Nepal foreign trade | Import–export imbalance | Trade policy reform | Logistics and connectivity
Last fiscal year, Nepal’s foreign trade hit two trillion rupees, and current trend suggests it is on track to reach a similar level this year. In the six months of 2025/26, Nepal’s foreign trade has reached NRs 1.1 trillion, with exports amounting to NRs 142 billion, while imports over six times the exports (NRs 939 billion).
Exports this fiscal year grew by 43.76% compared to 14.18% rise in imports, while the trade deficit widened to NRs 797 billion, rising by 10.2% compared to the review period.
In the six months of the previous fiscal year, exports and imports grew by 31.8% and 7.1% respectively while trade deficits grew by 4.4%.
These figures show a mixed trade picture. Both exports and imports have risen rapidly. The growth however is largely concentrated on a single product, soybean oil, driven by India’s tariff policy, adding limited domestic value or backward linkage to local agriculture or industry.
Overall, Nepal’s priority products as identified in the Nepal Trade Integration Strategy-2023 showed weak performance, growing by merely 1.2% from NRs 49.04 billion to NRs 49.6 billion.
Exports of priority products (Nepal’s high-value goods)
Imports account for nearly 87% of the total trade, with petroleum products remaining the largest factor. Diesel imports reached NRs 58.27 billion, petrol NRs 33.07 billion, and Liquid Petroleum Gas (LPG) NRs 27.04 billion; all basically imported from India.
Industrial and consumer products also contributed significantly. Unrefined soybean oil totaled NRs 57.43 billion, smartphones NRs 23.29 billion, and iron and steel NRs 14.04 billion.
Overall, imports of crude soyabean oil, chemical fertiliser, transport equipment, vehicle and spare parts, silver and gold among others increased whereas imports of hot rolled sheet in coil, edible oil, garlic, pulses and oil seeds products, among others, decreased in the review period.
Exports of processed soyabean oil, cardamom, palm oil, jute goods, and shoes and sandals, among others, increased, whereas exports of zinc sheet, particle board, tea, woollen carpet, handicrafts, among others, decreased in the review period.
In exports, the final consumption goods, intermediate goods, and capital goods accounted for 69.6%, 29.3%, and 1.1% of the total exports respectively in the review period. Such ratios were 58.8%, 40.4%, and 0.8% of total exports in the previous corresponding period.
The negligible share of capital goods exports indicates Nepal’s limited industrial and technological capacity, and its continued weakness in producing high-value, technology-intensive goods.
On the import side, such ratios remained 37.6%, 53.5%, and 8.9% in the review period, which previously were 41%, 50.2%, and 8.8% respectively.
The low and largely stagnant capital goods is also a critical concern, as subdued capital goods imports imply insufficient investment in machinery, technology, and future productive capacity, limiting Nepal’s prospects for long-term industrial growth.
Trade ties with India
India is Nepal’s most dominant trading partner. Latest data shows it shares 56.7% share in total imports and 81.5% share in exports. Much of the growth in this trade relationship in recent years has been driven by India’s tariff policy, which provides Nepali traders with arbitrage opportunities, incentivising them to heavily engage in reexports to India by importing from third countries. This has inflated Nepal’s exports figure in papers.
Exports amounted to NRs 115.74 billion in the first half, marking a 57.02% rise from NRs 73.7 billion in the same period last year. Processed soybean oil alone accounts for roughly 40% of the exports.
While Nepal’s reexporters have benefitted, domestic producers have often faced disruptions. Last fiscal year, exporters experienced challenges arising from new certification rules from the Bureau of Indian Standards (BIS), which delayed and restricted exports into India in sectors like steel, footwear, and cement. Another issue was food testing standards. These procedural bottlenecks function as non-tariff barriers, reducing Nepal’s competitiveness in its largest export market.
Although the procedures have since become easier, the conditions remain complex, given the sensitivities between Nepal-India relations and the broader dynamics between India and China, which have prompted India towards tighter import regulation, supply-chain scrutiny, and strategic trade controls.
Additionally, the automatic renewal of the India–Nepal trade treaty in 2023 without amendments has prevented Nepal from renegotiating tariff and market access terms, especially for sectors like agriculture. Experts argue this favors Indian imports and limits Nepal’s export growth.
The treaty provides Nepali goods, especially primary and agricultural products, with duty-free, quota-free access to Indian markets. Ending this arrangement for primary agricultural goods would allow Nepal to levy tariffs on heavily subsidised agricultural imports from India. Nepal will now have to wait until 2030 for any amendment to the treaty.
Trade with China
With China, exports have fallen sharply in the last half year. While imports continued to experience a surge, totaling NRs 196.94 billion, around one-fifth (21%) of the total trade, which were NRs 160.5 billion in the last corresponding period.
