The Economy of Nepal
India and Nepal: An Open Border and a Pegged Currency
Nepal and India share an open border, and the Nepali rupee has been pegged to the Indian rupee since 1993, tying the two economies closely.
India is Nepal’s dominant partner.
Open border
People and goods move freely, and many Nepalis work in India.
Peg
1 Indian rupee equals 1.6 Nepali rupees, a link that gives stability but limits monetary independence.
Trade
India is the source of most imports and the main market for exports, leaving Nepal with a large trade deficit.
Transit
Nepal gets access to the sea through Indian ports such as Kolkata and Visakhapatnam.
A fuel supply
Nepal buys most of its petrol and diesel from India via pipelines and tankers.
Assuming a pegged currency is always beneficial
It limits policy freedom.
Key takeaways
- The border is open.
- The rupee is pegged to India's.
- Nepal runs a big trade deficit.
- India provides sea access.
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