Economists have long made the case for diversification as key to a country's export competitiveness. In line with this, Nepal has made considerable progress in diversifying markets for its specialised products. Nepali agro-based products such as tea, cardamom and herbs, as well as carpets, pashmina and wool, have found markets as far afield as Europe and North America. Unfortunately, however, most of Nepal's non-specialised goods, which constitute the bulk of its trade, have yet to penetrate into the Southasian market beyond India.
Trade and transit routes of course decide the nature of export diversification. Yet these have received little attention from policymakers in Nepal, possibly for fear of getting entangled in larger regional politics. More or less any dialogue on trade and border-crossing turns into ultranationalist media hype about sovereignty, both in India and Nepal, and thus it should come as no surprise that Kathmandu has been reluctant. Most Nepali exports still exit the region via the Kolkata port, despite high costs and unreliable services owing to port congestion. The economics of trade are such that Nepal's specialised exports can remain competitive only if the country can keep up with its rivals by securing faster and more reliable transit for its products. Thus, it is time that Nepal makes serious efforts to access new trade routes.
It is simple common sense that Nepal should break into new markets within the neighbourhood, going beyond India. Against the backdrop of the recent transit concessions by both India and Bangladesh (see cover article, 'The India-Bangladesh land bridge'), leading Nepali businessman Rajendra Khetan claims that the mountain economy of Nepal can be complementary to the coastal economy of Bangladesh. There are also opportunities for the two countries to climb up the supply chains involving their domestic and export industries, through sourcing of higher-quality inputs at cheaper rates and in diverse varieties. For example, Nepal currently buys inputs for its handicrafts from abroad, while Bangladeshi cotton, chemicals and processing equipments would have been cheaper. Meanwhile, Bangladeshi producers of packaged foods are also losing out by not importing cheap and high-quality grains, lentils and fruits from Nepal.
The need for regional integration is especially urgent when we compare Southasia with Southeast Asia. Whereas 25 percent of trade of ASEAN countries is with each other, in Southasia this figure stands at a dismal four percent; this represents a colossal inefficiency, and an ongoing failure on the part of policymakers and entrepreneurs. In the Nepal context, this is as important for imports as for exports. Nepal needs to ensure that its imports are not held hostage to the monopoly of a select few producers, but are instead received through rigorous international competition.