Informal Exchange The India–Nepal border economy of Madhesh is neither wholly formal nor wholly informal. It is a layered system in which kinship travel, weekly markets, petty retail, commercial customs trade, labour mobility, remittance transfers, currency exchange and digital payments coexist. A person may cross the border legally without immigration formalities while the goods carried remain subject to customs rules. A household may receive a bank remittance from the Gulf, hand-carried earnings from India and commodities bought in a Bihar market during the same month. This chapter therefore separates movement of people, goods and money before asking how they interact. It also treats unrecorded exchange as an empirical category rather than automatically equating it with criminal trafficking. 73.1 Border markets are institutions of a connected region The Madhesh–Bihar border is lined not by one market but by overlapping market systems. Village haats, municipal bazaars, wholesale depots, railway stations, bus stands, customs yards and household shops connect producers and consumers on both sides. Their importance comes from repetition: the same families, carriers and traders meet across seasons, festivals and crop cycles. Market information therefore travels through social relations as well as posted prices. This continuity helps explain why border exchange can survive changes in tariff schedules, transport technology and administrative rules. HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II 73.2 An open border for people is not a customs-free border for goods The 1950 India–Nepal relationship permits unusually easy reciprocal movement and residence, but customs law still governs commercial goods. This distinction is essential. A farmer visiting relatives, a pilgrim travelling to Janakpur, a wage worker going to Bihar and a truck importing manufactured goods do not occupy the same legal category. Everyday speech often compresses these movements into the idea of an ‘open border’. Economic history must instead ask what is moving, in what quantity, under which documentation and through which institutional channel. 73.3 Household geography routinely crosses the political boundary Marriage, ritual obligations, medical visits, education, employment and shopping can all connect a Madhesh household to nearby places in Bihar. The border may be international in law while daily geography remains local in travel time. This produces a distinctive household economy: expenditure decisions can include prices in two currencies, relatives in two states and services on two sides. Cross-border mobility is therefore not reducible to trade. It is part of social reproduction, and that social infrastructure in turn lowers the information costs of market exchange. 73.4 Weekly haats and small bazaars remain basic price-discovery institutions Weekly markets aggregate dispersed rural demand. Farmers bring vegetables, grain, livestock and other produce; traders bring cloth, utensils, packaged foods, tools and consumer goods. Because many participants buy and sell in small quantities, these markets can operate below the scale captured by national trade statistics. Their significance lies in access: a household does not need a wholesale licence or truck to compare prices across the border. The haat links subsistence, petty commodity production and cash consumption within a single recurring institution. 73.5 Border pairs operate at different scales rather than forming one hierarchy Birgunj–Raxaul is a major freight corridor, while Gaur–Bairgania, Malangwa–Sonbarsa, Jaleshwar– Bhitthamore and the Janakpur–Jayanagar axis serve different combinations of regional trade, passenger movement and local exchange. Small crossings may be economically central to nearby villages even when their recorded customs value is modest. Conversely, a large customs point can handle national imports that have little connection to local production. A regional history must therefore distinguish corridor scale from local livelihood importance. 741741 GAJENDRA THAKUR Figure 288 — A layered Madhesh–Bihar border economy 73.6 Commodity geography follows price, season, regulation and transport The direction of exchange is not permanent. Food grains, vegetables, fruit, livestock, fertiliser, fuel, medicines, textiles, household goods and construction materials respond differently to harvests, taxes, subsidies, shortages and road conditions. A commodity may move formally in truckloads while the same item is also carried in small quantities by shoppers or petty traders. For this reason, a list of ‘goods traded across the border’ is less useful than identifying the price and regulatory conditions that make a particular route attractive at a particular time. 73.7 Petty exchange occupies a zone between household provisioning and commercial trade A household buying a few items for consumption differs from a trader repeatedly carrying goods for resale, yet the boundary between them can be difficult to observe. Small-scale sellers may combine farming, wage labour and trade. Carriers may transport goods for several households. Such activity is economically important because it lowers entry costs for people with little capital. It is also difficult to measure because transactions are fragmented, often cash-based and may never appear in customs or business-registration records. 