Kathmandu: Due to fears of losing market share caused by US President Donald Trump’s tariff policy, garment and carpet industrialists from three countries, including neighbouring India, have shown interest in investing in Nepal.
Recently, the United States imposed a 50 percent tariff on India, 20 percent each on Bangladesh and Vietnam, and 10 percent each on Nepal and Bhutan. Because of these tariffs, exports of garments, carpets, herbs, pashmina, and other items from India, Bangladesh, and Vietnam to the US will become significantly more expensive.
When exported from Nepal, however, these same goods will be much cheaper compared to India, Bangladesh, and Vietnam, leading those countries to show interest in investing in Nepal’s garment, carpet, footwear, and herbal industries.
According to Pashupatidev Pandey, President of the Nepal Garment Industry Association, large Indian industrial houses have recently been directly visiting Nepal to bring in investment. Indian industrial groups have begun holding direct, in-depth discussions with Nepali garment and carpet industrialists.
Pandey said that Indian industrialists affected by Trump’s tariff policy are rushing to Nepal. He noted that due to the American policy, Nepal now has the chance to become a manufacturing destination for products like garments and carpets.
“Because of the US tariffs, the cost of exporting garments and carpets from India will rise sharply, so they are coming to Nepal. Just two days ago, around 200 Indian industrialists and investors had already arrived,” Pandey told Clickmandu. “After the heavy tax on India, Indians have been drawn towards Nepal,” he said.
According to him, Indian industrialists and investors coming to Nepal are discussing two modalities: bringing in direct foreign investment (FDI) and expanding the production capacity and machinery of existing Nepali industries, while also providing advanced training to workers.
Due to the American policy, Nepal now has the chance to become a manufacturing destination for products like garments and carpets.
“Currently, Indian industrialists are arriving in large numbers, meeting directly with Nepali industrialists, and discussing these two modalities—either bringing in FDI to operate industries directly in Nepal or expanding existing industries to enhance production capacity and quality. Discussions are ongoing, but no final decision has been made,” Pandey said.
Kishor Nepal, President of the Local Garment Producers’ Association, also stated that Indian industrialists and investors have increased their interest in Nepal’s situation.
According to him, last week some Indian industrialists discussed not only garments and carpets but also footwear, sports equipment, jewellery, and furniture production before returning to India. Because of the recent American policy, exports of such goods from India and Bangladesh to the US will become very costly, prompting Indian investors to see Nepal as a cheaper alternative.
He added that Indian industrialists are discussing bringing FDI directly into Nepal and also outsourcing orders to existing Nepali industries to produce garments and carpets. Global brands like Puma, Nike, Zara, and Gap have expressed interest in carrying out partial production in Nepal.
“They discussed bringing FDI to Nepal and outsourcing production to Nepali industries according to demand. They also talked about helping upgrade raw materials and equipment needed for this,” said President Nepal. “Their plan is to export these products to the US with a Nepali tag.”
According to him, even if the US lowers tariffs on India from 50 percent to 29 percent, Nepal will still benefit significantly.
“Nepal is in a win-win situation. Whether the rate remains at 50 percent or is reduced to 29 percent, Nepal will still gain. If the government wishes, Nepal can cash in on America’s tax policy and secure major export market success,” Nepal added.
Pandey also revealed that, in addition to India, Bangladeshi and Vietnamese industrialists and investors have recently been flocking to Nepal. Since American tariffs have hit their export markets, Nepali garment and carpet industrialists have started upgrading their industries.
“As industrialists from other countries come to discuss investing in Nepal, additional demand has also been coming from American buyers. In response, local industrialists have begun upgrading their industries. Some have expanded their plants’ capacity, while others have started providing advanced training to workers. Many have also hired more workers,” Pandey said.
Balram Gurung, President of the Nepal Carpet Manufacturers and Exporters Association, stated that Indian industrialists and buyers have recently been visiting Nepal to explore carpet production. They are discussing giving direct orders to Nepali carpet industries to produce high-quality carpets under the Nepali tag and even investing as partners.
“However, nothing is finalized yet. There are also reports that the US court has struck down Trump’s tariffs, and uncertainty remains about whether these tariffs will stay or be lifted. This doubt has left Indian investors and buyers hesitant,” Gurung said.
According to him, the US already had an 8 percent tariff on carpet exports, which has now been raised to 58 percent for India.
Meanwhile, labour costs in Nepal are among the highest in South Asia. With labour and transportation, the total production cost in Nepal reaches 30 percent.
“Even with these costs, carpets produced in Nepal can still be exported to the US at a much cheaper price than from India. India exports carpets worth about 300 billion Indian Rupees annually to the US. If Indian investors come to Nepal, Nepal could capture a significant share of the US carpet market,” Gurung added.
