Skanda Purana’ has a separate volume known as ‘Nepal Mahatmya’, which explains in more details about the beauty and power of Nepal.
Nepal is also mentioned in Hindu scriptures such as the Narayana Puja and the Atharva Siras (800-600 BC).
Around 1000 BC, small kingdoms and confederations of clans arose in the region.
From one of these, the Shakya confederation, arose a prince named Siddharta Gautama (563–483 BC), who later renounced his royalty to lead an ascetic life and came to be known as the Buddha ("the enlightened one").
The 7th Kirata king, Jitedasti, was on the throne in the Nepal valley at the time.
By 250 BC, the region came under the influence of the Mauryan empire of northern India, and later became a vassal state under the Gupta Dynasty in the fourth century AD. In the fifth century, rulers called the Licchavis governed the majority of its area.
There is a good and quite detailed description of the kingdom of Nepal in the account of the renowned Chinese Buddhist pilgrim monk Xuanzang, dating from c. 645 AD.
Indo-Nepalese relations particularly economic relations can be traced back to ancient times.
Kautilya (400 B.C.), great economist of that time, mentions Nepal as the principal exporter of woolen goods.
Increased trade activities were seen between northern India and Nepal during the golden age of Guptas (beginning in 320 A.D.)
During the Nepal-Tibet war of 1791, the East India Company proposed a 7-clause treaty under which imports and exports of goods between India and British India would be subject to 2.25 per cent customs duty.
A peace treaty of Sugauli in 1816 enabled the British to enter the Nepalese markets. In the early days, foreign trade of Nepal was limited mainly with India and Tibet.
Nepal’s trade with India continued till 1923 without having a trade agreement with British India.
Prior to the signing of this trade agreement, British East India Company was interested to have trade relations with Nepal, for expansion of its own exports.
The opening of direct India -Tibet route via Gyantse routes further promoted Nepal to develop trade with India.
Moreover, the development of good transportation system and the creation of many trade centers in the northern India further helped to enhance the trade turnover between Nepal and India.
Prior to 1950s, India and Tibet were the major trade partners of Nepal. Virtually, the country had a closed economy.
The signing of Treaty of Peace and Friendship, and Treaty of Trade and Commerce between Nepal and an independent India in July 1950 can be seen as the landmark towards the external trade of Nepal.
Treaty of Peace and Friendship 1950 formalized close relations between the two countries.
This Treaty can be seen as a non-reciprocal treaty. The Treaty symbolizes a balanced document and served for more than five decades to keep harness between the two countries.
Formal trade relation between the two countries was established in 1950 with the signing of the Treaty of Trade. This Treaty was modified and renewed in 1961 and 1971, and incorporated provisions regarding transit facilities extended by India for Nepal’s trade with a third country, as well as on cooperation to control unauthorized trade.
Duty free access to Nepalese imports on a non-reciprocal basis was first given in 1971 but with a Nepalese/Indian material content requirement of 90 per cent. This was gradually reduced when the Trade Treaty was periodically renewed and in 1993, it was brought down to 50 per cent of Nepalese/Indian material content and Nepalese labor content.
In 1978, instead of a single Treaty, three different agreements were signed. These treaties were modified significantly in 1991, after the advent of democratic government in Nepal.
India signed two treaties on trade and transit with Nepal in 1991.
Indo-Nepal Treaty of Trade 1991 made the provisions of extending substantial concessions. The Treaty of Trade, valid for five years, was revised and renewed through an exchange of letter on 3rd December 1996.
The Treaty was renewed in December 1996 for a further period of five years with the provisions for further periods of five years, at a time, by mutual consent subject to such modifications as may be agreed upon.
The Protocol to the India -Nepal Treaty of Trade was renewed with some modifications in February 2002. The Treaty of Transit, 1991 came up for renewal in December 1998 and following bilateral talks, a renewed Transit Treaty was signed on January 5, 1999.
The renewed Treaty contains liberalized procedures of the transit of the Nepalese goods. The Government of India accepted Nepalese request for “automatic renewal” of the Treaty for further seven-year periods. However, the Protocol and Memorandum to the Treaty, containing modalities and other would be subject to review and modification every seven years or earlier if warranted.
