Streamlining Nepal’s trade competitivenessThe recent amendment to the Railway Services Agreement between Nepal and India helps end the monopoly in serving Nepali cargo.
The second amendment to the Railway Services Agreement (RSA) between Nepal and India earlier this month has finally come as good news for those who are concerned about the transit rights of a landlocked country like Nepal. RSA is a bilateral arrangement that governs and facilitates the country’s transit concerns via India. As the cost implication of railway vis-a-vis road connectivity is much cheaper while serving its international trade, any progress in RSA signifies a great deal in reducing transaction cost, thereby increasing Nepal’s trade competitiveness.
Nepal and India signed the RSA back in 2004 and amended it for the first time in 2008. By nature, the agreement itself is associated with a dynamic attribute of railway services. The sector is ever-changing, with the acceleration of infrastructural development and technological adoption. In India’s case, the country has successfully achieved massive changes in its railway sector over the last few years.
Nepal and India had been sitting at the talks table for the second amendment since 2012 without much to show. The year 2014 invited a significant turning point in Indian politics after the Bharatiya Janata Party (BJP) came to power under Narendra Modi. The Modi government initiated public sector reforms that incorporated the railway sector reform through its first budget itself. It prioritised railway sector reform by engaging the private sector in building railway infrastructures and their operation. The policy shift raised new hope for Nepal to entice the private sector in the implementation of RSA.
The reality of RSA, as per Article 14, had created a duopoly of two state-owned companies, namely Indian Railways and Indian government-owned Container Corporation of India (CONCOR). In practice, CONCOR was hugely involved in carrying Nepal-bound cargo plying between Indian seaports and Birgunj. Yet CONCOR seemed to have all the standard features of an inefficient government-owned company, due to which Nepali trade fraternity suffered. The cost and time involved in the evacuation of Nepali cargo in transit routes remain pretty high compared with many South Asian countries. Traders complain of the unavailability of rakes on Indian and Nepali sides both.
The recent amendment is an essential breakthrough in this regard, as it helps end the monopoly. Any authorised cargo train operator (ACTO) from India, regardless of whether the government or the private sector owns it, can now serve Nepali cargo. Likewise, the door is also open to any Nepal Railway-owned trains working in cargo movement, as per an amendment made in Article 14. Nepali operators intending to engage in the evacuation of Nepali cargo to and from Indian seaports will now be allowed to do so.
Moreover, the rake mode now comprises only containerised cargo moving in flats/box wagons and break-bulk cargo loaded in covered wagons. But reefer containers, BCN/BCNA, and BCX type wagons are neither allowed nor require prior permission on a case by case basis. The current consumer or industrial consumption pattern is vividly different from that of the past, owing to growing economic activities and global trade. Keeping them into account, all types of wagons mentioned above are essential. The amendment has addressed this requirement as well.
Now onwards, rail traffic will encompass all types of cargo in all kinds of rolling stock. The new provision includes container, reefer container, break-bulk, bulk, bagged cargo, liquid or oil cargo, automobile traffic, and parcel traffic. Likewise, the provision consists of an array of rolling stocks, including flat wagons, covered wagons, open wagons, box wagons, tank wagons, and parcel vans.
Despite this praiseworthy outcome, some issues on Nepal’s side seem to have been left unresolved. According to Article 12, rail traffic between Kolkata or Haldia or Visakhapatnam and Birgunj-Raxaul is allowed for Nepal-bound cargo. The provision excludes Biratnagar-Jogbani, Bhairahawa-Nautanwa-Belahiya, Nepalgunj-Rupaidiha and Kakarvitta-Panitanki. Thankfully, Bhairahawa and Biratnagar would be opened following the amendment in the Treaty of Transit. One Letter of Exchange (LoE) is yet to come into effect for this to happen.
Similarly, the railway infrastructure required to add border entry points is either completed or in progress. Commerce secretary-level erstwhile meetings of the two countries have agreed to keep opening up entry points depending upon infrastructure development. It is imperative to do so as all these trade routes own industrial corridors on Nepal's side. Prospects for rapid industrialisation are relatively high provided that direct railway connectivity is linked with Indian seaports. Against this backdrop, the rail network works like a big booster to import raw materials and link export markets.
A severe impairment lies with Article 4, which impedes the capability of Nepali authority while procuring Inland Container Depot (ICD) terminal operator. As per the existing provision, a terminal manager would either be from a Nepali company or an Indian company or a Nepal-Indo joint venture company. This narrow provision has disregarded the scope of international bidding in selecting an ICD terminal manager. If international bidding was allowed, foreign direct investment (FDI) and newer and more sophisticated technology, including management know-how, could have joined hands to modernise dry port management. This part needs a revision.
Of course, Article 7 urges respective sides for the maintenance of rail infrastructure in their respective territories. Looking at the responsibility, more than 98 percent out of the total stretch passes through Indian territory, which demands the response of the Indian side commensurate with the length. But the level of response has gone off reasonably insufficient. The more the Nepal border comes closer, the more the railway condition gets poorer. For example, electrified railway has been a far cry, leading to the stoppage of cargo on the route for changing locomotives once the non-electrified railway system begins near the Nepal border.
Last but not least, annexures of RSA require an overhaul of procedural modalities. The annexure is primarily divided into import and export procedures. Having faded up with sluggish procedures, the trade fraternity of Nepal has been complaining of complicated clearance requirements. The requirements indeed run mainly against the current global notion of trade facilitation which argues for a seamless border. Contrary to it, these annexures are obsessed even today with security or control approach while dealing with Nepali cargo in transit and are punishing for traders in terms of time and cost. It is high time such outdated rules are substituted with the intervention of IT and other technology-based practices.
It is worth recalling that during the commerce secretary-level meeting in 2018, both sides agreed to do a comprehensive review of transit-related treaties cognisant of Nepal's transit needs. That is yet to come to fruition. Since RSA is a crucial instrument in this regard, the Nepali side needs to consider the takeaways mentioned above while addressing its concerns.