Quantifying Impediments to India-Nepal Overland Trade: Logistics Issues and Policy Message

Even in today’s globalized world, recent studies have shown that informal trade barriers still do exist and inhibit trade flows, particularly so in the developing countries. This can arise due to a host of factors such as complex customs procedures, capacity constraints and/or corruption at the border. In the context of south Asia, this is very much relevant in the case of India/Nepal trade where partners’ goods by and large face zero tariff/quotas in respective markets. Yet, Nepalese traders frequently raise the issue of impediments due to which formal trade flows do not show consistent increase and informal trade show no sign of decline. In this context, this paper attempts to quantify all the relevant costs resulting from informal trade barriers that impinge upon trade between India and Nepal. My estimate shows that the aggregate delay in overland trade between India and Nepal is more than 200% of ideal time. According to the respondents, the financial implication of the delay for exports to Nepal turned out to be 5.5% of the value of consignment whereas the same for imports from Nepal amounted to about 8.5% of the value of consignment. The findings indicate that a major overhaul in the present system of trade between the two nations is needed. This policy prescription is equally applicable in the context of trade between South Asian countries through land routes.