WTO flags Nepal's thin factories as Kathmandu seeks Indian airspace

India buys roughly two-thirds of what Nepal sells abroad in goods. That is the picture in the World Trade Organisation's review of the country, and it raises a question for any business weighing Nepal: how much can a landlocked market grow when its trade runs through so few channels?

The answer lies in factories, customs lanes and logistics.

A narrow base

The WTO Secretariat's Trade Policy Review puts manufacturing at just 4.9% of gross domestic product. About 68% of Nepal's merchandise exports go to India.

Remittances equal 25.3% of GDP, and the goods trade deficit is equal to 24.3% of it. Read together, they suggest an economy that pays for imports largely with earnings from labour abroad rather than with goods it makes and sells.

The cost of crossing a border

Customs is another source of friction. The green channel, which clears goods without checks, handles only 13% of declarations. The red channel, where officials inspect cargo physically, takes 42%. For a trader reliant on predictable timing, that gap is a cost.

Nepal has amended its Foreign Investment and Technology Transfer Act and its E-commerce Act, and is modernising customs. Results, the Secretariat stresses, depend on implementation.

The same message was heard at the 10th Global Review of Aid for Trade in Geneva. Ngozi Okonjo-Iweala, the WTO's director-general, noted that the least-developed countries, a UN category that includes Nepal, still hold about 1% of global trade despite two decades of aid for trade. She urged donors to look beyond infrastructure to regulatory and institutional barriers. Akihiko Tanaka, head of the Japan International Cooperation Agency, pointed to African experience, where one-stop border posts at 15 locations cut crossing times by around 70%.

Nepal has drawn $8.94m from the Enhanced Integrated Framework, a programme anchored at the WTO to help poorer countries with trade, and has secured a further $1.8m in co-funding from the government, the private sector and donors.

Why the sky matters

Against that backdrop, the airspace talks have a commercial logic. Speaking in London on 3 November 2026, Khadkaraj Paudel, the tourism and civil aviation minister, said Kathmandu is seeking access to Indian skies for its international flights.

Paudel said the government wants to put the airports in Bhairahawa and Pokhara to greater use, and that access to Indian airspace would ease international operations from Bhairahawa.

Another constraint sits in the background. Nepal's aviation sector has been on the European Union's safety list since 2013. Paudel also stressed that Nijgadh International Airport must be built if Nepal is to become a transit hub.

Connectivity as a trade policy

The WTO review is mostly about goods, while the airspace talks concern passengers. They are different problems, but they point the same way: Nepal's external links depend on a few narrow channels, and aviation routes hinge on decisions in New Delhi and Brussels. A country with a manufacturing share under 5% cannot easily offset such dependence with volume elsewhere.

Any airspace deal is best judged on practical results. More international flights from Bhairahawa could matter for Lumbini pilgrimage tourism, which the government is courting through Sri Lanka, Vietnam, Thailand and Japan. They would do little for the factory base, where the remedy is slower and less visible: faster customs, better logistics and more productive capacity.

The diaspora is part of the pitch. At the London event, organised by the Britain-Nepal Chamber of Commerce, its president Biraj Bhatta asked the government to make investing easier for non-resident Nepalis and to clear administrative obstacles. Manish Jha, a lawmaker from the Rastriya Swatantra Party, pledged that legislation on non-resident Nepali citizenship would be drafted within three months of 3 November 2026. Whether such capital can be steered into production is the open question.

What to watch

Watch whether Shah's visit to India produces a written airspace arrangement, and whether Bhairahawa gains scheduled international services as a result. Track the share of customs declarations cleared through the green channel as a measure of whether reforms are being implemented. Look for any movement on the EU safety restrictions, and for the draft citizenship law Jha promised.