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Business Environment in Nepal

Nepal is a landlocked country on the southern slope of the Himalayas. The geographical position of the country plays a significant role for its development as a business hub as it lies in between the world’s two giant economy - India and China.

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Economic Indicators of Nepal

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Why Nepal

Nepal is strategically located between two large and rapidly growing economies China and India, with easy access to markets of more than 2.6 billion people. Nepal has large pool of capable workers (out of total population of 28.98 million, 61% are of working age i.e.15-65 years). Nepal has relatively low cost of labor. Nepal is ranked 2nd after Bhutan among south Asian countries in the “Ease of Doing Business Report 2016” by the World Bank Group. Foreign investors are allowed 100% ownership of a company in a majority of sectors. Repatriation of capital and profits are allowed by law. Various bilateral investment protection and double tax avoidance arrangements are in place. Nepal has signed Bilateral Investment Promotion and Protection Agreement (BIPPA) with India, Finland, Germany, Mauritius, UK, and France. Similarly, Nepal has signed Double Taxation Avoidance Agreement with Austria, China, India, Korea, Mauritius, Norway, Pakistan, Qatar, Sri Lanka and Thailand. Compared to other countries in South Asia, Nepal offers the lowest tax burden in the region. Some of the reasons for comparatively high ROI in Nepal include: -

a.       Huge investment potential in tourism, hydro-power, agriculture, and mine and mineral sectors; - Abundance of natural resources; - Maximum income tax rate of 25% and value added tax (VAT) of 13%; -

b.      Income tax concession on profits from exports and interest income on foreign loans;

c.       Withholding tax rate of 15% on royalties and technical & management fees; and

d.      Customs, excise duties, and VAT levied on raw materials and auxiliary raw materials of export oriented industries is reimbursed to the exporter on the basis of the amount of exports within 60 days of application.

Nepal has open boarder access to India. Nepal has duty free access to China for around 8,000 products. Nepal has duty free access to US market for 66 types of garment items for 10 years starting from 2016.

Socio-Political and Economic Environment

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After the devastating earthquake in 2015, followed by a trade blockade with major investor India and political unrest, Foreign Direct Investments (FDI’s) commitments in Nepal dropped to an almost all time low. Now, two years later, due to increased stability, reforms and initiatives such as the Nepal Investment Summit last March, 2017 FDIs in Nepal are on the rise again. One of Nepal’s great strategic economic advantages is its close proximity to some of the largest and fastest growing economies in the world. Looking just at the three major Indian provinces that border Nepal, the combined population – and potential market – adds up to almost 400 million. Despite being close to huge potential markets, Nepal has not been able to take advantage of it, resulting in disappointing economic growth rates compared to other South Asian countries. For landlocked countries such as Nepal, cross-border trade is important. In order to increase Nepal’s trade between neighboring countries India and China, numerous steps have been taken to improve its connectivity. Both India and Nepal have several joint road projects along the border. Last year, the Nepal Government has prioritized construction, expansion and blacktopping of four road sections that link Nepal with the Chinese border. And more recently, Nepal has signed an agreement with China to build an $8 billion cross-border rail link. In addition to the investments in infrastructure, Nepal government has also started a new and long due round of policy reforms. Among these reforms are a new labor law, the Industrial Enterprise Act, the Special Economic Zone Act, the Agribusiness Promotion Bill and most importantly for foreign investors – the Foreign Investment Bill and amended Companies Act. All these changes will hopefully help Nepal live up with its potential and its ambitious aim to graduate from Least Developed Country status by 2022. For those who’ve been waiting to see how the wind would blow after the earthquake, now is the time to look ahead towards the bright future and jump on the bandwagon to do business in Nepal!

