Trade deficit to exceed budget this fiscal too, import substitution a failure, export promotion a pipe dream

Despite repeated claims being made by successive governments to promote exports, the excessively import-based economy is going to record a trade deficit that is more than the budget again, for the current fiscal year.
Earlier, in fiscal years 2009-10 and 2011-12 also, trade deficit had exceeded the total budget outlay of the country.
Merchandise exports went up by only four per cent to Rs 63.33 billion in the first 10 months of the current fiscal year 2012-13, compared to an increase of 16.4 per cent to Rs 60.90 billion in the same period of last fiscal year, according to the central bank's data that has revealed that the country has imported Rs 458.56 billion worth merchandise — a 19.7 per cent increase compared to an increase of 19.2 per cent to Rs 383.01 billion in the same period of last fiscal year 2011-12.. “Trade deficit surged by 22.7 per cent to Rs 395.22 billion, as compared to an increase of 19.7 per cent in the same period of the last fiscal year.”
The trade deficit that is widening is looking to exceed the total budget — that is Rs 404.85 billion — of the country by the end of the current fiscal year as in the remaining two months by mid-July, the country's trade deficit is going to record over Rs 405 billion on weak export promotion and import substitution, a buzzword much loved by the political leadership, economists and bureaucrats in recent years.
Despite Nepal being an agriculture country, and one-third of the population involved in the sector, the country imported rice worth Rs 7.15 billion in the first 10 months of the current fiscal year against import of rice worth Rs 2.85 billion in the same period of the last fiscal year from India, failing to substitute imports.
Likewise, the country imported vegetables worth Rs 3.84 billion and fruits worth Rs 1.13 billion from India by mid-May, compared to Rs 2.23 billion and Rs 697.3 million, respectively, in the same period of the last fiscal year, the central bank data revealed.
It added that cement import — that could also be substituted by increasing domestic cement production — also stood at Rs 7.95 billion, whereas Rs 46.80 million worth tea was imported in the 10 months from India. Likewise, the country imported gold worth Rs 21.23 billion and silver worth Rs eight billion from third countries, the data revealed.
Import substitution of only rice, fruits, vegetables, tea and cement could save the country over Rs 22 billion, bridging the widening trade deficit.

The Comparison
Fiscal Year            Trade deficit            Budget
2008-09            Rs 216.77bn            Rs 236.01bn
2009-10            Rs 317.67bn            Rs 285.93bn
2010-11            Rs 331.84bn            Rs 337.90bn
2011-12            Rs 387.41bn            Rs 384.90bn
2012-13*            Rs 395.22 billion            Rs 404.85 billion
(*Trade deficit for 2012-13 is of only 10 months. Source: Nepal Rastra Bank and Finance Ministry)

The Trend
Fiscal year            Export            Import            Trade deficit
2008-09            Rs 67.70bn            Rs 284.47bn            Rs 216.77bn
2009-10            Rs 61.13bn            Rs 378.80bn            Rs 317.67bn
2010-11            Rs 64.34bn            Rs 396.18bn            Rs 331.84bn
2011-12            Rs 74.26bn            Rs 461.67bn            Rs 387.41bn
2012-13*            Rs 63.33bn            Rs 458.56bn            Rs 395.22bn
(*Figures for 2012-13 are of only 10 months. Source: Nepal Rastra Bank)