Sunday, 3 March, 2024

Taming Trade Deficit

Despite an impressive growth in export, Nepal continues to suffer from soaring trade deficit that has affected the nation’s foreign exchange reserve. According to the latest data, the country's trade deficit has reached Rs. 1160.98 billion during the first eight months of the current fiscal year. This is 34.50 per cent higher than the corresponding period of last fiscal year. It was Rs. 863.20 billion during the first eight months of previous fiscal year 2020/21. The huge imbalance of trade with the neighbours and other countries has impelled the policy makers, government officials and business community to search for effective measures to cut unnecessary imports and increase the volume of exports. The other day, Prime Minister Sher Bahadur Deuba called for devising policies and programmes to reduce the widening trade deficit at a meeting of the ministerial-level Development Problem Solving Committee of the Ministry for Industry, Commerce and Supplies.

PM Deuba, who also holds the portfolio of the Ministry of Industry, Commerce and Supplies, directed the ministry officials to increase investment in potential production sectors to make the economy self-reliant and also increase export, according to the news report of this daily. The Prime Minister asked the concerned officials for promoting domestic production, increasing the consumption of electricity, use of electric vehicles and stoves and reducing the consumption of petroleum fuels in order to cut the trade deficit. These are indeed pragmatic suggestions which need to be implemented without any bureaucratic hassles. Nepal holds huge potential in hydropower development and the increased use in electricity can minimise the import of PoL products that absorb a large amount of foreign currencies.

Undoubtedly, Nepal should attach priority to products and services where it has comparative advantage. The country can secure competitive advantage in agro sector for it possesses appropriate climate, skills, resources and knowledge to produce exportable agro items. But the state requires bringing appropriate policies and incentives to encourage the farmers to produce quality products. This is because the agro products have played an important role behind the recent rise in export that grew by 82.90 per cent to Rs. 147.74 billion during the first eight months of current fiscal year. The import increased by 38.64 per cent to Rs. 1,308.73 billion during the review period. During the review period, total foreign trade increased by 42.13 per cent to Rs. 1,456.48 billion. Increased production can help achieve self-reliance, substitute import as well as boost export.

Economic diplomacy is an important instrument to tip foreign trade in the country's favour. Against this backdrop, Nepal Chamber of Commerce (NCC) has urged newly appointed Nepali ambassador to India Dr. Shankar Sharma to contribute on his part in cutting trade deficit with India through tourism promotion and investment attraction in hydropower and service sectors. India accounts for 65 per cent of the total imports and 75 per cent of export but trade deficit with India has reached Rs. 679 billion in the first eight months of the current fiscal year. India is a big market of Nepali products but Nepali traders face non-tariff barriers in export trade. In the absence of advanced quarantine lab, it has become difficult to measure the quality of Nepali goods exported to India. Likewise, a lucrative package needs to be unveiled to attract middle and high income Indian citizens to Nepal. The country's tourism gains momentum if it can fetch 0.25 per cent of 1.38 billion population of India.