 Potential Areas/Sectors for Investment in Nepal

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a.       Energy

Nepal is rich in water resources with multiple sources of water, including glaciers, snowmelt from the Himalayas, rainfall and groundwater. Nepal’s theoretical capacity of hydropower is around 80,000 MW, out of which 43,000 MW is estimated to be economically feasible. However, installed capacity is only 750 MW of electricity, despite the fact that peak domestic demand (suppressed) is well over 1,000 MW. Demand for electricity is increasing at 7–9% per year. Nepal is targeting graduating from least developed country (LDC) status to developing country status by 2022 and aims to become a middle income country by 2030. To meet its growth aspirations, Nepal will need to add 6,000+ MW (which requires investment of approximately USD 10 billion). Consequently, a lot of industries and infrastructure projects are in the pipe- line opening up huge opportunities. In addition to energy development, investment opportunities lie in the up gradation and expansion of distribution systems (for which investment of approximately USD 2 billion is required) and transmission systems (for which investment of approximately USD 4.45 billion is required). The Power Trade Agreement (PTA) signed with India has opened up a large market for exporting electricity to India. The SAARC Framework agreement on Energy Cooperation signed during the 18th SAARC Summit in 2014 will pave the way for the eventual formation of a regional energy market.

b.      Tourism:

With the world’s highest mountain range, the Himalayas, and 8 of the 10 highest peaks in world, Nepal has long been popular among mountaineers, trekkers and adventure seekers. It also offers beautiful lakes, steep rivers and gorges, unique wildlife, historic monuments, impressive fine arts, significant religious sites and exotic cultures attracting a wide array of travelers for a variety of reasons. Nepal is also a destination for religious tourism and pilgrimages. Lumbini, the birthplace of Lord Buddha, and Pashupatinath and other Hindu pilgrimage sites are the main attractions for people following Buddhism and Hinduism. There are opportunities in developing tourism infrastructure (hotels, restaurants, roads, airports, etc). There is also great potential for expanding the market for meetings, international conferences and events (MICE). Plans to upgrade the current international airport are underway, which will increase the tourist traffic significantly. The expansion of existing tourism products and introduction of new and innovative products has potential to attract different types of tourists and extend their average length of stay.

c.       Infrastructure

Only about 19% of roads in Nepal are all weather roads and 2 out of the 75 districts are still not connected by roads. Hence, there are many opportunities to expand the road network, for which the government is seeking to form public-private partnerships. Nepal’s main highways require expansion to accommodate the increase in traffic, which is another area for public-private partnerships. In order to cater to the needs of the growing population, the development of mass public transportation systems – bus-rapid transport (BRT), railways, monorails, airports has been prioritized. To finance these projects, the government is looking at public - private partnerships. Eight north-south corridors (roads) linking China and India through Nepal, a cross-border railway line connecting Kathmandu with China, five cross-border railway lines, ultimately connecting Kathmandu with India, a railway line along the East-West Highway, and cable cars in the hilly regions are planned.

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d.      Agriculture

Nepal’s geography, topography, water resources and ample supply of labor give Nepal a comparative advantage in agricultural production. Nepal’s economy is largely dependent on agriculture, which accounted for about 32% of GDP and absorbs about two- thirds of the labor market. Only 25% of the total land area is cultivable land; another 33% comprised of forest land and the rest is mountains. The lowlands of the terai region produce an agricultural surplus, which caters to the needs of the food-deficient in hill areas. The Agriculture Development Strategy 2014 recommends spending NPR 502 billion in 10 years. Nepal Government is currently focusing on the modernization, diversification, commercialization and marketing of the agriculture sector. Towards this, the government plans to make available agricultural inputs, such as irrigation, electricity, transportation and agro-credit. The Nepal Trade Integration Strategy 2010 focuses on the development of cardamom, ginger, honey, lentils, tea, noodles and medicinal herbs/essentials oil as priority export products. The Trade Policy 2015 reemphasizes the need to develop these products. Good opportunities exist in agriculture production; processing, packaging and branding. Also nontimber forest products, cardamom, ginger, aquaculture, vegetables, floriculture, tea, coffee and honey offer many opportunities. There are good opportunities in input markets (such as for seeds, nurseries, fertilizers, agricultural infra- structure and technology, and agriculture financing) and, due to favorable climatic conditions, the focus on high value organic crops is increasing.