Most carpets produced in Nepal are exported to the US. In the last fiscal year, Nepal exported carpets worth Rs 5.69 billion (314,764 square metres) to the US. About 200 carpet industries are operating in Nepal.
Similarly, garments worth Rs 9 billion were exported to the US, with around 500 garment industries in Nepal—mostly in Kathmandu, but also in Biratnagar, Birgunj, Butwal, Bhairahawa, Itahari, and Birtamod.
From Nepal, the main exports to the US include carpets, dog chew treats (chhurpi), felt, various types of garments for men and women, and textiles.
Of total US imports, 5.8 percent of garments and 83 percent of carpets come from India.
Shashikant Agrawal, Director of Reliance Spinning Mills, one of Nepal’s largest export industries, also said that the government should encourage investment from India and Bangladesh in Nepal’s garment and carpet industries.
“Trump’s policy has brought Nepal a huge opportunity. If Nepal fails to seize it on time, such an opportunity may never come again,” Agrawal said. “Investment from India and Bangladesh in Nepal’s garment and carpet industries will also directly benefit Nepal’s yarn industry.”
From Nepal, the main exports to the US include carpets, dog chew treats (chhurpi), felt, various types of garments for men and women, and textiles.
He explained that with the growth of the garment industry, local yarn industries will be able to supply raw materials, increase their capacity, and create more jobs.
“The arrival of garment industries means achievements across multiple sectors. Garment industries can provide employment to large numbers of people. With their entry, yarn and tailoring industries will also get huge opportunities,” Agrawal said.
Currently, four major yarn industries—Jyoti Spinning, Jagdamba Spinning, Triveni Spinning, and Reliance Spinning—are operating in Nepal with an investment of about Rs 25 billion.
About 30 percent of their total production is sold in the domestic market, while 70 percent is exported to India and Turkey. If garment industries enter Nepal, up to 70 percent of the yarn could be consumed domestically, Agrawal said.
Such garment industries could produce for both domestic demand and the international market, helping reduce Nepal’s trade deficit through increased exports.
“If we can welcome Indian and Bangladeshi investors with a red carpet, we can provide employment to at least one million people domestically,” Agrawal said.
He added that Nepal would also earn significant foreign currency by exporting garments and carpets in large volumes.
Before the amed insurgency in Nepal, Nepal’s garment and carpet industries were thriving, but they collapsed due to the war. Afterward, Bangladesh and India’s garment and carpet industries rose and became globally recognized.
Two decades ago, Nepal had 1,200 garment industries, with Rs 6 billion invested and 400,000 direct jobs provided. Today, only about three dozen remain, many struggling.
“In 2001/2002, Nepal exported garments worth US$ 380 million, but now exports are only around US$ 50–60 million,” said Pandey, President of the Garment Producers’ Association.
Nepali garments collapsed after international criticism for using child labour, allowing Bangladesh and India to dominate the global market.
Inquiries for financing expansion have already begun, say bankers
Bankers say some Nepali entrepreneurs have already inquired about financing to expand their capacity. Especially after the US increased tariffs on Indian goods, Nepali businesses believe they will benefit.
Everest Bank Deputy General Manager Keshav Raj Paudel said that if Trump’s tax policy remains stable, some businesses want fast-track loans for importing machinery and expanding capacity to increase exports.
Sudesh Upadhyaya, Senior Deputy CEO of NMB Bank, said Nepali garment entrepreneurs have been informally discussing potential gains and risks from expanding capacity after India’s tariff hike.
“There’s no immediate rush to open LCs for machinery imports. Since the US has been imposing and lifting tariffs on China repeatedly, entrepreneurs are uncertain about how long tariffs on India will last,” Upadhyaya said. “One shoe industry, however, has increased inquiries at the bank. But most industries are still in wait-and-watch mode.”
Nepali garment entrepreneurs have been informally discussing potential gains and risks from expanding capacity after India’s tariff hike.
Sanima Bank CEO Nishchal Raj Pandey also said that due to uncertainty about whether the tax policy is temporary or permanent, there is no surge in investment. Exporters to Europe may expand slightly, but without clarity on permanence, large new investments are unlikely.
“Even if machinery is imported now, it could take a year before production begins. By then, the US tariff policy might change. That uncertainty is preventing immediate investment,” he added.
Everest Bank’s Paudel also noted some discussions on expanding garment industry capacity in Nepal.
Nepal risks becoming a carrier of Indian goods
Due to Trump’s policy, many Indian garments and carpets are stuck and unable to be exported to the US.
According to Kishor Nepal, President of the Local Garment Producers’ Association, there is a risk that Indian exporters may illegally re-export these goods to the US with fake Nepali tags. If that happens, even legally exported Nepali goods could face obstacles.
Garment, producers, and carpet associations in Nepal have already drawn the government’s attention to this risk. US authorities have also formally informed Nepal’s Ministry of Industry, Commerce, and Supplies about the need to stay cautious.
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