Lack of funding, spending and coordination have hindered South Asia’s integration affecting the region’s economic growth, experts at the BYD Nepal Infrastructure Summit 2024 which began in Kathmandu on Thursday (September 12) said.

In a panel discussion titled ‘Regional Infrastructure and Integration: Discussing regional infrastructure initiatives and their role in promoting regional integration and economic growth’, speakers highlighted the need for Nepal to strategically invest in infrastructure development to take advantage of its neighbours achievements.

South Asia is the least integrated area in all the regions across the world in terms of trade and connectivity, said Shankar Sharma, former ambassador to India.

In his keynote speech, Sharma, also the former vice chair at the National Planning Commission, pointed out the investment gap in the region. 

“The financing gap in South Asia is probably the highest compared to any region in the world,” said Sharma. “At present, the gap is around 5.7% of the GDP, while the total requirement is 8.8% of the GDP.” 

The region lags behind in terms of intra-country trade as well.

Intra-country trade in South Asia is less than 6%, while that among the ASEAN countries is 30%, East Asian countries is 35% and European countries is more than 60%, according to Sharma.
While the cold relations between India and Pakistan have affected the region , India, with its size, population, achievements and goals, have become the key for the improvement in regional partnership and connectivity, he added.

While the topic of partnership has always been neglected in the region, Sharma argued that India has in recent years focused on developing infrastructure with enhancing connectivity, commerce and people to people contact with its neighbours. 

Speakers highlighted lack of infrastructure in Nepal, adding that declining capital budget as well as government’s spending capacity have emerged a major concern.

Last fiscal year, the government spent only 63.47% of the allocated capital budget. 

“We need more investment from the private sector and multilateral funding agencies,” Sharma added.

The Asian Development Bank (ADB) has provided Nepal USD 2.5 billion since 2001, under South Asia SubRegional Economic Cooperation (SASEC) programme, said Soumya Chattopadhyay, Senior Programs Officer, India Resident Mission, ADB.

SASEC, which brings together seven countries including India, Nepal, Bangladesh, Sri Lanka, Bhutan, Maldives and Myanmar, has four operational priorities – transport, trade facilitation, energy and economic corridor development, according to Chattopadhyay.

Sharma and Chattopadhyay stressed that Nepal needs to develop a strategy to develop its railways and inland waterways and use its neighbours’ railways and river network to get access to the ports.

Chattopadhyay informed that ADB has been studying India, Bangladesh, Bhutan and Nepal railway connectivity, adding that Nepal, meanwhile, needs to think about developing the western part of the country by connecting it to the western coast of India. It would boost Nepal’s economy and create a new regional value chain.

The country also needs to augment its connectivity and improve processes to connect to India and the outer world in light of its LDC graduation, Chattopadhyay added.

Nepal is set to graduate from a least developed country (LDC) status by 2026.

Sharma informed that besides the Kathmandu-Raxaul railway line, connecting Ayodhya and Janakpur through a railway has also been under discussion. 

Nepal can benefit from the three routes of inland waterways originating in Kolkata, according to Sharma.

The delivery through the Kolkata-Varanasi-Raxaul, Kolkata-Sahibganj-Raxaul and Kolkata-Kalighat-Raxaul routes will significantly lower transportation cost.

The existing charge through waterways per tonne per km is INR 1, compared to INR 1.64 through railways and about INR 2.58 through roadways, according to Sharma.

Much of Nepal’s third country import is through the Visakhapatnam, Kolkata and Haldia ports.

While goods from Vizag are brought to Nepal through roadways, that from Kolkata is brought via railways and roadways.

Another speaker on the panel, Kulman Ghising, managing director at the Nepal Electricity Authority, said existing infrastructure supports transmission of  around 2000 MW of electricity between Nepal to India. And with the completion of ongoing projects, the country will have the capacity to transfer more than 15,000 MW of electricity in the next five or six years.

Ghising added that NEA plans to export 5000 MW of electricity to Bangladesh alone in the next 10 years.

With India developing roads and other infrastructure connecting neighbours, Sharma argued that Nepal could even export electricity to Sri Lanka and Myanmar in future.

Speakers also highlighted the contribution of Integrated Check Posts (ICPs) in trade facilitation.

While three ICPs – in Bhairawa, Birgunj and Nepalgunj – are currently in operation, two more are under construction.

ICPs among the countries in the region will help reduce illegal trade, increase revenue and facilitate trade, speakers said.

In 2023, transportation of goods from ICP Raxaul to Kolkata via roads and railways used to take 357.12 and 234 hours, respectively, said Chatupadhya, citing a recent Indian Customs Record. It has been brought down to 300 and 201 hours, respectively, in 2024.

“There is a similar effect in imports,” he added.

However, Rajan Sharma, former president of Nepal Freight Forwarders' Association said that logistics service providers face a lot of challenges due to lack of laws and coordination among authorities within and beyond the borders.

“We don’t have a fret forwarders law or warehousing act yet,” said Sharma, claiming that the inputs given by consultants are often difficult to implement in lack of laws and regulations.

Sharma also questioned if the said trade facilitation has been felt at the ground level. 

Sharma also urged the need to make BBIN more effective.

Similarly, Bo Lingam, Group CEO of AirAsia Aviation Group, Malaysia, highlighted the importance of affordable air carriers in fostering connectivity.

“The future of aviation in Nepal and Asia rests upon strategic investments that foster collaboration among all stakeholders,” said Lingam. “By drawing inspiration from successful models like ASEAN, and embracing a unified vision, Nepal and South Asia can be developed into a world class aviation infrastructure that is resilient, competitive and sustainable.”

Minister for Physical Infrastructure and Transport Devendra Dahal,  who chaired the session, accepted the delay in completion of infrastructure projects, citing difficulties following the Covid pandemic.

The ministry has formed a committee to study the problematic projects, especially the road ones, and asked the contractors to do the same.

“We will seek solutions after studying both reports,” said Dahal.

The panel discussion was moderated by Khadga Bahadur Bisht, executive director, MCA-Nepal.

The two-day summit is being jointly hosted by the Ministry of Physical Infrastructure and Transport and the Confederation of Nepalese Industries (CNI).