e.      Information and Communication Technology

Nepal’s ICT sector is one of the fastest emerging sectors in the country, with huge potential for growth in the coming years. All the services related to the ICT sector are open to foreign direct investment, except for media. For telecommunications, 80% foreign ownership is allowed. The Government of Nepal has identified IT and business process outsourcing (BPO) in the Nepal Trade Integration Strategy 2010 as one of the five priority potential export service sectors. The Trade Policy 2015 also reemphasizes the importance of developing this sector. As there are only two major telecommunications companies (NTC and Ncell) dominating the sector, there is room for new firms to enter the market. Foreign BPO companies can tap into the young English-speaking population and benefit from the cost advantages offered by the low wages and low establishment and operating costs. The time zone in Nepal is also favorable for companies looking to outsource from America or Europe. There are unmet needs for the use of ICTs in governmental agencies and the private sector.

f.        Health and Education

Opportunities exist in developing education infrastructure, including upgrading and building educational institutions and even education cities (medical, IT, engineering, management etc.), for which the government is seeking to engage in private-public partnerships. Every year, thousands of students go abroad for further studies spending large sums of money. With more and better education institutions within country, this could be avoided. The government is also looking to develop health infrastructure, including modernization and increasing the capacity of health facilities and mobilizing privately-run hospitals by means of public private partnerships. In terms of pharmaceuticals, there are persistent shortages of quality medicines in the market presenting opportunities for manufacturers of pharmaceutical goods.

g.       Financial Sector

Although the financial sector of Nepal is growing at a rapid pace, still 60% of Nepal’s population has no bank accounts and only 61% are served by formal financial institutions. Also, banking services are heavily concentrated in urban areas whereas 56% of the adults use banking products as compared to 36% in rural areas. Thus financial sector of Nepal still has a large untapped market for banking and financial services. Similarly, Nepal’s Insurance market has also huge potential as the penetration rate is only 1.31% in 2011.

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h.      Mines and Minerals

Nepal has an abundance of minerals used in industry and construction, including limestone (most abundant), coal, talc, red clay, granite and marble, gold, and precious and semi-precious stones (tourmaline, aqua- marine, ruby and sapphire). Recent studies have shown that Nepal may have 2.5 billion metric tons of cement grade limestone. Nepal has an estimated 5 billion metric tons of dolomite and 180 million metric tons of high grade magnetite. In recent times, the western part of Nepal has witnessed gas and oil seepage, confirming the presence of oil and natural gas in Nepal. About 10 petroleum and natural gas exploration sites have been identified so far. Nepal has more than 20 million metric tons of ore reserves in more than 80 locations. Copper occurs in Nepal in more than 107 locations.

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Terrorism single largest threat to peace, stability : Sushma Swaraj at SAARC meet

