Question

The trade activities of Nepal are mostly centered with India, causing a huge gap in the balance of trade. Suggest any three appropriate measures to minimize the trade deficit with India.

a) Diversify trade partners, invest in domestic industries, promote exports.
b) Increase dependence on India, reduce domestic production, import more goods.
c) Ignore the trade deficit, focus on other economic indicators.
d) Implement stricter trade restrictions with India.

Answer 1

To minimize Nepal's trade deficit with India, the advisable actions are to diversify trade partners, invest in domestic industries, and promote exports. These measures could make Nepal's economy more robust and its exports more competitive on the global market.

Step-by-step explanation:

To address the question of how to minimize the trade deficit with India, one must consider various economic strategies. Among the options provided, the most viable measures would likely be:

• Diversify trade partners to reduce dependence on a single market and broaden the export base.
• Invest in domestic industries to enhance the competitiveness of local goods, ultimately increasing exports.
• Promote exports by identifying competitive sectors and supporting them through policy interventions and incentives.

These strategies align with lessons learned from other countries facing similar issues. For instance, India's lifting of investment restrictions for domestic savers is an initiative that may contain their current account deficit. Additionally, improving domestic capital markets to facilitate access to capital can empower entrepreneurs, bolstering economic activity and potentially increasing exports.

Countries that have historically faced trade deficits, such as Colonial India, emphasize the importance of such measures. It illustrates that balancing high levels of trade with macroeconomic stability is crucial for sustainable economic growth.