However, in terms of satisfying Indian domestic market, Nepal has a comparative advantage because the transportation cost (plus taxes) is lower if Nepali producers focus exclusively in the Indian market. Making customized products that are consistent with the purchasing power of the emerging Indian middle class and lower middle class would help Nepali garment sector to once again resurrect and contribute foreign exchange as it had done before 2005.
At a time when Nepal's worldwide garment exports are experiencing a massive downturn, India has emerged as one of its largest buyers with an import volume almost matching that of the USA, the number one customer.
Due to comparative advantages in terms of production costs and geographical proximity besides a vast market, the export of Nepali garments to India has shot up in recent months despite a 30 percent fall in overall exports during the first four month of the current fiscal year.
Prashanta Pokhrel, president of the Garment Association of Nepal (GAN), said exports to the southern neighbor had surged with major Indian retail chains outsourcing and placing orders for more Nepal-made apparels.
“We estimate that garment exports to India in the last four months of 2008 are in the same quantity as our shipments to the US which imported clothes worth around US$ around US$ 7 million during the period,” Pokhrel told the Post.
“India has become a lifeline for Nepal's garment industry which would have collapsed hadn't it emerged as an alternative to the US market,” he added.