External Affairs Minister Sushma Swaraj has told a meeting of the SAARC foreign ministers that the scourge of terrorism remains the single largest threat to peace and stability in the South Asian region and it is necessary to eliminate the ecosystem of its support. Addressing a meeting, also attended by her Pakistani counterpart Shah Mehmood Qureshi, Swaraj emphasised that regional cooperation can only be successful if it meets the expectations of the people. The meeting, chaired by Foreign Minister of Nepal Pradeep Kumar Gyawali, was held on the margins of the 73rd session of the UN General Assembly and attended by foreign ministers of the SAARC bloc - Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. "An environment of peace and security is essential for regional cooperation to progress and achieve economic development and prosperity of our people. The number of threats and incidents that endanger South Asia are on the rise," Swaraj said in her statement at the Informal meeting of the SAARC Council of Ministers on Thursday. She said terrorism remained the single largest threat to peace and stability in the region and to the world. "It is necessary that we eliminate the scourge of terrorism in all its forms, without any discrimination, and end the ecosystem of its support," she said. Swaraj stressed that meetings, including high-level ones, can only be effective if expressions of resolve are translated into concrete action on the ground. "The world is moving ahead to become more integrated and connected where movement of goods and people is becoming easier with each passing day. SAARC needs to deliver on its commitments or risk being left behind," she said. Swaraj underscored that in order to realise the region's immense potential for trade, it was imperative that further trade liberalisation under South Asian Free Trade Agreement (SAFTA) and operationalisation of SAARC Agreement on Trade in Services (SATIS) are done at the earliest. Cooperation in the energy sector is also critical for meeting the high energy needs, she added. Swaraj noted that the SAARC Framework Agreement for Energy Cooperation that the group's leaders signed at the 18th SAARC Summit had not yet entered into force due to non-ratification by some Member States. With South Asia being one of the fastest growing regions of the world, Swaraj said its true potential can be realised only if all countries contribute constructively towards delivering on the commitments SAARC has made to the people of the region. Swaraj voiced India's commitment to regional cooperation, saying it attaches highest priority to the development and prosperity of the region, under the government's 'Neighbourhood First' policy. Improving connectivity in all forms also remains vital for progress of the region and for increasing people-to-people contacts, Swaraj said, adding that India is working on extending its National Knowledge Network to participating SAARC countries. "Development of seamless physical connectivity is key for achieving regional growth, employment and prosperity," she said. Swaraj said India had collectively decided to finalise a SAARC Motor Vehicle Agreement and SAARC Regional Railways Agreement, which, however, still remains pending. She emphasised that India was willing to share the fruits of its economic, scientific and technological progress with the South Asian community and the country has taken various initiatives including asymmetrical responsibilities for enhancing regional cooperation under SAARC. Swaraj cited the example of the South Asia Satellite, a first-of-its-kind initiative, that was launched in May 2017 and will positively impact lives of the people even in remote areas of the region through its wide ranging applications in health, education, disaster response, weather forecasting and communications. Further, the SAARC Disaster Management Centre in Gandhinagar is now in its second year of operation. A wide-ranging calendar of activities in area of disaster risk reduction and response prepared by the Centre is being implemented with the active participation of all Member States, she said. Swaraj also assured speedy completion of the new campus of the South Asian University. SAARC summits are usually held biennially. The member-state hosting the summit assumes the Chair of the association. The last SAARC Summit in 2014 was held in Kathmandu, which was attended by Prime Minister Narendra Modi. Read the full article

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South Asian, Southeast Asian leaders discuss closer ties

KATHMANDU, Nepal — Leaders of seven South Asian and Southeast Asian nations are meeting in Nepal to discuss regional trade, economic co-operation, security and peace.

The two-day summit of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation began Thursday in Kathmandu, Nepal’s capital. It groups Bangladesh, Bhutan, India, Nepal, Myanmar, Sri Lanka and Thailand.

The leaders are to discuss greater economic co-operation and sign an agreement for regional electricity connectivity that will open up energy trade among their countries.

“Connectivity is a key enabler for robust regional co-operation. It is the very foundation, in which the edifice of economic integration can stand upright,” Nepalese Prime Minister Khadga Prasad Oli said in opening the summit.

He said member nations need to increase investments in regional transport networks.

“Better connectivity of roads, railways, airways, waterways will unlock our full potential. It can promote meaningful co-operation in trade and investment, energy, tourism and technology transfer,” he said.

The leaders are also expected to discuss crime, drug and human trafficking, and terrorism.

“Our region is not immune from dangers of terrorism, organized crimes, drugs trafficking, human trafficking, and money laundering, among others. We must remain united in defeating terrorism in all its forms and manifestations,” Oli said.

Bangladeshi Prime Minister Sheikh Hasina, Bhutanese interim head of government Lyonpo Tshering Wangchuk, Indian Prime Minister Narendra Modi, Myanmar President Win Myint, Sri Lankan President Maithripala Sirisena and Thai Prime Minister Prayuth Chan-ocha are in taking part in the summit.

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Connecting South Asia with South East Asia: A reality check

TARIQ A KARIM

Bird's eye view of Irrawaddy

Source: Wikimedia

BBIN

EAST ASIA

EMERGING TRANS-REGIONAL CORRIDORS

SOUTHEAST ASIA

The Rationale

Southeast Asia and East Asia regions are already well-known economic success stories, which emanated from most of the countries in these regions adopting an outward-looking strategy with trade-oriented growth and signaled to potential investors their openness to encouraging FDI flowing in from developed countries from within Asia & elsewhere.

