India budgets heavy grant aid to Nepal

KATHMANDU: India will give IRs 2.7 billion in grants to Nepal during 2012-13. This is what Indian Finance Minister Pranab Mukherjee announced on Friday while unveiling the budget for 2012-13.

New Delhi had given grants worth IRs 1.5 billion in 2011-12 and IRs 1.67 billion in 2010-11 to Nepal. Indian proposed loans and grants to foreign governments amount to IRs 51.48 billion this year. In South Asia, Bhutan continues to top the list of countries receiving Indian grant. While Afghanistan and Sri Lanka are ahead of Nepal in terms of the Indian grants amount, Bangladesh and Maldives will receive relatively less amount than Nepal. On concerns about the Indian budget’s incentives for agriculture that may impact Nepal’s exports and imports, experts here said the budget had no major policy shifts to make a big difference. Given Nepal’s dependence on India, with over 60 percent of trade being done with the southern neighbour, the Indian budget is closely watched by Nepali policymakers and business community. Nepal is basically concerned about Indian policies on agriculture, as Nepal’s agriculture is less competitive than India. Nepali farmers have always been suffering from the import of cheap Indian agriculture products through porous border between the two countries. “India has not increased direct subsidies to farmers, which is our concern,” said Rameshwor Khanal, economic advisor to Prime Minister Baburam Bhattarai. “However, a number of missions announced in the areas of horticulture to food processing may affect our agriculture sector.” The Indian budget has announced a number plans to increase agriculture productivity, including National Food Security Mission, National Mission on Oilseeds and Oil Plm, National Mission on Agricultural Extension and Technology and National Horticulture Mission.


The budget also reduced customs duty on the import of agriculture machineries and other inputs to enhance productivity. Basic customs duty on sugarcane planters, root or tuber crop harvesting machines, weeders, and tillers has been slashed to 2.5 percent from 7.5 percent earlier. Customs duty on specified coffee plantation and processing machineries has been reduced to 5 percent from 7.5 percent.


“More subsidies and benefits to Indian farmers may affect Nepali farmers’ interests at a time when Nepal is all set to remove agriculture development fee on imports,” said trade expert Ratnakar Adhikari. Nepal has pledged to the World Trade Organisation that it would remove such a fee from the next year. The Indian budget has raised standard excise duty from 10 percent to 12 percent.


“As most of the goods imported from India, including vehicles and tobacco products among others, are subject to the increased excise duty, the price of imported goods may go up due to increased production cost,” said Khanal. As no excise duty is imposed on goods imported to Nepal from India, it will not affect vehicle prices here.


“Automobile price will not go up here due to a hike in excise duty in India,” said Saurabh Jyoti, president of Nepal Automobile Dealers’ Association. India has raised excise duty on small cars to 27 percent from the current 22 percent. An increase in the income tax exemption threshold to IRs 200,000 from the current IRs 180,000 is expected to increase Indians’ disposable income.


“This will create more demand and fuel price rise in India,” said Khanal. “The rise in Indian inflation may also catalyse Nepal’s inflation.”

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