The Nepalese request for an additional transit route to Bangladesh via Phulbari was accepted 28 in June 1997. Operating modalities for the transit were accordingly worked out. And, the route was operationalised from 1 September 1997.
A review of the working of the route was held in March 1998 at Commerce Secretary-level talks in Delhi when several relaxations of the operating modalities requested by the Nepalese were agreed to. These included Nepalese request to keep the route open on all days of the week.
The visit of Prime Minister G.P. Koirala to India one month after the restoration of multi-party democracy in Nepal saw India extend a comprehensive package of assistance to help Nepal tide over immediate financial needs and support peace, democracy and stability.
A comprehensive economic package worth Rs.1000 crores was announced during the visit.
A soft credit line of USD 100 million for infrastructure development projects was extended, and outstanding dues on defence purchases worth NRs. 1.6 billion waived.
Government of India also agreed to doubling the number of GOI scholarships for Nepalese students and to supply of 25,000 metric tons of fertilizers to Nepal at subsidized prices.
PM Pushpa Kamal Dahal ‘Prachanda’ paid an official visit to India from 14-17 September 2008, and met President, Vice President, Prime Minister, and External Affairs Minister as well as Chairperson of UPA and the Leader of Opposition.
A Joint Press Statement was issued at the conclusion of the visit, reiterating the special features of the bilateral relationship and committing both sides to work towards further improving relations.
India agreed to implement the Naumure hydro-electric project on Rapti river besides the Rs. 20 crores assistance for Kosi breach relief. Credit of up to Rs 150 crores was also provided to GON to ensure uninterrupted supplies of petroleum products.
We have also permitted export of 10,000 tonnes of wheat and 15,000 tonnes of rice to Nepal, along with lifting of ban on other food items. PM Prachanda visited India again from November 12-14, 2008 to attend the BIMSTEC Summit.
The Foreign Minister of Nepal, Sujata Koirala visited India from 5-10 August 2009 where she held fruitful discussions with their counterparts.
Foreign Secretary of India visited Nepal on 14-15 September 2009 to exchange views on the future course of cooperation between the two countries.
Prime Minister Madhav Kumar Nepal paid an official visit to India from August 18 – 22, 2009 at the invitation of the Prime Minister of India.
The two leaders had also met earlier on the sidelines of the XVth NAM Summit in Sherm-el-Sheikh, Egypt. The two Prime Ministers expressed their satisfaction on the age-old, close, cordial and multifaceted relations between Nepal and India and agreed to expand them further.
India expressed full support for the ongoing peace process and the efforts to bring about economic transformation in Nepal. The two Governments decided to reinvigorate bilateral relations by ensuring effectiveness of all established institutional mechanisms.
The two sides also agreed to enhance bilateral trade on a sustainable basis.
To facilitate Nepalese foreign trade, India agreed to utilization of Vishakhapatanam port for movement of transit traffic to and from Nepal.
A MoU was signed for continuation of Indian grant assistant for “Goiter Control Programme” in Nepal.
Nepal assured India that it will not allow its territory to be used for any activity against India and India also gave the same assurance to Nepal.
A number of projects with Government of India assistance with a total outlay of over Rs. 1600 Crores were agreed upon including, construction of National Police Academy in Nepal, construction of poly-technique at Hetauda, construction of two integrated check-posts, construction of 660 kilometres of roads in the Terai region, construction of two cross-border rail-lines and continuing provision of Indian faculty to B.P. Koirala Institute of Health Sciences, Dharan.
The two Governments also agreed to take up preventive measures and consultations to address the problem of inundation to border areas between Nepal and India.
The Government of India also agreed, in principle, to double the number of scholarships offered to Nepalese students and to increase the number of slots offered for training of Nepalese Government officials.
The two sides also agreed to facilitate increased Indian public and private sector involvement to harness Nepalese hydro-power potential.
