Nepal’s ongoing Gen-Z protests, triggered by a sweeping social media ban and fuelled by economic frustrations, have already disrupted business operations, border activities, and governance. For India, which is Nepal’s largest trading, investment, and development partner, the unrest is more than a passing storm. It underscores a recurring risk that must be factored into trade strategy.
India and Nepal may share history, culture, and people-to-people ties, but beneath the impressive statistics of cross-border commerce lies a troubling imbalance: Nepal’s persistent trade deficit with India. The challenge for New Delhi is not just about fixing numbers, but about building a sustainable economic relationship that supports Nepal’s growth while reinforcing India’s leadership in the region.
By incorporating resilience into our economic engagement through diversified supply chains, robust infrastructure, and inclusive growth, we can ensure that bilateral commerce can withstand future political turbulence rather than be derailed by it.
The current trade picture
The scale of India-Nepal trade is substantial and growing. In fiscal year 2022-23, bilateral merchandise trade reached NPR 1134.53 billion, with Nepal importing goods worth NPR 1027.84 billion and exporting just NPR 106.69 billion. India alone accounted for 64.1 per cent of Nepal’s total trade volume. In the first half of fiscal year 2024-25, Nepal’s trade deficit with India already stood at NPR 237.45 billion.
For the full fiscal year 2023-24, Nepal imported goods from India worth NPR 996.68 billion, while exports amounted to only NPR 103.17 billion, confirming a significant trade deficit. India’s exports to Nepal in 2024 were valued at $ 6.95 billion, led by mineral fuels ($ 2.19 billion), iron and steel ($ 700.6 million), machinery, vehicles, electronics, cereals, plastics and pharmaceuticals. This is not a trivial dependence.
India supplies nearly all of Nepal’s petroleum, two-thirds of its merchandise trade, about a third of its services trade, and remains a dominant source of foreign direct investment and remittances. Nepal’s external trade deficit is cushioned somewhat by remittances from its diaspora, but the structural imbalance is hard to ignore.
The promise of energy
Yet, within this imbalance lies an opportunity. Nepal’s immense hydropower potential—estimated at over 40,000 MW of economically feasible capacity—has begun to change the story. In June 2025, Nepal made its first-ever electricity export to Bangladesh, supplying 40 MW via India’s transmission grid, alongside an 80 MW supply to Bihar. This milestone came after a tripartite agreement in October 2024, facilitated by India, that opened new avenues of regional power trade.
India has committed to purchasing up to 10,000 MW of hydropower from Nepal within the next decade. The Arun-3 project alone, at 900 MW, exemplifies the scale of the ongoing collaboration. A recent study suggests that if electricity exports were scaled effectively, Nepal’s GDP could rise to Rs. 13,100 billion (approx. $ 120 billion) by 2045 – about 39 per cent higher than without such trade. Power trade avenues could soar from Rs 310 billion in 2030 to Rs 1,069 billion by 2045.
For India, importing clean energy from Nepal strengthens its renewable energy portfolio and aligns with its commitments under the Paris Agreement. Conversely, for Nepal, the export of energy products offers a realistic path to reducing its trade deficit and building long-term fiscal resilience.
The current turmoil also points to a new dimension of trade vulnerability: digital disruption. With Facebook, WhatsApp, and other platforms blocked, Nepal’s MSMEs and exporters are cut off from essential communication and marketing tools. If the 20th century was about building transmission lines and roads, the 21st century would be about safeguarding digital corridors. For India and Nepal, this means implementing digital freedom, strong internet infrastructure, and cross-border e-commerce frameworks into trade policy. Doing so would protect bilateral commerce from future vulnerabilities while empowering the very young people who are now demanding change.
Challenges that persist
However, turning this vision into reality requires addressing several persistent challenges.
Primarily, the sheer structural dependence of Nepal on Indian imports, ranging from petroleum to cereals, poses vulnerabilities. Any disruption, whether stemming from global price shocks or bilateral frictions, holds the potential to paralyse Nepal’s economy.
Second, the infrastructure deficit remains daunting. The development of high-capacity transmission lines, logistics corridors, and integrated border facilities is crucial for the expansion of both energy and goods trade. The current infrastructure capacity is inadequate to support the projected 10,000 MW power flow.
Third, non-tariff barriers and regulatory delay, including inefficiencies in customs procedures, testing protocols, and gaps in data sharing, continue to hamper the seamless flow of trade. For smaller Nepali exporters in agriculture, handicrafts, and textiles, these frictions make accessing Indian markets prohibitively difficult.
Also read: Corruption, nepotism, and a hit-and-run—how Gen Z anger spilled onto Nepal’s streets
A forward-looking agenda
The question now is, how can India and Nepal move from dependence to shared prosperity?
Build a regional energy ecosystem
India must fast-track grid interconnection projects, enabling reliable two-way power flows across borders. A dynamic pricing framework for electricity trade could align supply and demand while ensuring fair returns. Projects such as Arun-3 must be complemented by medium-sized, decentralised hydropower and renewable projects that integrate seamlessly into India’s grid.
Promote industrial integration
India and Nepal could jointly establish border-area special economic zones (SEZs) dedicated to agro-processing, textiles, and renewable-energy equipment. Such clusters would allow Nepal to export value-added products rather than raw materials, while giving Indian industries access to lower-cost labour and resources.
Digitise trade flows
Creating a digital trade corridor, with mutual recognition of standards, automated customs clearance, and e-commerce linkages, would allow Nepal’s micro, small, and medium enterprises (MSMEs) to access India’s vast consumer market directly.
Facilitate investment and mobility
Streamlined visa regimes, targeted tax incentives, and joint financing platforms could accelerate Indian private investment in Nepali industries. Tourism, IT services, and education exchanges should be deepened alongside goods trade.
Green and inclusive value chains
The two countries should collaborate in the development of sustainable industries, such as jute, bamboo, handicrafts, solar panels, and batteries, where both demand and comparative advantages exist. Establishing connections between Nepali producers and Indian processors holds the potential to multiply incomes at the grassroots level.
India-Nepal trade is often reduced to mere statistics concerning deficits and dependence. However, the true narrative lies in the potential for transformation. The hydropower revolution alone possesses the capacity to redefine Nepal’s macroeconomic trajectory while supplying India with clean energy. Industrial integration could generate cross-border jobs and exports. Furthermore, digitisation and regulatory reforms could make the trade corridor as seamless as the cultural one. Although the current trade balance is unsustainable, it need not remain so indefinitely.
The ongoing protests in Nepal are a reminder that economic linkages cannot survive on physical infrastructure alone. They must focus on social legitimacy, youth engagement, and digital connectivity. If India and Nepal treat the current unrest as a catalyst, they can actually design a partnership that would not encompass moving goods and electricity but also empower people. The next chapter of India-Nepal trade should therefore be remembered not for blockades or blackouts, but for a shared vision where commerce and trade are resilient, inclusive, and future-ready.
By investing in energy cooperation, industrial linkages, and sustainable value chains, India and Nepal can transform their economic relationship from a narrative of dependence into one of shared prosperity and regional leadership. This transformation is imperative for the future of South Asia.
Bidisha Bhattacharya is an Associate Fellow, Chintan Research Foundation. She tweets @Bidishabh. Views are personal.
(Edited by Ratan Priya)