The South Asia region is a relative latecomer to dynamic regional growth that was perceived largely as impeded by inadequate/ very poor infrastructure, high levels of regulations & trade barriers.  Linking up South and Southeast Asia has figured in the political thinking of leadership in both regions, but somehow the conditions until recently were not conducive to embarking on such venture. The post-colonial isolationist attitude of Myanmar was a big impediment to its taking advantage of its naturally configured geo-strategic bridge between South and Southeast Asia.  Developments in Myanmar after it joined ASEAN translated into economic reforms that gradually eased the restrictions and selectively opened its economic landscapes.  The recent elections in that country signal the beginnings of a political transformation, therefore, now offer renewed hope of facilitating linking of the two regions.

However, conditions are not equally conducive at the moment for South Asian region’s westward linking with Iran and Central Asia.

Figure 1: Map of South and Southeast Asia

A Fractured Saga!

Trade and connectivity are handmaidens to each other, anywhere.  However, in the South Asian region, Land and rail connectivity have remained hostage to the negative post-Partition political syndrome.  Although road and rail corridors had been long identified by the UN ECAFE/ESCAP decades ago in its Trans-Asian Highway and Railway scheme presented to member governments concerned, progress remained excruciatingly slow – and painful, particularly within the SAARC region.  Within the SAARC framework also, while senior officials, after many years of hard, and often fruitless consultations and negotiations, finally managed to cobble together a consensus draft regional Motor Vehicles Agreement (MVA) in 2014, their result did not pass political muster by some and efforts to get an all-SAARC endorsement of the SAARC Motor Vehicles Agreement at Kathmandu Summit in November 2014 was stonewalled by Pakistan.  Following this disappointment, some of the SAARC countries, namely Bangladesh, Bhutan, India and Nepal (BBIN) in the eastern sub-region decided that their economic development aspirations that required increased physical connectivity across borders to boost trade, could not be allowed to be held hostage by some and decided to try and get a framework agreement in place at sub-regional level.  Senior officials of the four countries met in January 2015 and put final touches to a draft MVA for the BBIN sub-region (essentially along lines of the draft SAARC MVA that had aborted earlier at the summit, and declared that others in the SAARC region (or beyond) could join as and when they were ready.  On June 15, 2015, at a Ministerial meeting convened in Thimphu by Bhutan, the Ministers concerned from the four countries signed the BBIN MVA. Trial runs for passenger and cargo vehicles commenced in November, and Standard Operating Procedures tested and completed by end-December 2015.  It allows the four signatory countries to move forward with implementation of land transport facilitation measures amongst themselves, exchanging traffic rights easing greatly the rites of passage across borders crossings by passenger and cargo vehicles, thus promoting increased people-to-people contacts, trade and economic exchanges between the four countries.  The framework document signed is, ab initio, of a bilateral nature in practice, on the basis of reciprocity.  For every vehicle one country allows another co-signatory to enter its territory, makes it incumbent upon the recipient country to reciprocate in equal measure.  Passengers will still be subject to prevailing immigration requirements of countries and goods are subject to payment of taxes and levies as exist. Nevertheless, this is a very positive and historic development within the region, and paves the way for progressive easing of restrictions on ease of movement of vehicles, goods and peoples across the borders of the four countries. The BBIN MVA will become fully operational as soon as ratified by the respective parliaments of the signatory states.

BIMSTEC and BBIN

India’s earlier “Look East” policy, now metamorphosed by current Prime Minister Modi’s government into the “Act East” initiative, may be viewed as mirroring ASEAN’s “Look West” aspirations and is aimed to link up with the latter and beyond to East Asia. The BBIN sub-grouping of SAARC and its recent efforts to put in place and operationalize enhanced connectivity amongst them is an essential first step towards actually operationalizing the “Act East” initiative. The BIMSTEC (Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation), that was formed in the late nineties, and includes the BBIN countries as well as Sri Lanka, Myanmar and Thailand, could well also embrace the ongoing BBIN initiatives and play the bridging role between the SAARC and ASEAN regions.  The progression along this pathway has been slow but organically enlarging. The BBIN achievement could not have happened without the upswing in Bangladesh-India relations since 2010 that put in place the critical stepping-stone for forging forward.  In other words, it first required Bangladesh and India getting their relations right before meaningful connectivity aspirations, between and beyond them could be envisaged or embarked upon.

