Major Indian highways connecting Nepal to be upgraded

The Indian government is upgrading its major highways connecting Nepal to facilitate trade and mutual cooperation. Some of these trade routes/highways are a lifeline to Nepal’s economy as a majority of Nepal’s exports and Nepal’s import passes through them. About 60% of Nepal’s exports and imports are to and from India.

Fully upgrading of such trade corridors are a precursor to developing an economic corridor, growth stimulants and employment generators. The Times of India reports that the Indian Prime Minister Narendra Modi has “asked the ministry to see whether multimodal hubs can be developed on the major stretches, such as Raxaul along NH-28A.”

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Ministry sources said, the 70km stretch from Raxaul, on Indo-Nepal border, to Piprakothi on the East-West corridor in Bihar is being widened to two-lanes with paved shoulder by NHAI at a cost of Rs 375 crore. This will be a toll road and the project is likely to be completed by next March.

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Nepal should also give equal priority to upgrading of major trade corridors along the border. It will help boost exports and lower the cost of imported goods.

Nepal and India share a 1,751km long border linked to Uttarakhand, Uttar Pradesh, Bihar, West Bengal and Sikkim.

India’s (and Nepal’s) problem with manufacturing sector

The problem with India’s (can relate to Nepal’s as well) manufacturing sector explained by The Economist:

1. India opened up product market to competition (including imports), but left its factor market (land, labor and capital) unreformed.
2. Companies needed to ensure economies of scale in production to effectively compete in the global market. But, high cost of capital, inflation and inefficient court clearance (of recovery of bad loans) led to high production costs.
3. Complex laws make it difficult to acquire farmland for industry or infrastructure.
4. Dated labor laws burden businesses with cumbersome (disincentivizing) regulations and processes. Hiring is easy, but firing is very difficult (even when the company’s revenue/profit dips south). Unruly trade unionism is a major concern.
5. Hence, most firms and economic activities are capital-light (IT services, services sector, etc).

With the ‘Make in India’ initiative, one of the signature campaigns of PM Modi, some positive signs are emerging: Mahindra Aerospace, Foxconn, Micromax, Ford, BMW, Mercedes, etc are opening new factories.

For Nepal, it has been disappointing ride all along as investment and share of manufacturing in GDP are both shrinking (the above reasons apply, plus lack of adequate supply of electricity, lack of skilled workforce, and political instability).