73.8 Informal trade is not analytically identical to contraband Research on India–Nepal informal trade has used ‘informal’ to cover several phenomena: extra-formal petty trade, undeclared commercial exchange, tariff avoidance, trade deflection and, at the criminal extreme, prohibited goods. These should not be merged. The influential 2000–01 border survey by Nisha Taneja and Sanjib Pohit explicitly excluded high-value contraband such as narcotics and arms. Its estimates therefore describe unrecorded commodity trade, not the entire illegal economy. This distinction is necessary for both historical interpretation and policy analysis. HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II 73.9 Historical estimates demonstrate scale but also measurement uncertainty The 2000–01 Taneja–Pohit surveys produced large but differing estimates depending on which side of the border supplied the information. India-to-Nepal informal trade was estimated at roughly US$180–211 million, while Nepal-to-India estimates ranged roughly US$157–228 million. Those figures are valuable as a historical benchmark, but they are not a current estimate for Madhesh and should not be projected forward. Their variation itself is evidence: informal flows are difficult to measure even with intensive field surveys. 73.10 Trust networks substitute for some formal contracts Repeated exchange creates reputation. Traders may extend short-term credit, share information about inspections, arrange transport or settle accounts through known intermediaries. Kinship, locality, language and long acquaintance can reduce the need for written contracts. This does not mean informal markets are risk-free. Trust can exclude outsiders, concentrate brokerage power and fail during shocks. Yet these networks help explain why informal channels persist even when formal trade is legally available: institutions are judged by cost, speed, predictability and enforceability, not simply by legal status. Figure 289 — From everyday exchange to formal customs trade 73.11 Carriers and brokers are part of the border’s labour economy Porters, rickshaw pullers, drivers, small transporters, loaders, commission agents, money changers and brokers convert a political line into an economic corridor. Their work is often omitted from commodity statistics because they sell services rather than goods. At busy crossings, these occupations create dense chains of small earnings. At minor crossings, one person may combine transport, brokerage and retail. Border- market analysis therefore has to include service labour, not merely the value of merchandise crossing customs. 73.12 Women participate through provisioning, petty trade and financial management Women’s border-market activity is often undercounted because it can appear as household shopping, unpaid family work or small-scale vending rather than registered enterprise. Yet women may decide where food, clothing, medicines and ritual goods are purchased, manage remittance-funded household budgets, sell 743743 GAJENDRA THAKUR agricultural products and participate in local markets. Mobility restrictions, safety concerns, documentation and control over cash can affect their ability to trade independently. The gendered border economy is therefore visible not only in employment statistics but in who controls purchasing and remittance use. 73.13 Currency circulation is an everyday institution of the border Indian and Nepali rupees meet constantly in border transactions. Shops and households need practical ways to compare prices, hold cash and make change. Nepal’s exchange-rate system gives this everyday arithmetic a formal anchor. The Nepali rupee has been pegged to the Indian rupee since 1960, with the present level of 1 INR = 1.60 NPR maintained since February 1993. The peg lowers exchange-rate uncertainty for a region where trade, travel and labour mobility are deeply tied to India. 73.14 The peg stabilises conversion but does not remove transaction costs A fixed rate does not make every cross-border payment frictionless. Availability of denominations, bank access, identification requirements, transfer fees, cash-handling risk and differences between official and street practice still matter. Nor does the peg eliminate inflation differences or policy shocks. Its chief borderland effect is predictability: households and traders know the official conversion relationship between the two currencies. That predictability supports frequent low-value transactions and helps integrate prices, while Nepal’s wider monetary policy remains constrained by the relationship to the Indian rupee. 73.15 India has long been both a labour destination and a remittance corridor Migration to India differs from labour migration to Gulf countries and Malaysia because the open border allows movement without the labour-permit trail that structures most overseas employment. Nepalis work in Indian cities, farms, factories, security services, domestic work and other occupations, often circulating repeatedly rather than migrating once. Nepal Rastra Bank research has long noted that much of the money earned in India is carried home by workers or transmitted through relatives and friends, so it can be missing from balance-of-payments remittance data. 73.16 National remittance growth changed the household economy of Madhesh From the 2000s onward, migration to the Gulf, Malaysia and other destinations expanded dramatically. Nationally, remittances rose from a small share of GDP around 2000 to roughly a quarter or more of the economy in later decades; the World Bank reports personal remittances at about 26 percent of GDP in 2024. Madhesh households participate in this wider migration system while also retaining India-linked mobility. The result is a mixed remittance geography in which formal overseas transfers and less-recorded India earnings coexist. 