The government is proposing to attract Indian investment in the Nepal-Indian Trade Treaty itself as two sides sit for a comprehensive review of bilateral trade in New Delhi starting Thursday.

While promotion of exports from Nepal and trade facilitation are also amongst the agenda, Nepali side will focus more on Indian investments to balance trade between the two countries during the meeting scheduled for August 9-10.

Government officials said trade deficit with India could be addressed if Nepal gets more investments from India. They are of the view that without bringing investments from India, import substitution and bringing down the alarming trade deficit with southern neighbour is not possible.

Trade Treaty Review Technical Committee Chairman Ravi Shanker Sainju said, “Indian investment in Nepal will also allow us to get easy access to Indian value chain and market.”

With the rising trade gap between the two countries, Nepal seeks India’s cooperation to reduce its trade imbalance.

In the first 11 months of the last fiscal year, Nepal’s exports to India stood at Rs42.34 billion while imports from India were Rs731 billion.

Nepal has not received major Indian FDI in manufacturing sector since long. In the early 90s, it was manufacturing sector that saw huge investments from Indian MNCs like Dabur, Asian Paints, Unilever who entered Nepal to set up joint ventures (JVs), or wholly owned subsidiaries.

While manufacturing sector still accounts 20 percent of the total Indian FDI in Nepal, energy sector is where majority of Indian investments came in the last decade.

Former Finance Secretary Rameshore Khanal sees merit in the government proposal.

“Nepal needs to be plugged into Indian value chain in order to reduce the huge trade deficit, create employment and ensure sustainable growth,” said Khanal.

Nepal and India agreed to review the existing bilateral trade treaty during a secretary-level meeting of India-Nepal Inter Government Committee (IGC) on Trade, Transit and Co-operation held earlier in April.

Nepal’s trade deficit significantly rose after the revision of the Trade Treaty in 2002 that removed some of the incentives given to Nepali products by the Treaty of Trade (1996). During the meeting in April, Nepal mentioned revising the Trade Treaty of 2009 that was renewed in 2016 without any review.

Commerce Ministry officials said the two countries would try to reach an agreement in principle to identify the necessary areas to be included and points to be revised in the treaty during the meeting in Delhi.

“Then a study would be conducted on economic possibilities and the impact after holding discussions with the concerned stakeholders,” said Sainju, joint-secretary at Ministry of Industry, Commerce and Supplies.

A senior Indian official said the issues to be amended would be discussed once the meeting begins.

“The discussions would weigh the interests of the two countries, and the issues that need to be amended will be known as the discussions progress,” he said.

Commerce Ministry officials said introduction of additional provisions made during the renewal of the Treaty of Trade in 2002 by tying-up preferences of duty exemption for primary products with principle of reciprocity, multiple qualifying criteria on Rules of Origin (RoO), change in classification of tariff heading and inclusion of fixed quota for the selected Nepali articles while entering into India are some of the issues that led to widening trade imbalance with India.

In addition, India’s Duty Free Tariff Preference (DFTP) provision which gives than 96 percent of India’s total tariff lines duty free for all LDCs’ products also eroded the preferential tariff margin to export items of Nepal, according to Nepali officials. “These issues will be extensively discussed during the meeting,” said officials.