It was also decided to cooperate bilaterally in areas such as culture, science and technology, tourism and sports and to facilitate contact and cooperation among the parliamentarians of the two countries.
The validity of the Treaty has been increased from five to seven years, along with the provision of automatic extension for further periods of seven years at a time. This will provide more stable framework for bilateral trade and promote investments in Nepal based on preferential access provided by the Treaty to Nepalese products.
No discrimination will be made in respect of tax, including central excise, rebate and other benefits to exports merely on the basis of payment modality and currency of payment of trade. This will bring the bilateral trade conducted in Indian Rupees at par with trade in convertible currency and will end the existing mechanism of Duty Refund Procedure (DRP) which was procedurally cumbersome. It will provide Nepal a direct control on the customs duty revenues on import of manufactured goods from India. It will also allow Indian exports to avail benefit of export promotion schemes prevailing in India, making these products more competitive for further sale or value addition in Nepal. (This change would be made effective from the date to be mutually agreed to. Modalities will be developed for smooth transition from the existing to the new system.)
The time limit for temporary import of machinery and equipment for repair and maintenance has been raised from 3 to 10 years.
Several new items of export interest to Nepal have been added to the list of primary products giving these items duty free access to India without any quantitative restrictions. These include floriculture products, atta, bran, husk, bristles, herbs, stone aggregates, boulders, sand and gravel.
Criterion for calculating value addition for gaining preferential access to India has been changed from ex-factory basis to FOB basis.
India has agreed to consider waiver, on request from GON, of any additional duty that may be levied over and above CVD.
Both sides have agreed to exempt exports of goods, which are already covered under forward contract, from imposition of restrictions on exports.
Both sides will grant recognition to the sanitary and phyto-sanitary certificates issued by the competent authority of the exporting country based on assessment of their capabilities.
Articles manufactured in Nepal, which do not fulfill the criteria for preferential access will be provided MFN access to the Indian market. The certificate of origin in case of such exports has been prescribed.
The provisions regarding safeguard measures in case of serious injury to the domestic industry have been streamlined.
A joint mechanism, comprising local authorities has been established to resolve problems arising in clearance of perishable goods.
An Inter-Governmental Sub-Committee (IGSC) at the joint secretary-level has been established. Existing Inter-Governmental Committee (IGC) at the Secretary-level will meet once in six months and the IGSC will meet at the interval of the two IGC meetings.
Four additional Land Customs Stations (LCSs) will be established to facilitate bilateral trade: Maheshpur/Thutibari (Nawalparasi); Sikta-Bhiswabazar; Laukha-Thadi; and Guleria/Murtia, bringing the total number of Stations to 26.
Bilateral trade will be allowed by air through international airports connected by direct flights between Nepal and India (Kathmandu/Delhi, Mumbai, Kolkata and Chennai).
The Indian side has agreed to review and simplify the existing administrative arrangements for operationalisation of fixed quota for acrylic yarn, copper products and zinc oxide.
India has agreed to consider several additional products as wholly produced or manufactured in Nepal for the purpose of gaining preferential access to the Indian market. It includes articles collected in Nepal fit only for recovery of raw materials and waste and scrap resulting from manufacturing operations in Nepal.
India has agreed to assist Nepal to increase its capacity to trade through improvement in technical standards, quarantine and testing facilities and related human resource capacities.
Duty free access to each other’s primary products as per agreed list.
Nepalese manufactured products are allowed non-reciprocal access to the Indian market, free of basic customs duty, provided the goods are manufactured with Nepalese and/or Indian inputs. If third country inputs are used, at least 30% value addition is required to attract duty free access.
Annual quotas for duty free access in respect of four items – vegetable fats (100,000 tons) acrylic yarn (10,000 tons), copper products (10,000 tons) and zinc oxide (2,500 tons);
MFN access for three items – cigarettes, alcohol (excluding beer) and cosmetics with non-Nepalese and non-Indian brands
Goods manufactured by small scale units in Nepal enjoy the same benefits as SSIs in India with regard to tax exemption
Designates twenty two points on India-Nepal border for bilateral trade.
