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BW Businessworld

Our Pal, Nepal

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Early this year, a surprising development took place. It was barely noticed but a few sections of Indian and Nepalese government looked very concerned. For the first time in the history of Nepal, foreign direct investment from China overtook that from India.

With an open border, similar culture and common history, India and Nepal have been inseparable for decades. But a neglect of this relationship allowed other players in the region to inveigle themselves with Nepal.

China scaled up its investments in Nepal even as the Indian government remained tardy in implementing its promises. China is a rapidly building modern highways in Nepal for increased connectivity between the two. India on the other hand is yet to improve the facilities at its border trading posts with Nepal.

Among the infrastructure projects pending  according to Indian Embassy in Nepal are, "upgradation of four major custom checkpoints at Birgunj-Raxaul, Biratnagar-Jogbani, Bhairahawa-Sunauli and Nepalgunj-Rupediya to international standards; upgrading approach highways to the border on the Indian side; upgrading and expanding the road network in the Terai region of Nepal; and, broad gauging and extending rail links to Nepal." On similar projects China is racing ahead.

There is still time for India as its cumulative investment and influence is much higher. Indian has have invested close to $500 million in Nepal and accounts for 47 per cent of FDI annually.

The prominent companies who have operations in Nepal include Dabur India, ITC, Hindustan Unilever, Asian Paints, GMR India, Essel Infra and Tata projects. For companies from Nepal, there are several tax breaks and in certain categories like small scale they are treated at par with Indian firms.

Power sector will play a key role in electrifying the relationship between India and Nepal. Easy supply of power will also improve the investment appeal for Indian companies keen to expand in Nepal.

Nepal has a hydro power potential of 40,000 MW. Even if half is developed at a cost of $2 million per MW, it amounts to a huge opportunity for Indian companies. For the moment, this issue is not resolved as Nepal wants freedom for open bidding and not a monopoly for Indian companies. Indian companies should be confident of winning many projects even if there is global competition.

The private sector in Nepal is maturing and a few partnerships with Indian companies would benefit both. It would be important to encourage companies from Nepal to expand in India. Even though they have free market access, local partnerships will help them get greater success.

Prime Minister Narendra Modi has revived the warmth between the two countries. The officials are working to create the appropriate investment climate. It is now over to private sector in both countries to build on mutual advantage.

twitter: @pranjalsharma