"We like to see India and Nepal joined together in pursuit of shared prosperity"
Shiv Shankar Mukherjee, Indian Ambassador to Nepal for nearly three years, is a career diplomat. Incidentally, the period has happened to be most turbulent in Nepal's history due to the political crisis here which has made his job very challenging. In this interview, he shares his views on a number of issues including the economic package to Nepal promised last year by India and the problems and prospects for Nepal-India trade and investment. Excerpts:
How would you describe the economic ties between the two countries?
Our ties in trade, investment, tourism and services are excellent. India absorbs 70 percent of Nepal's exports; India is the source of nearly two-thirds of Nepal's imports. Indian investors have weathered the political and security situation in Nepal and have shown strong commitment to the country. But, I believe that a large part of the potential remains untapped.
Nepal at present is at a very critical juncture not only in terms of politics but also in terms of economics. In case Nepal fails to manage the situation, it may have a very negative effect also on India. So, what sort of role is India going to play in the context of the situation that is evolving in Nepal?
It is fundamentally for the people of Nepal to shape the future of their country and we have confidence in their ability to do so. At the moment, the main challenge is to take the peace process to its logical conclusion; and, Constituent Assembly elections are a critical step for that.
Our Prime Minister, Dr. Manmohan Singh has assured Prime Minister Koirala that India will provide all assistance, within its means, to support Nepal's efforts to hold the CA elections. We have already provided assistance of more that NRS 160 crores in vehicles, communication equipment, tents, food, etc., apart from the NRS 1600 crore economic assistance we provided when Prime Minister Koirala visited India in June 2006. And, we will provide a much larger package of assistance requested by Election Commission and the Ministry of Home for the elections. We also continue to exhort all political players to abide by their commitments on the peace process, and, most important, on holding the elections on the due date.
Peace will provide the foundation for economic development. However, as a neighbour, friend and largest economic partner, we understand our economic responsibility, as well. Despite political turbulence here, our economic assistance has increased and our commercial ties have deepened over the past few years.
What is the nature of economic assistance that you are providing?
It is difficult to put a value on our assistance. All our programmes are dovetailed into Government of Nepal's priorities and programme. It is broadly in four major forms. One, we have a huge programme of small projects that now extend to all 75 districts, covering education, health care, rural electrification, irrigation, embankment construction, etc. We may be the only country providing assistance in every district. Second, we are undertaking large infrastructure projects, such as 1400 km Hulaki road in Terai, the broad gauge rail connection to five important towns in the border area; a 200-bed hospital in Kathmandu, road projects in the hills, possibly a major hydropower project for Nepal's own consumption. Third, we provide nearly 1000 scholarships for Nepali students in Nepal and India. Fourth, we provide growth-enabling conditions through initiatives such as the trade treaty. At the moment, we are deeply engaged in providing material support for elections and maintenance of law and order in Nepal.
What is the progress in connection with the economic package promised by India for Nepal during last year's India visit of PM Koirala?
During PM Koirala's visit to India in June 2006, as a symbol of our support for peace and democracy in Nepal, we offered an economic package valued at around NRS 16 billion. Well, most of it has been implemented. We gave cash budgetary support - for the first time anywhere - of NRs 1.6 billion; defence dues of NRs 1.6 billion was waived off immediately; education scholarships have already been doubled; allocation under aid projects have more than doubled; the agreement on a concessional loan of USD 100 million will be signed in the coming weeks; the 4 percent additional duty of customs has been waived on almost all goods; and, implementation of infrastructure projects are being accelerated.
How can Nepal benefit from the impressive economic growth being recorded in India?
India is a huge opportunity for Nepal. We would certainly like to see India and Nepal joined together in pursuit of shared prosperity. Nepal can tap India as one of the largest and fastest growing markets in the world and as a source of funds, investments and technology. Nepal has focused far too much on India as a market for manufactured goods. There are greater opportunities in the services, hydropower, tourism, business process outsourcing, etc.
