Dr. Pankaj Vashisht and Dr. Kamlesh Narwana, in India–Nepal Economic Integration: Existing Constraints and Way Forward (India Quarterly, Vol. 82, No. 1, 2026), question the widely held view in Nepal that the country’s widening trade deficit with India stems mainly from unequal treaty provisions. The authors argue that this explanation often treat symptom for the cause. The deficit, in their account, reflects Nepal’s structural economic weaknesses rather than distortions embedded in bilateral agreements.
The article revisits the evolution of India–Nepal economic ties, from the 1950 Treaty of Peace and Friendship to the 2009 Trade Treaty, alongside detailed trade and investment data. The evidence shows that Nepal runs trade deficits not only with India but with most of its major partners. As the trade tables indicate, Nepal’s exports have stagnated and become increasingly concentrated in a narrow range of goods, especially refined palm and soya oil in recent years. Imports, by contrast, have expanded and diversified. Manufacturing’s share in GDP has fallen from over 9 percent in the mid-1990s to below 5 percent in 2022, while remittances have surged to roughly one quarter of GDP. This combination has fuelled import-led consumption without strengthening export capacity.
The authors directly address two common claims: that Indian tariff rate quotas and agricultural preferences are responsible for Nepal’s imbalance. They show that quotas on items such as acrylic yarn and copper products have remained underused, and that agricultural imports from India largely fill domestic production gaps in staples such as rice and maize. The pattern, they argue, points to supply-side constraints inside Nepal rather than restrictive Indian policy.
From this analysis, the article advances three core arguments. First, the narrative that treaty asymmetries drive Nepal’s trade deficit does not hold up against the data. Second, preferential market access cannot compensate for a shrinking industrial base and weak productive capacity. Third, long-term correction requires investment in export-oriented sectors, better border infrastructure, regulatory coordination, and stronger mechanisms to facilitate bilateral investment.
The article concludes that any protectionist revisions to the trade treaty would not resolve the deficit and may further undermine competitiveness. A more durable solution lies in strengthening Nepal’s manufacturing base, improving trade facilitation, rationalising tariffs and non-tariff measures on both sides, and restoring investor confidence through clearer institutional safeguards. The imbalance, in short, reflects structural economic limits rather than treaty design.