Exports meanwhile have failed to cross a billion mark, totaling just NRs 640.9 million in the first half, a steep decline by 66.66% from NRs 1.92 billion during the same period last year.
Nepal’s trade with China is dependent on two northern trade routes: Rasuwagadhi–Kerung and Tatopani–Zhangmu (Khasa), both of which share logistical challenges. Prolonged disruptions along these routes are considered a major factor contributing to stagnant exports to China.
The Tatopani border point remained shut for four years after the 2015 earthquake caused heavy damage to the trade infrastructures, resuming only in mid 2019. The Rasuwagadhi–Kerung customs point, which was upgraded to an international checkpoint in 2017, remained closed in early 2020 due to Covid, then partially reopened in July 2020 and finally two-way trade was allowed in late 2022 after being closed for three years.
In July last year, a deadly flash flood destroyed Miteri Bridge, a crucial transit link in Rasuwagadhi–Kerung. Trade halted for months.
Such repeated disruptions, natural disasters, infrastructure damage, and delays in road upgrades across geographically challenging terrain, have not only choked trade with its northern neighbor but also constrained domestic production more broadly. Nepal’s experience with disasters, which are becoming frequent and intense, is now becoming a binding constraint to its exports capacity. If Kathmandu wants to grow its exports base, it must tackle it as a systemic problem, not just an episodic emergency.
Apart from these, to expand trade with China, Nepal will need to exercise sharper diplomacy, as Beijing may be difficult to persuade amid Nepal’s ongoing political turmoil and transition. Nepal signed an MoU for cooperation under BRI in 2017, but has seen more controversy than development, with projects under them failing to materialise due to delays in negotiations. In December 2024, Nepal and China finally signed a BRI cooperation framework, but progress has since stalled.
A tougher global market?
The US market is one of the leading exports markets of Nepal, amounting to NRs 9.7 billion rupees in the six months of this fiscal year, almost 7% of the total exports. Total annual exports to the US in the last three fiscal years hovered around 18 billion rupees on average.
This fiscal year, Nepal saw the expiry of the US trade preference programme that granted zero-tariff access for 77 Nepali products (expired on December 31, 2025). As the termination removed duty-free access that previously helped local exporters in textiles, garments, leather goods, footwear, carpets, and similar sectors, it could make Nepal’s exports more expensive, less competitive in the US moving ahead.
Trade experts point out that Nepal failed to take advantage of the provision when it existed. Several producers also couldn’t fully leverage the scheme due to Covid-related disruptions. Now, trade engagement with the US is likely to become challenging under the Trump administration, which has signaled a stronger inclination towards protectionist policies.
Additionally, India has now signed a new trade deal with both the US and European Union, securing duty free access for several Indian goods, some overlapping with Nepal’s exports interests. India has also been actively concluding and expanding FTAs and CEPAs with partners like the UK, Oman, New Zealand, and the European Free Trade Association (EFTA), and negotiating further pacts.
These agreements help Indian exports gain preferential access, which can indirectly undercut Nepal’s exports due to India’s much larger scale and competitive capacity.
Progress on Nepal’s emerging trade partnership with Bangladesh has been sluggish too. Over the past three fiscal years, Nepal’s exports have failed to surpass NRs two billion, whereas imports from Bangladesh have been roughly eight times greater. Only recently, the two countries resumed talks on a preferential trade agreement (PTA) after years of deadlock, agreeing to convene a Trade Negotiation Committee meeting within the next three months in Nepal. One of the major bones of contention is Bangladesh’s “hidden tariffs”. The completion of elections in both countries could pave the way for a more concrete and swift resolution of the matter.
Another pressing matter is loss of trade privileges after Nepal’s graduation from least developed country (LDC) into developing country this year-end.
Nepal currently benefits from duty-free, quota-free access to major markets through LDC schemes such as the EU’s Everything But Arms (EBA). After 2026, these preferential tariffs expire, leading to higher duties in key markets like the European Union, the United States, and Turkey.
Average tariffs on Nepal’s exports could rise significantly because Nepal will shift to standard Generalized System of Preferences (GSP) rates for developing countries, which are less generous than LDC schemes.
An International Trade Centre (ITC) study estimates Nepal could lose 4.3% of its exports due to tariff changes, mainly affecting apparel, synthetic textiles, and carpets, with losses concentrated in China, the EU, and Turkey.
The same study also notes that in some markets, unrealised export potential is greater than the expected losses from graduation. This applies to apparel exports to Japan, beauty products and perfumes to China, and carpets to Canada. With targeted trade promotion focused on high-growth products, these opportunities could offset the anticipated export declines.
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