A trade association has urged the government to slap hefty import duties on rice and lentils of up to 15 and 20 percent respectively to discourage imports that have been draining Nepal’s foreign currency reserves.

The Association of Nepalese Rice, Oil and Pulses Industry has asked the Ministry of Finance and its departments like Customs and Inland Revenue to provide export incentives to exporters of these products.

The central bank had recently requested the commercial banks to stop issuing letters of credit to import luxury goods including automobiles as the country's foreign currency reserve has been depleting at a fast pace.

The trade body has suggested that import restrictions on rice and pulses could also solve the problem to some extent.

"Nepal has been importing rice and lentils worth billions," said Subodh Kumar Gupta, president of the association. “The cheaper imports are making Nepal dependent on foreign food.”

He said that if the government imposed restrictions on these foods, it would not hurt Nepali consumers.

According to Nepal Rastra Bank, Nepal’s rice imports increased by 2.8 percent to Rs36.58 billion in the first eight months of the current fiscal year ended mid-March.

In the last fiscal year 2020-21, the country imported rice worth Rs50.47 billion. Nepal buys most of its imported rice from India.

Lentil and legume imports were valued at Rs11.62 billion in the first eight months of the current fiscal year. Nepal’s imports of lentils and legumes amounted to Rs18 billion in the last fiscal year.

According to Gupta, customs duties on paddy and rice are 5 and 8 percent respectively. The import duty on lentils and legumes is 10 percent.

“We have requested the government to provide an export incentive of 5 percent to traders exporting lentils and red basmati rice,” Gupta said.

Former agriculture secretary Hari Dahal said that a rise in the customs duty on rice and lentils would make them dearer in the short term.

“But in the long term, it will protect farmers,” he said. “Farmers will get proper value for their crops if the cheaper imports are restricted,” said Dahal.

He added that such a decision should not be taken when production is down as it may cause havoc in the market.

“The country’s paddy output meets 95 percent of demand, but since Nepali consumers prefer eating long-grain rice which is costlier, Nepal’s rice import bill has been increasing each passing year,” Dahal said.

"The production of lentils, on the other hand, is not sufficient to fulfil the country’s requirement," he said.

Dahal said that domestically grown paddy does not get good prices which discourages thousands of farmers from continuing their traditional occupation.

According to official figures, 60 percent of Nepalis still depend on agriculture, and it accounts for 25 percent of the gross domestic product.

Agriculture made up 66.9 percent of the GDP in 1970. But since then its share has been gradually decreasing, according to an analytical report published by the Central Bureau of Statistics.

“Nepal does not have a good policy to boost farming. In fact, products like rice and lentils and other primary agriculture products first need to be removed from the reciprocal duty-free quota list,” said trade economist Posh Raj Pandey.

Pandey said there was no reason to offer duty-free quota to Indian products in Nepal.

As per a bilateral trade agreement between Nepal and India, Nepal cannot impose taxes on rice and lentils. But the government charges 5 percent as agriculture sector reform fee.

"India’s massive land produces products in a commercial way, and farmers are given heavy subsidies. Nepal’s agriculture cannot compete with India’s scale of production and the utilisation of technology," Pandey said. “Hence, Nepal products are expensive. That means they cannot compete with Indian goods.”

A preliminary paddy output report of the Ministry of Agriculture and Livestock Development shows that paddy output may drop by 8.74 percent year-on-year this fiscal year ending mid-July 2022.

According to the ministry, paddy productivity or yield dropped 9.09 percent year-on-year.

Nepali farmers harvested 5.62 million tonnes of paddy, a historic high, in the last fiscal year, due to good monsoon rains and an abundant supply of farmhands.

The government has been struggling to ensure adequate supply of chemical fertiliser for winter crops and upcoming summer crops due to the cost factor—-prices have gone up sharply globally—the farm sector is staring at a severe crisis, insiders said.

As the government usually fails to address fertiliser shortages on time during planting season, farmers are often forced to pay black market prices for the soil nutrients.