Indian budget to widen trade deficit, fuel inflation

The Indian budget is going to impact Nepali economy as it has continued huge subsidy to the agriculture sector and slashed taxes on export items.

Finance secretary Shanta Raj Subedi – a discussion today at the ministry on possible impact of interim Indian budget and its impact on the Nepali economy – during asked senior ministry officials to study the possible impact and find a solutions to address them in the budget for the next fiscal year.

The interim Indian budget ahead of the general election in India has allocated huge subsidy to the agriculture sector, slashed taxes on export items and reduced excise duty on small cars and motorcycles.

But Nepali exports will be hit and trade deficit will continue to widen due to the Indian budget, the officials concluded, particularly concerning about the possible surge in imports of agricultural products – due to subsidy – from the southern neighbour and put extra pressure on domestic agriculture sector.

The huge subsidy to agriculture sector will make Indian agricultural products competitive compared to local products, Subedi said, adding that it would also increase exports of Indian agricultural products to Nepal.

Nepal's trade deficit with India has reached Rs 190.95 billion, out of the overall trade deficit of Rs 288.76 billion, according to the central bank.

Likewise, the ministry officials also discussed on possibility of capital flight due to expansion drive of Indian insurance companies in the bordering towns.

However, the reduction of excise duty on sports utility vehicles (SUVs) from 30 per cent to 24 per cent, and large and mid-segment cars will have no impact on Nepali economy.