Road and Rail Corridors

ESCAP, ADB and other multilateral donors had assisted the SAARC countries over many years, to identify a number of road and rail corridors to facilitate trade and movement of people.  The BBIN MVA will (or should effectively) enable these four countries to now work together with a sense of purpose for operationalizing, in stages, the following identified road corridors, first among them and then extending beyond them to the east and linking with Myanmar (and thence with the ASEAN corridors);

SAARC Corridor 4: Kathmandu (NP)-Kakarbita (NP)-Panitanki (IN)-Phulbari (IN)- Banglabandha (BD)- Mongla-Chittagong (BD)

SAARC Corridor 8: Thimpu (BH)-Phuentsoling (BH)- Jaigon (IN)- Changrabandha (IN)- Burimari (BD)- Mongla/Chittagong

Asian Highway 2: NE India- Myanmar

Kaladan Multi-Modal Transit Transport Project: Mizoram (Mobu)-Sittwe (Myanmar)

Additionally, Bangladesh and India are collaborating on linking up existing national highways at Dalu (Meghalaya, India)-Nakugaon (Mymensingh, Bangladesh) – thus establishing a North-South corridor of great importance for Bhutan and the NE states of Meghalaya  and Assam in India.  Bhutan, in addition, has been increasingly using the ICP at Dawki-Tamabil for the last few years, using less the corridor earlier designated for them (Corridor 8), because of operational difficulties and delays experienced by them. Bangladesh and India have also worked together to upgrade earlier minimal facilities at Bhomra, further south-east of Benapole-Petrapole in a bid to augmenting capacity of the latter, plagued for long by technical and handling capacity glitches.

The operationalization of the BBIN MVA will also exponentially augment the ability of peoples of the four states traveling to each others’ countries in personal or commercial transport vehicles.  It may be mentioned here that prior to this development, passenger bus services as follows:

Kolkata-Dhaka-Agartala (operational)

Dhaka-Sylhet-Shillong-Guwahati (operational)

Dhaka-Kathmandu (announced)

Dhaka-Thimphu(announced)

Figure II: Road and Rail Routes between India and Bangladesh

South Asia Rail Corridors:

The BBIN MVA takes the long nurtured dream of road-connectivity a significant step closer to reality.  The translation of contemplated railway corridors from concept to reality, however, is still work in progress, incrementally. Of the Rail Corridors, existing or contemplated, for the SAARC region, the following are worth mentioning:

Western sector

Eastern sector

Wagah-Atari (linking India and Pakistan – notably, this particular corridor was never disrupted in last over six decades, four wars notwithstanding; but this is essentially a point-to-point connection, and trains from either country do not foray further west or east beyond these two stations into each others’ railway network).

Dhaka-Chittagong (internal to Bangladesh)

Dhaka- Darsana- Khulna (internal to Bangladesh)

Dhaka-Kolkata (operational between India and Bangladesh, point-to-point, as at Wagah-Atari, for several years now, but needs to be made more passenger-friendly in terms of customs and immigration procedures)

Khulna-Kolkata, (under active consideration between Bangladesh and India)

Agartala-Akhaura (work in progress, with Indian assistance, will link Bangladesh with Tripura State of India)

Agartala-Ramu(requested by Agartala state, under consideration, will require a bridge over Feni River which India is willing to build)

Notably, if the points between Kolkata and Agartala route are linked, either preferably with through trains of both countries or through transferring passengers with national services at destination points, the current travel distance between these two cities will be shortened from1590 kms to 499kms.

Following the decisions announced by the Prime Ministers of Bangladesh and India in their Joint Communiqué at the conclusion of the former’s game-changing visit to India in January 2010, the two sides have cooperated on upgrading, synchronizing and operationalizing existing facilities between Rohanpur-Singabad (facilitating transit to Nepal) and at Radhikapur-Birol (that will help both Nepal and Bhutan)

Additionally, a SA-SEA rail Corridor of4,430 kms Kolkata-Ho Chi Minh City corridor is also under consideration, but remains mainly on the drawing board at present. However, daunting impediments remain to realizing this dream, mainly hugely higher costs with more extensive gaps (2,493 kms of missing links) that require to be connected over somewhat difficult terrain in places, and incompatibilities of railway track gauges between different national grids.  The challenges to the entire Trans-Asian Railway project are even more daunting, with 10,500 kms missing links.  Transshipment costs between regions are also costly.

