As per the TEPC’s data, the country’s trade deficit with the southern neighbour jumped several-fold in the last one decade. The deficit ballooned from Rs 47.96 billion in 2003-04 to Rs 121.54 billion in 2008-09. In the last five years alone, the deficit has grown around threefold. India accounts for two-thirds of Nepal’s total foreign trade.

The country’s overall trade deficit has also continued to rise against the gross domestic product (GDP) over the last one decade. According to Economic Survey 2013-14, the trade deficit doubled to 32.1 percent against the GDP during the last fiscal year 2013-14 from 15.3 percent a decade ago.

Experts said that the country’s low productive capacity resulting from power shortages, high cost of production, labour problems and non-tariff barriers in India resulted in a small export volume.

On the other hand, the increasing demand for goods created in the country due to a high influx of remittance is being fulfilled by increased imports, particularly from the southern neighbour.

Former commerce secretary Purushottam Ojha said that a poor supply capacity along with lack of competitiveness had hindered Nepal’s exports to India.

“Failure to boost both production and productive capacity has affected our trade with India,” said Ojha. “In addition, we could not enhance our competitiveness when India is opening its market to the entire world.”

Although India has provided duty-free access to almost all Nepali goods excluding tobacco and alcoholic products, a gradual opening up of the Indian market to other countries has worked against Nepal due to its low competitiveness, said experts. In addition, India has imposed quotas on four products including acrylic yarn, vegetable ghee and zinc oxide.

Trade expert Bijendra Man Shakya said that an increase in the number of products from multinational companies that are being marketed in Nepal through India had also contributed to the swelling trade deficit. “With India becoming increasingly liberal to the entry of multinational companies, many of them have targeted promoting their trade in South Asia through the southern neighbour pushing up its exports.”

Nepali exporters have also been complaining that that India has time and again imposed  countervailing duty going against the trade treaty between the two countries, which has also hindered Nepal’s exports to India. Currently, India has been imposing such duty on copper utensils and readymade garments which has weakened their export potential.

Nepali exporters have also been complaining that exporting agriculture goods has been problematic due to quality related barriers as the southern neighbour has not been recognizing the quality certification issued by Nepali labs.

Shakya also blamed the apathy of both the government and the private sector to boost exports to the southern neighbour. “The government has been providing export incentives only on goods bound for third countries. Similarly, the private sector has been completely ignoring promoting local products there,” he added.

India accounts for more than 66 percent of Nepal’s export earnings. It accounts for a similar share of Nepal’s imports.

Woven fabrics were Nepal’s largest export to India last year, amounting to Rs 5.3 billion. Similarly, large cardamom, iron and steel products, jute sacks, juices, footwear, ginger and various types of yarns were among Nepal’s main exports to India.

Similarly, petroleum products, MS billet, vehicles and parts, cement clinker and fertilisers, among others, were the main imports from India. Nepal imported high speed diesel oil and vapouring oils worth Rs 57.49 billion from India which were the largest imports last year.