Abstract
The paper makes an attempt to explain the trend in bilateral trade between the two countries. It points out that barring setbacks in certain years, the bilateral trade between the two countries has been growing steadily. It notes that even though Nepal has been able to diversify its trade with India, its trade deficit with India has been increasing sharply, and its export earnings are barely sufficient to meet the cost of imports of petroleum products from India.
The paper identifies products with high trade potential of both the countries so that these could be targeted in trade facilitation measures or when mutual recognition of each country's certification is accepted by the other.
Realizing the close linkage between trade and investment, the paper examines the volume and status of Indian foreign direct investments in Nepal. An exercise in intra-industry trade between the two countries gives direction for sectors/industries in which Indian investment could flow. The paper expresses concern about the labour situation in Nepal and the lack of arbitration tribunals in case of dispute. Quite a number of Indian industries have been shut down and those in the pipeline could also be adversely affected. In this context the need for long-pending Bilateral Investment Treaty (BIT) has been emphasized.
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