Import Growth Rebounds After Contraction: Impact on Trade Balance

Published on September 24, 2025

Nepal’s import dynamics have shifted notably in FY 2082/83 (2025/26), marking a rebound after two consecutive years of contraction. Imports had declined by -16.1% in FY 2022/23 and -1.2% in FY 2023/24, reflecting subdued domestic demand, tighter liquidity, and government restrictions on luxury goods. However, by FY 2024/25, imports rose by 13.3%, and in the early months of 2082/83, they continued to grow by 11.4% year-on-year, reaching Rs. 143 billion by mid-August.

This rebound suggests that economic activity is regaining momentum. Rising imports of intermediate and capital goods indicate renewed demand for industrial production and construction projects, while consumer imports highlight recovering household spending as inflation has eased to 1.68% by mid-August 2082/83. The import surge also reflects easier foreign exchange conditions, with reserves climbing to over USD 20 billion, giving Nepal space to finance higher imports.

The impact on the trade balance, however, remains mixed. While export growth has been exceptionally strong—nearly doubling by 95.7% in early 2082/83—imports still far exceed exports in absolute terms. For example, exports totaled only Rs. 23.9 billion by mid-August compared to imports of Rs. 143 billion, keeping the trade deficit wide. Nonetheless, the overall external sector position has improved significantly due to robust remittance inflows (Rs. 177 billion by mid-August) and a stronger balance of payments (BOP surplus of Rs. 89.3 billion).

In essence, while higher imports reduce the immediate gains from export growth, they also signal reviving domestic demand and investment activity, which are necessary for longer-term growth. The key policy challenge is to ensure that import growth is tilted toward productive goods—like machinery and raw materials—rather than consumption-heavy or luxury items that widen the deficit without creating future capacity.

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.