Export vs Import Growth Gap: Can Nepal Narrow the Trade Deficit?

Published on September 24, 2025

Nepal’s external trade data from FY 2082/83 (2025/26) shows encouraging signs of export revival, but the sheer scale of imports means the trade deficit remains entrenched. Exports nearly doubled by 95.7% year-on-year in mid-August 2082/83, reaching Rs. 23.9 billion. This follows an 81.8% surge in FY 2024/25, reversing years of decline. In contrast, imports grew by a more modest 11.4% year-on-year in mid-August 2082/83, after rising 13.3% in FY 2024/25. Despite this slower pace, imports still totaled Rs. 143 billion by mid-August—six times larger than exports.

The gap highlights Nepal’s structural challenge. While export growth is accelerating, the absolute size of the import bill dwarfs export earnings, ensuring that the trade deficit remains wide. Nepal relies heavily on imports of petroleum products, vehicles, machinery, electronics, and industrial raw materials—goods that cannot be easily substituted in the short term. Meanwhile, exports remain concentrated in low-value items such as garments, carpets, tea, and handicrafts, alongside emerging contributions from hydropower.

The sustainability of narrowing the deficit depends on two factors:

Export diversification and value addition – Hydropower exports to India and potential IT and agro-processing sectors can shift Nepal’s export structure beyond traditional items. Without such diversification, high growth rates may not be sustained.
Import composition – If import growth continues to be dominated by consumer and luxury goods, the deficit will persist. But if imports increasingly reflect capital goods and machinery for investment, they could support long-term productive capacity, indirectly helping to narrow the gap.

Currently, the trade deficit is being masked by strong remittance inflows (Rs. 177 billion by mid-August 2082/83) and a resulting current account surplus (Rs. 78.1 billion). This means Nepal’s external stability is secure in the short run. However, unless domestic production strengthens and exports expand into higher-value sectors, the export–import gap will remain the defining feature of Nepal’s trade balance.

Policy Lessons from India: Can Nepal Control Inflation More Effectively?

India has kept inflation relatively moderate through strong agricultural systems, buffer stocks, and inflation-targeting policies, while Nepal has historically struggled with food-driven volatility. Nepal’s CPI fell below India’s in 2025/26 for the first time in four years, but to sustain this trend, Nepal must strengthen supply chains, adopt buffer policies, and set clearer inflation targets.

Inflation Convergence in South Asia: What Nepal-India CPI Data Reveals

Nepal and India’s inflation rates, once far apart, have gradually converged—Nepal’s CPI dropping from 7.74% in 2022/23 to 1.68% in 2025/26, while India’s remained steadier around 2–5%. For the first time in four years, Nepal’s inflation fell below India’s, highlighting both shared regional cycles and unique domestic vulnerabilities.

Nepal vs India: Monthly CPI Comparison and Regional Economic Impact

Nepal’s inflation fell to 1.68% in August 2025/26, below India’s 2.07%, reversing a four-year trend. While both economies share similar seasonal inflation cycles, Nepal’s sharper food-driven spikes contrast with India’s steadier, monsoon-driven patterns. Regionally, this convergence impacts household costs, trade competitiveness, and economic stability.

Inflation Gap Narrows: Nepal’s Deviation with India Falls to -0.39% in 2025/26

In August 2025/26, Nepal’s CPI stood at 1.68%, lower than India’s 2.07%, with the inflation deviation dropping to -0.39% for the first time in four years. While Nepal gained from falling food prices, India’s inflation stayed higher due to agricultural pressures, though both countries continue to face rising service costs.

Cross-Border Inflation Trends: How Nepal and India’s Prices Move Together and Apart

Nepal and India’s inflation trends usually move in sync, reflecting shared regional and global factors. But in August 2025/26, Nepal’s inflation (1.68%) fell below India’s (2.07%) for the first time in four years, thanks to easing food prices in Nepal, while India faced higher agricultural pressures.

Nepal vs India Inflation 2025/26: Why Nepal’s CPI Fell Below India’s for the First Time

In August 2025/26, Nepal’s inflation dropped to 1.68%, falling below India’s 2.07% for the first time in four years. While food price declines drove Nepal’s slowdown, India’s inflation held slightly higher due to agricultural pressures. However, Nepal’s service costs remain a long-term challenge, even as headline CPI looks favorable.