India's emphasis on safe harbor software development and research in information technology poses a challenge to the Nepali market, and tax exemptions increase the risk of skilled labor migration, but Nepali startups have the opportunity to use India's cheap cloud infrastructure.
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Despite its separate relations with India, Nepal has been allocated a low budget in the budget for the fiscal year 2026/27, said Sunil KC, president of the Nepal-India Chamber of Commerce and Industry (NIKCI). Speaking at an interaction on ‘Indian Government Budget and the Benefits and Challenges Nepal Can Take’ organized by the Society of Economic Journalists of Nepal (SEJON) recently, KC said that he will lobby to increase the budget allocated for Nepal in the coming days.
‘India-Nepal relations are people-to-people, culture-to-culture, and world-class. In that regard, it seems that the budget allocated to Nepal is low,’ said KC, ‘We will ‘lobby’ to increase the budget in the coming days.’
Stakeholders have said that the Indian government’s encouragement of the information and technology sector through the budget for the fiscal year 2026/27 could have both positive and negative impacts on Nepal. CA Sheshmani Dahal said that since India has emphasized safe harbor software development and research in information technology, it could pose a challenge to the Nepali market.
India has granted tax exemptions to foreign companies providing global cloud services through data centers in India through the budget until 2047. He says that although the tax exemption increases the risk of skilled manpower fleeing Nepal, Nepali startups will have the opportunity to use India’s cheap cloud infrastructure.
While Nepal is seeing opportunities in the IT sector, Dahal says that if India changes its policies and regulations all at once, it seems that those who come to Nepal can also go to India. ‘Those who work in the IT sector will be brought to Nepal. "It is a competition to take those who come to Nepal to India,' he said. 'Since India has given many discounts and facilities, now it is a question of whether those who come to Nepal will also go to India.' He said that good facilities have been provided in software development, information technology enabled services, research and development, etc. Dahal believes that Nepal can benefit from the provisions in the Indian government's budget in the fields of agriculture, tourism, cloud services and others. 'India has allocated 1.63 lakh crore rupees in the agricultural sector and has emphasized technology and high-value crops. However, if India reduces subsidies on fertilizers, the retail price of fertilizers may increase, and fertilizers like urea and DAP that Nepali farmers unofficially import may become expensive, increasing farmers' expenses,' he said. Dahal said that the development of technology in India's agricultural sector can facilitate the availability of cheap seeds and modern agricultural equipment in Nepal. Due to the large subsidies and technology received by Indian farmers, their products will be cheaper, which will also pose a risk that Nepali farmers will not be able to compete with Indian products in their own market.'
India's policy of making the digital customs process completely digital and paperless within two years will reduce delays at the border and provide relief to both Nepali importers and exporters, Dahal said. "India has announced seven new high-speed rail corridors through the budget, which will facilitate logistics at border trade hubs with Nepal," he said.
Nepal's export industry will be further stabilized and expanded as the Indian government has set a target of seven percent growth in GDP through the budget, KC said. He said the budget will have a positive impact on production, employment and export earnings in Nepal.
India's increase in its public capital expenditure to Rs 12.2 trillion will make Nepal-India trade easier, cheaper and more competitive by improving infrastructure and logistics, he said. He also mentioned that both countries can benefit in sectors including health, tourism, AYUSH schemes, education.
‘India’s expansion and modernization are both opportunities and challenges for the country, we believe that the provisions in the budget will open doors of opportunity for the supply of goods produced in Nepal and human resources,’ said KC.
KC also said that informal trade should be controlled by 90 percent. ‘Since there is an open border, informal trade is more in Nepal, the government should control it. Until that happens, domestic entrepreneurs cannot compete,’ said KC.
Dahal also said that production costs in the border market may increase as India has reduced subsidies on chemical fertilizers. ‘India has cut the amount allocated for chemicals and fertilizers, which means that production costs may increase when they are coming to Nepal from India informally in the border markets,’ he said. ‘There is a possibility that the amount of fertilizers may increase. It has not been announced, so it is not possible to say how much it will increase or decrease.’
They say that India has put forward a policy of exempting taxes on raw materials and imposing taxes on finished goods. Taxes have also been reduced on materials used in electric vehicles and mobile phone parts. Dahal estimates that although the vehicles will not be smuggled, there will be competition between vehicles coming from China and vehicles coming from India.