Considering the diversity in the terrain in different regions and locations, perhaps the best approach would be to adopt an organic approach and configure the corridors and linkages in a manner that best appear to be in consonance with geo-morphology of different terrain. In the northeast of India and in parts of Bangladesh, for example, the foothills of the Himalayas are composed of relatively soft clay-like soil, and roads are very expensive and extremely difficult to maintain throughout the year.  Unplanned construction of roads across hilly terrain, cutting hills and leaving naked the sides shaved without buttressing them, in combination with constant vibrations from heavy road traffic and increasingly frequent cloudbursts make many of the new arterial roads unusable for months. Extending existing railway links are also beset by multiple challenges, particularly where water bodies, hugely large and extensive, dominate much of the landscape.  Northeast India, and Bangladesh and West Bengal, prior to the Partition (and even until the mid-sixties) were always water-linked perennially.  The rivers systems had constituted the arterial system, with the railways akin to the venous system, while the roads, large and small, whether primary, secondary or tertiary, not unlike the human body’s circulatory system. We need to rethink connectivity corridors to be in synch with the diversity of the terrain that supports multi-modality of transport rather than uniformity.

Additional Augmenting Corridors

India and Bangladesh, and even Bhutan are now keen to reviving national waterways to augment national highway, in consonance with geo-morphology. Where national waterways can be linked (and the Eastern Himalayan Rivers, the Ganges and the Brahmaputra essentially are trans-national rivers), they can easily be transformed into becoming sub regional or regional waterways.  Conceptually, one could then conceive of the Lower Brahmaputra Basin network linking Bhutan, Assam and Meghalaya (India) and Bangladesh, while the Ganges Basin network could act as water corridor connecting Nepal, India and Bangladesh.

Bangladesh and India have recently entered into a direct Maritime Shipping Agreement and also signed a Coastal Shipping Agreement.  They could be expanded to embrace BIMSTEC countries, with Sri Lanka, Myanmar and Thailand also joining, thereby adding another dimension to the transport corridors between South Asia and Southeast Asia regions.

Air Corridors within South Asia and between South and Southeast Asia are still VERY inadequate.  In the eastern sub region of SAARC, Paro in Bhutan, Kathmandu in Nepal, only Kolkata and Guwahati in West Bengal and Northeast India, and Dhaka, Chittagong and Sylhet in Bangladesh are designated International airports.  Bangladesh has offered to develop Saidpur or Ishwardi as possible gateways for Bhutan and Nepal.  Airlines in the region need to more seriously consider and explore a sub-regional “Hub and Spoke” concept. A major impediment to this is the narrow and extremely conservative approach of airlines: that there is not sufficient passenger traffic to justify extra connections.  This begs the question: if there are no easily available connections, where will the traffic come from?

Other Corridors

Energy corridor

Ready and adequate availability of energy is the key to development. Without fuel, the engine of the state cannot run far.  All South Asian countries are deficient in power supply, whether for domestic, industrial or agricultural use, and still very heavily dependent on thermal power from using coal and hydrocarbons.  This, despite there being nascent capacity to generate anywhere between 70,000 mW to 100,000 mW of hydro power in Northeast India, (in addition to large capacity for generating thermal power as well), almost equal capacity of hydropower generation in Nepal, and 27000 mW in Bhutan.  The latent hydropower in the northeast is largely hostage to lack of incentives for investment, since evacuation of power from that region to the Indian national grid across Indian territory is extremely limited (15000 mW at most), unless Bangladesh were to agree to offer itself as a conduit – which it has now offered, in return for power for itself.  A petroleum product pipeline from Numaligarh refinery to Parbatipur is under active consideration, as is the evacuation of power from the NE to Muzzafarnagar via Bangladesh.