73.17 Dhanusha provides unusually useful local evidence on remittance channels A Nepal Rastra Bank case study of Dhanusha District published in 2012 found that 84 percent of surveyed migrant-sending households reported formal remittance channels, while 14 percent reported hundi and 4 percent friends or travellers. These responses should not be treated as a national or permanently fixed distribution, and they need not be mutually exclusive. Their importance is local and historical: even in a border district, formal finance had become dominant for surveyed households while informal channels remained significant. HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II Figure 290 — Remittance channels reported in the Dhanusha case study, 2012 73.18 Migration itself can begin with informal debt The same Dhanusha study showed that the benefits of remittance income could be preceded by expensive borrowing. Many migrant households financed migration costs through loans, often from informal lenders, and the study reported interest rates reaching as high as 40 percent per year in some cases. This reverses a simple story in which remittances automatically create capital. A household may first incur debt, then use foreign earnings to service that debt before remittances become available for consumption, land, education or savings. 73.19 Remittance expenditure connects migration to local markets and land The Dhanusha evidence found higher consumption among migrant-sending households and substantial spending on food, weddings and land purchase. Such expenditure distributes remittance effects beyond recipient families. Shopkeepers, caterers, transporters, builders, land sellers and service providers receive secondary demand. Remittances can therefore stimulate local market activity even when they are not invested in a factory or formal business. At the same time, strong demand for land and ceremonial expenditure can raise prices without necessarily increasing local productivity. 73.20 Cash carried by migrants is economically real even when statistically invisible A worker returning from Bihar with cash in a pocket has generated a cross-border income transfer even if no remittance company records it. The same applies when money is sent with a trusted relative. Such transfers are difficult to distinguish from travel cash in administrative data. For Madhesh, where the India corridor is exceptionally accessible, this means household income can be more internationally connected than formal remittance statistics imply. Statistical invisibility should therefore be treated as a measurement problem, not evidence that the flow does not exist. 745745 GAJENDRA THAKUR 73.21 Hundi is a financial channel, not a synonym for all informal exchange Hundi relies on brokers or settlement networks rather than a conventional bank transfer. It can be attractive because of speed, reach, documentation barriers or exchange-rate incentives, but it also carries regulatory, fraud and money-laundering risks. Its existence should not cause every cash transfer or petty border purchase to be labelled hundi. The border economy contains multiple informalities—goods, labour, credit and money—and each has its own institutional logic. Precise terminology prevents moral categories from replacing economic analysis. 73.22 Formal remittance infrastructure expanded through banks and licensed companies Nepal Rastra Bank regulates banks, remittance companies, money changers and payment-system operators. Expansion of branches, agents, mobile banking and licensed remittance networks has made formal transfers accessible in many places that once depended on cash couriers. Formalisation offers records, consumer protection and integration with savings accounts. Yet access is uneven, and customers still compare fees, distance, identification requirements and speed. The coexistence of formal and informal channels is therefore partly a competition between institutional costs. 73.23 Remittances and imports form a powerful consumption–trade loop Remittance income raises household purchasing power. In an economy with limited domestic manufacturing, part of that demand falls on imported food, fuel, clothing, electronics, machinery and construction materials, many supplied through India. National research has therefore found a close relationship between remittance growth and Nepal’s trade deficit. In Madhesh the mechanism is especially visible because markets are physically close to Bihar. Remittances can reduce household poverty while simultaneously increasing demand for cross-border goods; the two outcomes are not contradictory. 73.24 Border disruptions reveal how much ordinary life depends on exchange When cross-border movement is sharply restricted, the effects extend beyond large importers. The 2015– 16 disruption and the movement restrictions associated with the COVID-19 pandemic exposed dependence on fuel, medicines, food, daily labour and family mobility. Prices, availability and transport routes changed quickly. Such episodes show why households maintain multiple channels and relationships. Informal exchange can act as a resilience mechanism when formal systems fail, but scarcity can also increase risk, brokerage rents and opportunities for exploitation. 