The Indian economy continues to slide with a slump in consumption and investments. If the size of the economy stood at $2.65 trillion in 2017, making it the fifth-largest economy globally, but in 2018, the Indian economy grew by only 3.01 percent to $2.73 trillion. The gross domestic product growth rate fell to a six-year low of 5 percent in the first quarter. With the southern neighbour in the midst of an economic slowdown, Nepal can expect to experience far-reaching impacts. The reason is simple: Our trade is heavily dependent on India. We import everything—from agricultural products to fast-moving consumer goods—from the southern neighbour.

Nepal’s farm goods import bill hit an alarming Rs220 billion in the last fiscal year. Most of the money went to India since it's easier and cheaper to import goods from there due to the cost factor. It's the same with automobiles. Most international automobile companies have set up factories in India, and Nepal can import all major brands from there. Last year, Nepal bought oil worth Rs90 billion from India. The list goes on. In fact, India is Nepal’s main import partner, accounting for 58 percent of all incoming goods.

A slump in the Indian economy should rightly caution Nepal against creating an economy where import dominates its trading pattern. Until now, the excuse was that Nepal underwent a protracted period of political instability that kept hitting our economy very hard. As a corollary, industries were almost non-existent and there were no scope of foreign direct investments either. Solving an ever-looming political crisis took precedence over reforming the economy. But the times have changed, and after many decades, Nepal now has a stable government. In fact, the ruling party came to power on the plank of stability for prosperity supported by the popular slogan ‘Prosperous Nepal, Happy Nepali’. Regrettably, two years on, Nepalis are neither happy nor is the country on the path to prosperity.

This heavy reliance does not just stop with imports. India also happens to be Nepal’s largest export partner too. With the Indian economy hitting rock bottom, Nepal needs to diversify its export market and the market for services alike. Products like cardamom, polyester yarn, jute goods and so on are among the major exports from Nepal to India. What’s more, many tourists come to Nepal with the purpose of visiting temples or getting respite from the scorching heat. Undeniably, India’s ailing economy will impact Nepal’s export and its economy too.

With inflation in Nepal already reaching a three-year high of nearly 7 percent, the effects of India’s economy being on the edge has started showing signs with vegetable prices going through the roof when festivals are right around the corner. Should the prices continue to rise, it will take a toll on the general public. The government must work on drafting policies that encourage industrialisation, provide subsidies to exporters and make sure it dispatches more goods than people to foreign countries. Merely increasing the tax on everything and then assuming the economy has improved will be the most foolish thing a well-educated finance minister trained in economics can do. 

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