Indian and Bangladesh grids are now being linked in the eastern, western and northern sectors of Bangladesh that could open up vast new vista of cooperation, putting in place. The power grids of Bhutan and India are also linked, as are those of Nepal with India.  These three grids could eventually be triangulated to form a sub-regional grid. Eventually, an interlinking sub-regional grid of symbiotic interdependence would emerge, that would guarantee long term energy for the sub-region, and beyond, and fuel the engines of growth and development for the peoples of this sub-region.  Conceptually, with the still untapped reservoirs of power in Myanmar, the energy corridors could link the two regions dynamically in helping each other fuel their respective economies even more deeply. Were the 3-nation gas pipeline project between Myanmar, Bangladesh and India, aborted in the mid nineties, to be revived, the concept of energy corridors between SA and SEA would acquire dynamic new substance.  The main challenge to converting this concept into reality for the political leaderships is to recognize the need to cooperate in their own larger national interests, to begin with, that would then enlarge and converge into shared trans-regional prosperity.

IT Corridor

In an age today where IT dominates the power of acquiring new knowledge and research, but where bandwidth shortage can be a real impediment to vaulting national ambitions, the idea of also having an IT corridors, sharing bandwidth has now also come of age. Bangladesh happens to possess more bandwidth than it can domestically consume now, by virtue of its sea cable link acquired from Singapore. So it is exporting some of it to the -NE India, with the IT gateway in Agartala connecting Tripura to Cox’s Bazaar through Akhaura. In a sense, an IT corridor has already been established by this deal between the two regions.  One foresees further, steady expansion in this field as well.

Major challenges

While waxing eloquent on all these ambitious trans-regional linking soaring with visionary ambitions, one must at the same time keep one’s feet on the ground.

We must keep in mind that financing such cross-regional infrastructure projects always tend to pose major challenges, primarily being risk prone (subject to a complex mix of problems), mostly stemming from politics, whether domestic or regional being at cross-purposes.  Therefore, historically, there is a tendency to great wariness resulting in financing vehicles being bearish rather than bullish.  Public sector financing also tends to be increasingly constrained due to fiscal challenges to national economies.  Commercial financing has also been seen to be constrained by successive global financial crises.  In such shaky situation perhaps the best bet would be to take recourse to bond markets, and encouraging more public-private partnerships.

Having a large vision for the future

Improving trade & transport facilitation between the two regions would undoubtedly make trading between these regions easier and more stable, while also lowering transaction costs.  But this first needs to be done more within the South Asian countries, where the infrastructure in place is abysmally inadequate and of poor quality when compared with what exists in the Southeast Asian region. Each South Asian state has a daunting challenge to cope with within its own national perimeter. What is a challenge within domestic context is MORE of a challenge in regional/sub-regional context.  Therefore, it is absolutely essential that peoples, across borders in both regions must view potential gains from such cooperative linkages as being perceptively large for both regions to wish to pursue this worthwhile goal wholeheartedly.

This article was originally published in GP-ORF’s ‘Emerging Trans-Regional corridors: South and Southeast Asia.

Selected References:

Anasua Basu Ray Chaudhury, Pratnashree Basu, Mihir Bhonsale, “Driving Across South Asian Borders: Motor Vehicles Agreement Between Bhutan, Bangladesh, India and Nepal”, ORF Occasional Paper # 69, September 2015.

Connecting South Asia and Southeast Asia, A joint study of ADB and ADBI, 2015.

“India, Nepal, Bhutan and Bangladesh Sign a landmark Motor Vehicles Agreement for seamless movement of road traffic among Four SAARC Countries in Thimphu”, Press Release, Press Information Bureau, Ministry of Road Transport & Highways, Government of India, 15 June, 2015.

Jean-Francois Gautrin, “Connecting South Asia to Southeast Asia: Cross-Border Infrastructure Investments”, ADBI Working Paper, No. 483, ADBI, May 2014.

Mustafizur Rahman, Khondaker Golam Moazzem, Mehruna Islam Chowdhury,

and Farzana Sehrin, “Connecting South Asia and Southeast Asia: A Bangladesh Country Study”, ADBI Working Paper, No. 500, ADBI, September 2014.

��Through Bangladesh, a development shortcut for Northeast”, The Indian Express, November 30, 2015.

Wignaraja, Morgan and Plummer, “The case for connecting South Asia and Southeast Asia”, Asia Pathways, ADBI blog, May 2015.

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