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Nepal and India, despite their vast differences in size and population, are closely held together by their culture and traditions. A history of close co-operation and friendship between the people of these two nations has been greatly facilitated by the long and open border and close economic ties between these countries. In the past few decades, there have been tremendous progress in economic relationship between Nepal and India. In the recent years, the two countries have successfully concluded very important treaties such as, Nepal-India Trade Treaty 1996 and its subsequent renewals in 2002 and 2009, Nepal-India Transit Treaty, Agreement to Control Unauthorized Trade between Nepal and India, Railway Service Agreement, Bilateral Agreement For Avoidance of Double Taxation & Prevention of Fiscal Evasion with respect to Taxes on Income, Mahakali Treaty and Power Trade Agreement, to name a few.
Nepal has the largest volume of trade with India. Nepal also has the largest trade deficit with India, and this figure is increasing from year to year. Of late, it is widely felt that Nepal must concentrate heavily on import substitution and in setting up and furtherance of export-oriented industries. To achieve this, Nepal must attract direct foreign investment with more and more value additions in Nepal so that it may industrialize faster and also increase trade with India so as to reduce the trade deficits with the trading partners.