It seems that Kathmandu’s dreams to shun India and trade through China are acquiring some traction. The question is whether its ambitions are grounded in existing trade and business realities.

A May 24 article in China’s state-sponsored Global Times sheds some perspective on Beijing’s proposed rail connectivity to Nepal.

The article says Beijing is expected to extend the rail link to the Nepal border at Rasuwagadhi by 2020. It sought Kathmandu’s participation in extending the rail connectivity to India through Nepal’s industrial capital of Birgunj, bordering Raxaul railway junction in Bihar.

“The railroad connection to China not only is important for Nepal and Nepalese people’s future development but also has the capacity to build connectivity with the whole of South Asia. The government of Nepal has the chance to make history,” it said.

Clearly, all this is part of China’s soft diplomacy to create the ground for ‘One Belt One Road’ (OBOR), which has received a cold response from Delhi. Armed with international support, India is now geared to build its cross-country road and rail connectivity through the east and north-east. 

However, the issue is whether trade opportunities justify the rail project, as claimed by Beijing. The viability of the grand Nepalese dream of trading through China is also open to question.

Costly freight

First, considering the technological challenges, building such a railway track across the tallest mountains of the world would be very costly indeed. This is over and above the steep environmental and socio-economic challenges to be faced especially by Nepal which doesn’t enjoy the luxury of one-party rule. The Chinese railway line has now reached Shigatse in Tibet. From here, it has to cross a crucial 564-km stretch in the high altitude region to reach the Nepal border for a further journey across the Himalayas.

Globally, there is no history of container freight movement at such high altitudes. (The movement of bulk commodities, say iron ore, is out of the question due to environmental issues.) The technical challenges will further determine the carrying capacity of the track and the cost of such transportation.

Taking the inter-continent rail freight from Zhengzhou (China) to Hamburg (Germany) — across a 12,000-km stretch — as a benchmark, the cost of such freight between India and China could be up to four times sea freight.

China-Europe trade is sustaining this high cost in the interest of top German auto companies sending spares for expensive cars in 17-18 days less time than sea freight. Rail freight here is competing with costlier air cargo and is helping the European carmakers to serve the Chinese market better. The return consignment from China, mostly engineering items, is still inadequate.

Not in India’s interest

The scene is different with India-China trade. While China’s manufacturing zone is located near the south-east coastal region, the major Indian consumption (and production) zones are located along the coast in the south and west.

Given the low magnitude of trade between India and China, and China and Nepal, it barely makes sense to bring this cargo through a costly rail route covering half the distance between China and Europe. Going by the recently inaugurated rail-truck cargo transfer mechanism between China and Nepal, goods imported at Guangzhou cross 3,000 km to Lanzhou in the northwest for another 3,000 km travel to Nepal.

The $70-billion Indo-China trade is heavily tilted in China’s favour. Beijing can take the rail route to send export cargo but the wagons will, most likely, return empty as a minuscule Nepalese trade ($1 billion in exports and $7 billion in imports), even if fully transferred to China, is not enough to make it viable.

Further, Indian export cargo (ores and minerals, cotton, petrochemical products, etc) is mostly non-containerised, whereas Chinese exports (electronic and electric products, machinery, chemicals, fertilisers, iron and steel, plastics etc) compete on price arbitrage.

Most important of all, it is questionable if the Indian consumer, say in Bihar, will find such imports cheap as against the sea cum 700-km rail movement from Kolkata. Only a change in trade dynamics can improve the competitiveness of the rail route.  Optimists refer to the Chinese plan to build industries in Tibet. But they forget that the ongoing slowdown may force many changes in such plans.

Upgrading Indian infra

 A closer look at the Global Times article reveals that China is harping on the inefficiency of Kolkata port to attract Nepalese cargo.

Sea freight from China to Kolkata — though it comes cheap at $700-$900 for a 20-foot container — takes 21 to 30 days due to transfer to feeder vessels at Singapore. The transfer of cargo from Kolkata to Birgunj takes as much as three weeks, making it equally costly.

China says the rail-road option through the country can cut travelling time by 35 days. It means the total travelling time of cargo from the port to the Nepal border is pegged at 7 to 16 days.

There is no denying that India urgently needs to improve its port and rail infrastructure at Kolkata. The Railways should explain why it takes seven days to cover 700 km to Birgunj. The proposed deep seaport near Kolkata may be of help; but till that comes, shifting Nepal operations to the privately run seaport at Dhamra, in Odisha, should help.

But there is little that the rail project can offer in terms of facilitating India’s trade with Nepal. Nepal’s misadventure

Due to geography, Nepal’s manufacturing sector is located in the southern plains, in close proximity to Indian road and railheads in Uttar Pradesh, Bihar and West Bengal. Seventy per cent of exports are directed to India, mostly within a 500-km radius, taking advantage of the preferential duty.

It is naive to expect the business to dump this market. Nepalese business says the current rail-road freight through Rasuwagadhi is unsuitable for transfer of heavy cargo, and is costly due to the high altitude and longer distance from consuming centres. There is also a dearth of trade infrastructure on either side.

The scene will not change much even if a Chinese railhead reaches the Nepal border and Kathmandu improves the road to Rasuwagadhi. Traditionally, less than 10 per cent of Nepal-China trade was routed through the existing Chasa-Tatopani border that was seriously damaged in the earthquake. In future, the Rasuwagadhi border may take Tatopani’s share and open opportunities for the trade of consumables, especially food items, between Tibet and the Kathmandu valley.

But all these caveats are unlikely to be taken seriously by the communists in Kathmandu and their propaganda machine. After the China dream, Prime Minister KP Oli has come out with his next agenda — of owning Nepalese ships that will anchor at Chinese harbours.

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