Nepal is pressing India to remove safeguard duties on select steel products after the levy knocked more than Rs 10 billion off its export earnings, underscoring how dependent the Himalayan economy remains on market access to its much larger neighbour.
Nepal Presses India to Cut Steel Safeguard Duties
The issue is economically important because India absorbs more than 60% of Nepal’s foreign trade and remains the main outlet for Nepali industrial exports. When New Delhi imposed safeguard duties on selected steel products for three years — 12% in the first year, 11.5% in the second and 11% in the third — it did not just add a tariff line. It sharply weakened Nepal’s ability to compete in its most important market, triggering a 62.43% fall in iron and steel exports in fiscal 2025-26 to 6.14 billion Nepalese rupees from 16.35 billion a year earlier, according to Nepali trade data cited by local media.
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For investors, the immediate impact is not on listed Nepalese steelmakers, which are scarce, but on the wider cross-border trade ecosystem: exporters, logistics operators, input suppliers and any business relying on frictionless India-Nepal commerce. The episode also reinforces a broader lesson for regional supply chains. Even a relatively narrow safeguard measure can ripple through a small economy where one buyer dominates demand, compressing volumes, narrowing margins and forcing producers to cut output or absorb the tariff themselves.
The talks in New Delhi show both sides are trying to keep the dispute contained. Nepal raised the matter at an inter-governmental sub-committee meeting on Sept. 16-17, arguing that duties on a least-developed country are unfair and have hurt exports of cold-rolled steel coils, aluminium-zinc coated sheets, plastic-coated sheets and stainless-steel household products. India said trade remedy measures are governed by legal and investigative procedures, but agreed to seek further information and continue technical-level discussions through the Directorate General of Trade Remedies.
That leaves the door open to a compromise, though not necessarily a quick one. Safeguard duties are designed to protect domestic producers from import surges, so India is unlikely to reverse course without a formal review. Nepal’s best-case outcome is a carve-out, exemption or quota arrangement that restores some market access. The bearish case is a prolonged standoff that keeps Nepali exports under pressure and deepens the trade deficit, which already widened to 951.95 billion Nepalese rupees.
For India, the upside is protection for domestic steelmakers against lower-cost imports from neighbouring producers. The downside is diplomatic friction with a close trading partner that depends heavily on Indian market access. For Nepal, the stakes are more severe: the loss of export income hits industrial activity directly and limits a key source of foreign earnings at a time when its trade imbalance with India is already large.
What happens next will depend on the technical talks and any DGTR review. If the dispute stays confined to steel, the broader relationship is likely to remain intact. If it spreads to other goods or delays border procedures, the economic cost will extend beyond a single duty line and into the wider machinery of India-Nepal commerce.
| Entity | Gains | Losses |
|---|---|---|
| Indian steel producers | ▲Import protection | ▼Cheaper competition from Nepal |
| Nepali steel exporters | ▲Possible duty relief | ▼Rs 10 billion+ export loss |
| Indian authorities | ▲Trade defence leverage | ▼Diplomatic pressure |
| Cross-border traders | ▲Potential policy clarity | ▼Lower volumes, tighter margins |
