade and Import Export Ratio: India

Note: In Figures 3 and 4, each bar represents total imports for that year, the blue are represents total exports for the year and the grey area represents trade imbalance that is imports minus exports. In most economic reports, trade imbalance would be shown as exports minus imports.

Figure 5: Cumulative merchandise trade with India in various categories (2003/04 FY to 3Q 2013/14 FY)

Figure 6a: Trade Balance wit India in select commodities

Figure 6b: Trade balance with India in select commodities

Note: The pie charts show cumulative exports and imports since 2003/04 FY through 3Q of 2013/14 FY.

Summary: In the last 10 years and 3 quarters, Nepal imported 2.2 trillion rupees worth of merchandise from India and in return exported only 461 billion rupees to India. Of the imports 30 percent or roughly 664 billion rupees was in petroleum and mineral products. In other worlds our petroleum related imports in this period was 1.4 times all our exports to India.  As indicated by the import to export ratio our trade balance with India has been increasing every year.  We now import 7.7 times more merchandise from India than we export to it.  Our dependency on India is across the board.  With respect to basic food items, we imported in excess of 31.8 trillion worth of rice, 22.3 trillion worth of vegetables, 8 trillion worth of fruits, 4.5 trillion worth of live animals, 5 trillion worth of salt and 3.7 trillion worth of sugar.  Our dependency on non-agricultural items ranging from agricultural equipment to chemical fertilizers, to medicines, to petroleum products and vehicles is even more.  The presented charts speak for themselves. Bottom line India comprises two thirds of our total merchandise trade including two thirds of our miniscule exports and two thirds of our massive imports.  Obviously, there is a lot for our policy makers to think about how to improve our trade balance with India.

Question of the blog:  We keep talking about improving our trade balance with India by exporting electricity. Even Prime Minister Modi in his Nepal’s parliamentary address made reference to it. Our trade imbalance with India in the last three quarters was 303 billion rupees compared to 316 billion rupees for the whole of the previous fiscal year. If we assume the 2013/14 4Q will follow the same pattern as the 2012/13 4Q, then an estimate of the full fiscal year current trade deficit with India will be about 416 billion rupees.  If we are to close this deficit with India, how many units of electricity do we have to sell to India for this particular year and how does that translate into capacity in MW of the size of the hydro power plant that we will need to build?  (Hint: Assume average turbine efficiency of 57% which includes actual turbine inefficiency, stoppages, effect of fluctuating water levels over the year and all other impacts that might reduce electricity production).