What needs to be done to enable Nepal to take advantage of the Indian economy?
First, Government of Nepal must create a trade and investment friendly policy environment and incentive structure. The business sector needs to have a vision, identify opportunities and increase its competitiveness. Of course, peace in the country is an important pre-requisite.
On our part, we will support the process through improving access to the Indian market through modification to the trade treaty and addressing non-tariff issues, facilitating and encouraging investments in Nepal (which we do regularly), improving Nepal's connectivity to India and through India to rest of the world, etc.
You have mentioned connectivity. What do you mean by that?
Connectivity covers road, air links, rail links, energy and telecom - to name a few. As Nepal's duty advantage in India diminishes due to falling tariffs in India and a growing web of Free Trade Agreements, improved connectivity would make trade more efficient and economical. Improved connectivity also strengthens engagement in all areas. We will, for example, revise our bilateral air services arrangements shortly, which will be beneficial for Nepal.
In the past, it was only Indian government that was investing in Nepal's hydropower sector. Recently, there has been a tremendous interest shown by Indian private sector to invest in hydropower development in Nepal. Does this signify a policy change on the part of Indian Government?
This is a natural outcome of the evolution of power sector in India, which encourages independent power producers and power supply and pricing on market principles. Nepal's power sector also permits private and foreign investments. In September 2006, we facilitated the first India-Nepal POWER SUMMIT, which was a great success in terms of participation and generating interest in India and Nepal.
India and Nepal have excellent trade and investment ties across all sectors. Hence, there is no reason why the same principles cannot be applied successfully in the power sector. Having said that, however, it is for Government of Nepal to decide what it wants to do with its resources.
There is a tendency to think of cooperation only in terms of exports to India. As part of our overall development strategy in Nepal, we will, as in the past, support development of Nepal's energy sector to meet Nepal's needs. We have, for example, offered to develop a medium sized project and Nepal is considering Naumure, a 250 MW project, for this assistance. We are supporting the development of cross-border transmission highways that would enable Nepal to meet its power crisis in the medium term through import of power from India and export surplus thereafter.
Nepali business community is still complaining that their problems are not being addressed by Indian authorities as speedily as they should be. What is your comment on it? What new measures are being introduced to speed up the process?
Since our trade ties are extensive, problems will arise from time to time. We try to address them as quickly as we can. Sometimes, we are not able to do that as quickly as we would like to, but these issues are always matter of high priority for us. We are modifying provisions of the treaty to fix some of the problems. As part of that process, we will also create new institutional mechanisms to resolve problems speedily.
Also the Indian business community is complaining of similar problems about the Nepali authorities. What is your comment on the speed at which the economic-business concerns of India are being addressed by Nepali authorities?
Our experience has been mixed. We have at times seen quick action; at other times, it has been very frustrating. Unfortunately, there are some issues, such as the systematic discrimination against one of the largest Indian JV, United Telecom Ltd., where the delay has not been on account of inability, but unwillingness, to solve the problem. India, as you know, is the main source of investments in Nepal. It is important to send the right signals to existing and potential investors in Nepal.
One of the most important requests being made by the Nepali business community to India is to remove the 4 percent ADC also on the remaining items of Nepal's exports to India as promised during PM Koirala's India visit last year. It is said that the ADC is more important reason than the security concern for the couple of Indian investors to close down their Nepal operation. Therefore, what is the progress towards providing ADC exemption also on the remaining items?
The 4% ADC was levied from March 2006 on imports into India from all countries. Although the duty was not inconsistent with our bilateral trade treaty, we decided to waive it for Nepal, and only for Nepal. Over 90 percent of the goods exported from Nepal to India have already been notified for exemption. We are reviewing the most recent list given by Government of Nepal. There have been delays in receiving these lists and sometimes the information has been inadequate or inaccurate. But, we hope to complete the process soon.
