Trade Dispute With India Brings Economic Crisis : Nepalese Bracing for a ‘Grim Year’

The menu was the simplest in more than two centuries at the royal banquet Thursday night as His Majesty King Birendra Bir Bikram Shah Dev and his deeply troubled Himalayan kingdom ushered in the Nepalese New Year.

Few guests drove to the traditionally lavish function; most had to walk, because this year there has been no gasoline even for their limousines.

“We are taking it as a very grim year ahead of us--not an auspicious one at all,” said a senior official close to the king. “In fact, we were going to cancel all New Year’s Day functions this year, but the astrologers felt it was very unlucky to make such total sacrifices on the first day of the year.”

Astrology aside, the beginning of the year 2046 on the Nepalese calendar is not one of celebration for Nepal’s 17 million citizens. A trade dispute with India that began March 23 has closed 13 of 15 land routes into the country and touched off critical shortages of gasoline, cooking oil, medicine, baby food and such staples as salt.

A Struggle for Survival

For Nepal, a nation the size of North Carolina that ranks as the world’s sixth poorest, the crisis has ballooned into a struggle for survival against what it pictures as an insensitive regional power that once was its closest ally.

It has fueled a burgeoning nationalist movement here and provided propaganda material for some of India’s other neighbors, whose media accuse South Asia’s most powerful country of bullying.

As the crisis deepens--with peasants stoically waiting in lines for a few quarts of kerosene for cooking, and with heart and diabetes patients nearing death for lack of vital drugs--independent economic analysts and many Nepalese are beginning to ask, “At what price?”

“The Nepalese are saying, ‘We’re going into a period of intense discomfort. Yes, the economy will decline--but we can emerge from that stronger both politically and economically at the end of the ride,’ ” said one independent economic expert here.

“They may be stronger in the political sense,” he added, “but in the economic sense, I am not so sure.”

Economic Depression Foreseen

The Nepalese are suffering severe shortages of many goods. But that is only the beginning.

Experts say the trade stoppage initially will thrust Nepal into a near-total economic depression. This year’s growth rate, which had been expected to be as high as 5%, could now be as low as zero. Inflation will probably soar from a projected 8% to as high as 20%. And government revenues will drop sharply. All this in a nation where the average annual income is $160 a person.

Some of Katmandu’s banking community privately fear bank runs, and businessmen are worrying about bankruptcy.

The long-term picture is even bleaker: Nepal, which is self-sufficient only in beer, cigarettes and a handful of food items, had hoped to earn its economic independence through hydroelectric power, its greatest national resource.

But the projects that are planned to harness it for export will not be completed until early next century, and the only obvious market for the electricity is India.

“Hydroelectric export to India is Nepal’s only real way to achieve economic independence,” one Western economist in Nepal said. “The potential earnings run into several hundred million dollars a year. But for that to materialize, there has to be a strong, close relationship with India.

“A badly ruptured relationship could well be a short-term statement of sovereignty, but a long-term disaster.”

Echoing that theme, officials in India have warned that Nepal has far more to lose than India, whose $200 million in annual exports here represents just 2% of its exports.

‘Theater of the Absurd’

“What the hell are they trying to prove?” demanded one senior Indian official. “If it’s sovereignty you want . . . well, if you destroy yourself in the process, what kind of sovereignty is that? It’s the theater of the absurd, if in the process of asserting your independence, you destroy your entire nation.”

In an effort to prevent that from happening, Nepal is rallying global support for its position. When the crisis began, King Birendra hired a Washington-based public relations firm as an adviser. Foreign journalists have been welcomed and senior Cabinet ministers have been made available for interviews.

This week, the royal government announced a policy that reduces tariffs on essential imports from all nations to make them equal to the terms it offers India, which had been Nepal’s largest and most favored trading partner.

The background to the Indo-Nepalese dispute is complex: On the surface, it revolves around two recently expired treaties in which Nepal and India had, for decades, granted each other highly preferential trade terms, and India had agreed to provide transit access for goods going in and out of Nepal.

But the trade issue is only the climax to the larger, long-simmering dispute, in which Nepal fears that it could be simply co-opted someday by India, in the same manner as nearby Sikkim, a former protectorate pressured by New Delhi into giving up its last vestiges of independence in 1974.

Arms Purchase Worries India

For its part, India’s principal concern has been Nepal’s purchase last year of troop trucks and anti-aircraft guns from China, with which India has fought one war and remains estranged despite recent attempts at normalization.

“If the Himalayas were to the south of Nepal, rather than to the north, everything would be different,” the Indian official said. “It is a fact of geography that India’s security interests necessarily involve Nepal’s security relationship with China.”

Nepal has insisted that the arms purchases were strictly for defensive purposes, that it had the right to acquire the arms “to guard against terrorist attacks from within” and that it never imagined the purchase would anger the Indians.

But several Nepalese officials and diplomats privately conceded that it was meant as a signal to New Delhi that Nepal also must remain close with its huge northern neighbor, with which it has had a history of good relations.

Nepal’s position was perhaps best stated by its first king, Prithvinarayan Shah, when he founded the kingdom in 1762.

“This kingdom,” he declared, “is like a yam sandwiched between two stones. Maintain very friendly relations with the Chinese emperor. Also maintain friendly relations with the emperor of the sea of the south. But remember, he is very shrewd.”

In an interview this week, Foreign Minister Shailendra Kumar Upadhyaya indicated that Nepal is still walking a diplomatic high wire between the two big powers.

But his comments on India were among the strongest ever for a high-ranking Nepalese official. “Nepal is not only a landlocked country, it is an India-locked country,” he said. “And if there are some people in India who think the muscle-flexing will create a positive image for India, they are mistaken. Even a small country . . . will resist a policy based on muscle-flexing.”

Although the Nepalese crisis has provided valuable fodder for India’s enemies and a rallying point for King Birendra to build nationalist support, Nepalese concede that the price inevitably will be high--far higher than simply cutting back on this week’s New Year celebrations.

“The public so far has been so forthcoming in their support, but the question is, how long will that last?” asked a palace aide. “There is no doubt the government must be careful about this. There is a lunatic fringe out there.”

He referred to radical Maoist student groups that rioted in Katmandu last week. As a precaution, the government closed all universities for two months and in some cases even supplied the students with bus fare back to their villages.

Reflecting on his nation’s crisis, one Nepalese restaurant owner said, “Clearly, the nationalism and emotionalism are there. At the moment, they are all largely pro-government and anti-India. But whoever comes along to harness that--including the student radicals--wins all.

“Are the risks worth it? I’m not so sure. If you live with reality, it means you have to live with India.”