India and Nepal Move to Revise Bilateral Trade Treaty Amid Widening Deficit Concerns
New Delhi and Kathmandu have initiated a formal process to overhaul their long-standing bilateral trade treaty, seeking to address mounting concerns regarding non-tariff barriers and a deeply lopsided trade balance. The decision follows a two-day meeting of the Nepal-India Intergovernmental Sub-Committee on Trade, Transit, and Cooperation, held in New Delhi on September 16–17.
The two nations have agreed to convene a specialized technical committee within the next six months. This body will be tasked with evaluating the efficacy of the current agreement and proposing necessary amendments to align the treaty with contemporary global trade dynamics and regional economic realities.
A Legacy of Stagnation
While the treaty is technically subject to review every seven years, it has functioned on a cycle of automatic renewals for the past 17 years. The last two major review periods, in 2016 and 2023, passed without substantive changes to the core framework. Under existing provisions, the agreement persists in its current form through automatic seven-year extensions unless one party issues a formal three-month notice of termination.
For Nepal, the primary goal of the upcoming review is to dismantle the systemic hurdles that have hampered its ability to export to India. Experts argue that Nepalese goods are frequently stifled by rigorous sanitary and phytosanitary requirements, complex documentation, and prohibitive trade costs. Former Nepalese commerce secretary Purushottam Ojha has underscored the urgency of digitizing trade processes, harmonizing customs operations at border crossings, and streamlining certificate accreditation to foster a more conducive environment for cross-border commerce.
The Challenge of Trade Imbalance
The urgency for reform is driven by a stark reality: India remains Nepal’s dominant economic partner, accounting for over 60% of its total trade volume. However, the fiscal year 2025–2026 data highlights a widening chasm. Nepal reported imports worth 1.21 trillion Nepalese rupees from India against exports of only 258.65 billion rupees, leaving a trade deficit of approximately 951.95 billion rupees.
Agricultural sector disparities lie at the heart of this friction. Nepalese farmers struggle to match the price competitiveness of Indian agricultural imports, leading experts to advocate for the removal of certain products—such as cereals, dairy, poultry, and fish—from the current mutual duty-free regime to protect local producers.
Furthermore, Nepal’s export basket is currently heavily reliant on refined oil products, including soybean, palm, and sunflower oils, which accounted for nearly 58% of its total exports to India last year. Economists warn that this narrow reliance on a few commodity items is unsustainable.
Looking Beyond Goods
The upcoming review is expected to move beyond simple merchandise trade. Kathmandu is keen to broaden the scope of discussions to include the growing services sector, bilateral investment frameworks, and the transition toward paperless administrative processing. Additionally, with the rise of digital commerce, the two nations are set to discuss cybersecurity and the digital infrastructure necessary to support modern trade agreements.
As the technical committee prepares to meet, both nations face the challenge of balancing their respective national interests. For India, the review offers an opportunity to simplify operations with its largest neighbor, while for Nepal, the success of the negotiations will be measured by its ability to finally bridge the massive trade gap that has defined the relationship for nearly two decades.
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