Nepal’s tariff policy on Indian imports hits its most vulnerable traders first and hardest, as street vendors, small wholesalers and informal market operators along the India-Nepal border and in urban centres like Kathmandu and Pokhara absorb cost increases that formal businesses can partially offset through scale, credit access and supply chain flexibility. For traders who work without financial buffers, without credit lines and without the option of adjusting their product mix, tariff-driven price volatility is not an abstract economic problem; it is a direct and immediate threat to daily working capital.
The border trading ecosystem at entry points like Birgunj, Bhairahawa and Kakarbhitta is densely informal. Small wholesalers move goods from Indian dealers across to Nepali buyers in quantities too small for formal customs channels to track efficiently. Seasonal traders operate during festival periods when demand spikes and then return to agricultural work. Street vendors in border towns carry Indian food products, household goods and small hardware items, often bought in cash and sold in cash with a margin of a few percentage points. When tariff costs raise the price these traders pay for their stock, that margin disappears.
The urban end of the informal chain is similar in structure if not in location. A vegetable vendor in Asan market in Kathmandu, or a small grocery owner in Pokhara’s Newroad area, typically holds a few days of stock at any given time, bought from a wholesaler who bought from a distributor who sourced from an Indian supplier. Each step in this chain carries a small markup. When import costs rise at the border, each step adjusts, and by the time the increase reaches the street vendor, it is already compounded. The vendor, with the thinnest margin and the smallest financial cushion, makes the last adjustment.
Cost volatility pushes some informal traders toward sourcing channels that carry their own risks. When legally imported Indian goods become too expensive for thin-margin trading, some operators turn to goods moved through informal border crossings where tariff costs are either avoided entirely or significantly reduced. This is not a new phenomenon in Nepal’s border economy; it is a structural response to price differentials that trade policy creates. The consequence is that official tariff revenue falls short of projections, consumer prices reflect grey-market supply chains, and policy makers lose visibility into what is actually moving across the border and at what price.
Women and ethnic minority communities are disproportionately represented in Nepal’s informal trade sector. Women make up a large share of street vendors and small market traders in both Terai border towns and urban markets. Many belong to Madhesi, Tharu and other communities whose access to formal employment and credit is structurally limited by educational gaps, geographic remoteness and, in some cases, social discrimination. When tariff costs reduce their trading margins or eliminate them, the exit options from informal trade are limited. There is no savings buffer, no credit facility and no alternative income stream available at short notice.
The policy narrative that accompanies Nepal’s tariff regime tends to focus on its effects on large domestic producers, import volumes and formal trade statistics. These matter. But they capture only part of the economic reality. The informal trading sector, which Nepal’s national labour force surveys estimate at approximately 84 percent of total employment — a figure consistent with the International Labour Organization’s regional assessment that between 50 and 80 percent of non-agricultural employment across Asia sits within the informal economy — absorbs and transmits the price effects of trade policy in ways that do not appear in formal data. Its exposure is real, its margins are thin, and its capacity to absorb sustained cost increases without contracting or shifting to informal sourcing is limited.
A trade policy that accounts only for the industries it intends to protect, without accounting for the micro-enterprises and informal traders it exposes to cost shocks, is incomplete. Whether Nepal’s current tariff framework meets that standard is a question that data on informal sector margins, grey-market growth and urban consumer price inflation is beginning to answer.