73.25 Informality can provide resilience while shifting risk downward Small traders can respond rapidly to shortages because they need little infrastructure. A carrier can change routes more easily than a freight company. But flexibility often means that legal and economic risk is borne by individuals with the least protection. Confiscation, theft, injury, harassment or sudden rule changes can destroy a petty trader’s working capital. Informal exchange should therefore be evaluated through both functions: it can provide livelihood and market continuity, while also transferring risk away from formal institutions and onto households and workers. 73.26 Customs reform seeks to lower the advantage of extra-formal channels Governments have repeatedly tried to make formal trade faster and more predictable through customs reform, integrated check posts, dry ports, rail links, electronic documentation and bilateral agreements to HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II control unauthorized trade. The logic is institutional: if formal clearance becomes cheaper, quicker and more reliable, traders have less incentive to avoid it. The revised India–Nepal Treaty of Transit signed in 2023 widened route and modal arrangements. Such reforms matter most when infrastructure and procedures work together rather than merely adding new checkpoints. 73.27 Roads, railways and check posts change the hierarchy of border markets Transport infrastructure concentrates some flows while bypassing others. The Jayanagar–Kurtha– Bijalpura railway gives Dhanusha a passenger and goods corridor different from purely road-based crossings. Birgunj’s integrated freight infrastructure serves a national market far beyond Parsa. Smaller markets may lose wholesale traffic yet retain retail and social functions. The result is not simple centralisation: high-volume formal trade can concentrate at major nodes while petty exchange continues along many local crossings. Market hierarchy is therefore shaped by transport mode as much as distance. 73.28 Digital payments are creating a new formal layer of border exchange Cross-border payment infrastructure changed rapidly in the 2020s. From February 2024, Indian UPI users could make merchant QR payments through Nepal’s Fonepay network; Nepal Rastra Bank reported 134,701 such transactions worth NPR 321.67 million by mid-July 2024. In June 2026 India and Nepal launched a UPI–NPI person-to-person remittance mechanism. These systems can reduce cash handling and create transaction records, but they do not eliminate the continuing roles of cash, bank transfers, money changers and trusted intermediaries. Figure 291 — Selected monetary and payment milestones in Nepal–India exchange 73.29 Data systems see formal flows much better than borderland practice Customs records capture declared goods; payment systems capture formal transfers; censuses capture selected migration categories. None can fully observe petty exchange, hand-carried remittances, short- duration work or household shopping. The old informal-trade surveys are therefore valuable, but their figures cannot be treated as current. Likewise, national remittance totals understate some India-linked 747747 GAJENDRA THAKUR earnings. Good historical method uses several evidence domains and states their blind spots instead of producing a single apparently precise number for an economy that is partly designed to escape measurement. 73.30 Conclusion: the border economy is a portfolio of institutions Madhesh households do not choose once between ‘formal’ and ‘informal’. They assemble a portfolio: local haats, Bihar markets, customs channels, wage migration, cash, bank accounts, remittance companies, credit networks and now cross-border digital payments. Which channel is used depends on commodity, value, distance, trust, documentation, risk and urgency. The durability of the border economy lies in this institutional diversity. Its policy challenge is not to erase everyday mobility but to make lawful trade and money transfer sufficiently accessible that households can retain flexibility without bearing unnecessary risk. Table 73.1 — Evidence domains for border markets, remittances and informal exchange Evidence domain What it can establish Principal limitation Customs, trade treaties formal routes, declared goods, does not measure petty and transit agreements tariff institutions, customs undeclared trade, household points and transport shopping or most hand-carried arrangements goods Border-market and trader networks, commodities, estimates are survey- and informal-trade surveys institutional costs, route choice period-specific; 2000–01 values and approximate unrecorded cannot be treated as current trade volumes NRB remittance and formal remittance channels, India earnings may be under- payment studies local household use, exchange- recorded when cash is hand- rate regime and digital-payment carried or sent through relatives formalisation and friends Population census and absence abroad, migration open-border and short-duration migration studies reasons, destination patterns India migration is harder to and household geography capture than permit-based overseas migration Ethnographic and kinship, trust, brokerage, petty local findings cannot qualitative border research trade, women’s activity and automatically be generalised to everyday crossing practices every border point or commodity Banking and digital- licensed remittance networks, captures only participating payment records QR/P2P transaction counts users and cannot show the full and traceable formal financial cash or informal economy flows PART IX HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II POST-1947 / POST-1950 DEVELOPMENT Chapters 74–86 749749