Nepal has plunged into a grave political crisis after Gen Z–led protests over a social media ban and anger at corruption erupted into violent clashes, leaving hundreds injured. Curfews, army deployment,
and attacks on leaders’ homes followed, forcing PM KP Sharma Oli and key ministers to resign.
Amidst this turmoil, the border between Nepal and India has been temporarily closed, leading to long queues of trucks, including hundreds of oil tankers that transport fuel between the two countries daily.
Nepal relies entirely on India for its petrol and oil supply, which, despite being expensive in India, is sold much cheaper in Nepal. The same applies to electricity, which is also supplied by India.
The primary reason for the lower prices in Nepal is the minimal tax and cheaper supply chain, unlike India, where heavy taxes inflate the costs.
For the past 75 years, India has been a lifeline for its neighbour, acting as Nepal’s largest trading partner and supplying essential goods at very low rates, with petrol and petroleum products at the forefront.
India meets 100% of Nepal’s oil needs through the Indian Oil Corporation (IOC). Despite Nepal considering China as an alternative source, the costs proved to be too high. India built an oil pipeline to Nepal and began sending oil through it to ensure a steady supply.
Nepal Has Consistently Received Oil Supplies
The state-run Nepal Oil Corporation, established in 1970, is wholly dependent on India’s supply and distribution system, with no private companies allowed to import oil from other sources. Daily, trucks from India deliver a large amount of essential goods to Nepal, including hundreds of oil tankers.
Hundreds of Oil Tankers and Pipelines Reach Nepal Daily
Indian Oil Corporation (IOC) is Nepal’s key partner, meeting its fuel needs and handling supply and distribution in border areas. Large numbers of IOC tankers cross into Nepal daily.
A significant portion of Nepal’s transport infrastructure relies on roadways, with only a 60 km train line, making the oil supplied by India crucial.
To further facilitate oil supply, a 69 km pipeline between Motihari and Amlekhganj was inaugurated last year, simplifying the process.
Nepal Oil Corporation purchases 71,673 kilolitres of oil from India annually, comprising about 28% of the goods exported from India to Nepal.
Oil Prices Lower In Nepal Than In India
The lower cost of oil in Nepal often leads to Indians living near the border filling their vehicles with the cheaper fuel. The Nepal government imposes very low taxes on petrol, sometimes fixing rates or subsidising them to keep prices stable. In contrast, India imposes heavy taxes, accounting for 40-50% of the petrol price. Despite the weaker Nepalese currency, the main reasons for the price difference are tax and supply chain costs, leading to petrol in Nepal being Rs 20-27 per litre cheaper than in India.
Rate At Which Nepal Receives Electricity
India sells electricity to Nepal at Rs 3.5 to Rs 5 per unit, a rate lower than Nepal’s domestic hydropower costs, making India a more affordable and reliable power source.
India’s Massive Investment In Nepal
India’s large-scale investment in Nepal remains substantial, despite China’s rapid investment. Indian companies provide numerous jobs in Nepal, with two-thirds of Nepal’s goods coming from India. In addition to petroleum products, India also contributes a significant amount of money to Nepal in the form of pensions.
India Sends Huge Sums To Nepal As Pensions
A large number of people from Nepal work in India, particularly in the army and across various other sectors. The 1952 treaty between India and Nepal allows Nepalese citizens to work and buy property in India, although this privilege is not reciprocated.
65% Of Nepal’s Trade Is With India
India is Nepal’s largest trading partner, with 65% of Nepal’s total trade conducted with India. In the 2021-22 fiscal year, Nepal’s imports from India reached Rs 1.20 trillion, a record high. However, Nepal has since tried to reduce its dependence. In the financial year ending July 2023, its imports from India fell to Rs 1.02 trillion.
India is also the largest importer of Nepalese goods. According to World Top Exports, of the 92.6% of Nepal’s products exported in 2017, 56.7% went to India, 11.2% to the U.S., 6.4% to Turkey, 3.9% to Germany, 3.4% to the U.K., and just 3% to China.
What Does India Export To Nepal?
The main goods exported from India to Nepal include motors, cars, other vehicles and spare parts (7.8%), steel (7%), medicines (3.7%), machinery (3.4%), and electrical equipment (2.7%). In addition, a variety of other equipment is also sent to Nepal.
What Goods Does Nepal Export?
Nepal exports jute products (9.2%), zinc steel (8.9%), textiles (8.6%), thread (7.7%), polyester yarn (6%), juice (5.4%), cardamom, wire, toothpaste, and pipes to India.
India’s role in Nepal’s economy has always been significant, with many Indian companies setting up large projects in the past two decades, providing thousands of jobs annually. Additionally, a large number of Nepalese work in India. If India were to withdraw its support, it would be a significant setback for Nepal.
