Changing Contours of India-Nepal Bilateral Cooperation

Nepal is integral to and an important partner of India’s “Neighbourhood Policy”. In line with the traditional practice of a first state visit to India, Nepal Prime Minister, Puspa Kamal Dahal, also called Prachanda, arrived in India on May 31^st for a four-day visit to New Delhi. This is Prachanda’s first time after assuming charge in December 2022 and his fourth visit to India in the capacity of Prime Minister. Accompanied by a delegation of 100 members including the Ministers of Foreign Affairs, Finance, Surface Transport, Energy, Water Resources, Irrigation, and Trade and Commerce, PM Prachanda addressed the Indian Business Community, met President Droupadi Murmu, Vice-President Jagdeep Dhankar.

Prachanda held wide-ranging discussions on the entire spectrum of bilateral cooperation with Prime Minister Modi including economic, hydropower cooperation, trade, energy, security, connectivity, infrastructure cooperation, and development partnership.

Both the Prime Ministers launched six projects that include a railway line between Kurtha-Bijalpura, an inaugural trial run of Indian cargo from Bathnaha to Nepal Customs Yard, the inauguration of Integrated Check Posts (ICP) at Nepalgunj (Nepal) and Rupaidiha (India), a ground laying ceremony of mirror ICPs at Bhairahawa and Sonauli, phase II of Motihari- Amlekhgunj petroleum pipeline and Indian portion of the Gorakhpur-Bhutwal transmission line, the second high capacity interconnection between two countries. In addition, both countries have also exchanged MoU on the treaty of transit, cooperation in petroleum infrastructure, infrastructure development at check posts, training program for bureaucrats, and development of the Lower Arun hydroelectric project & Phukot-Karnali hydroelectric project¹.

Both countries have finalized the agreement for long-term electricity trade with Nepal exporting to India up to 10,000 MW for a period of 10 years. Last year, Nepal earned Rs 11 billion by exporting electricity to India. This hydroelectric cooperation over the long term has the potential to become one of the most important pillars of Indo-Nepal. While Nepal anticipated 25 years agreement with India for electricity export, India has set a time frame of 10 years with a caveat of not buying electricity from Chinese investments. This move was an apparent setback to Chinese investments in hydroelectric projects and might dampen their interest in Nepal.

Sandwiched between the two major powers India and China, Nepal has been justifying its act of strategically balancing its relations between both countries. After the 2015 blockade, PM Oli shed the pretense of balancing, steered Nepal into Chinese orbit, and cemented the ties through a slew of infrastructure projects as part of China’s BRI. This change was reinforced by China’s overt interference which was instrumental in sealing the political alliance between Nepalese parties as well. To reduce dependence on India, Oli signed a transit agreement with China with access to four Chinese seaports in Tianjin, Shenzhen, Lianyungang and Zhanjiang and three land ports Lanzhou, Lhasa, and Shigatse for trading with third countries. Nepal started using the ports in October 2018². Till then Nepal trade was majorly routed through the Kolkata port.

Nepal which was severely upset with India over the 2015 Madhesis blockade hardly raised an eyebrow over China’s undeclared trade blockade. China closed the Tatopani-Khasa border point, considered the second largest trading point, for four years after the 2015 earthquakes and imposed severe restrictions on truck movement after its reopening³. Indeed, China has even closed the Rasuwagadhi-Kerung route during the Covid and opened it intermittently to its advantage⁴. Trade through these border points declined ever since China tightened and skewed rules in its favour. Further poor logistics, and infrastructure coupled with onerous customs clearances and quarantine practices took a toll on the border trade and Nepal’s trade deficit ballooned.

India and Nepal renewed the 1992 Treaty of Transit, during Prachanda’s visit which enabled Nepal to access India’s inland waterways for the first time. This game-changer agreement would contribute to significantly enhancing trade and investment linkages between both countries. Enthused by the electricity export to India that effectively bridged the trade imbalances, Nepal has requested a trilateral power transaction between Nepal and Bangladesh via India for up to 40 MW of power. This arrangement besides fostering sub-regional cooperation, will create a win-win situation.

After Pakistan stonewalled all regional connectivity initiatives under the SAARC, India launched BBIN connectivity to mitigate the sub-regional connectivity challenges. Connectivity aspects are now proving to be the defining aspects of Indo-Nepal ties. To promote regional cooperation in the space sector, India has offered Nepal to build a ground station and supply 300 user terminals.

Besides the inauguration and ground laying of new integrated check posts and railway lines, both countries have decided to build additional bridges across the Mahakali River at Shirsha and Jhulaghat in Nepal connecting Champawat and Pithoragarh districts in India. India has also agreed to provide training and capacity building to Nepal Rail officials at the Indian Railway Institutes. Additionally for seamless financial connectivity both countries launched Rupay card to facilitate cross border digital payments.

Furthering bilateral cooperation in nano fertilisers and natural farming, both countries have agreed to explore the possibility of setting up a fertilizer plant in Nepal. PM Modi congratulated Nepal on becoming the founding member of the International Big Cat Alliance (IBCA).

This new paradigm in India-Nepal relations anchored on PM Modi’s “HIT” formula H-Highways, I-I ways, T- trans-ways is certainly making a mark. Initiating and delivering on several connectivity projects in the last nine years PM Modi has taken the relations to a new level. This has heightened the expectations of Nepalese leaders, who alongside accusing India of being a “big brother” have brazenly stoked anti-India sentiments for electoral gains and fueled Indo skepticism. The politicking of Nepalese leaders and constant demonization of India for electoral consolidation is not lost on India.

Afflicted by ‘small country syndrome’, Nepal unabashedly played the China card against India and vice versa. In his leftist zest, Oli has overplayed this strategic balancing. Backed by China, PM Oli recklessly impaired the Indo-Nepal ties. Though Sher Bahadur Deuba has attempted to bring relations back on track, Nepal’s strategic play has certainly miffed New Delhi. Adept at balancing relations, Nepal is now caught in the quagmire of brewing geopolitical tangle between China and the US. Wary of participating in any anti-China initiative, Nepal has approved the Millennium Challenge Corporation (MCC) with some caveats. But perturbed by the Sri Lankan crisis Nepal is growing cautious of Chinese investments and loans.

Further, mired in a domestic crisis, with the leaders of the Nepali Congress, the coalition partners of the ruling dispensation facing prosecution for trafficking Nepalis as Bhutanese refugees to divert public attention, Prachanda has embarked on a state visit to India. India’s win-win approach is Nepal’s best bet but given Nepal’s constant fulmination against India and the boundary issue further widening the divide, assuaging nationalist voices back home, Prachanda attempted to put his best foot forward. Indeed, betting on India’s nod for key strategic projects, Prachanda approved the long-pending citizenship bill hours before his visit.

India has pragmatically responded to Prachanda’s visits which had many hits and a few tangible misses that include finalization of the Pancheswar Multipurpose Project (PMP) envisaged in the Mahakali agreement and additional air space for Bhairahawa and Pokhara. Funded by Asian Development Bank (ADB) and built by China, the denial of high-altitude flight clearance could turn these airports into white elephants. But the Bhairahawa air space route falls under the sensitive zone and its approval is subject to defense clearance.

New Delhi has been steadily stepping up its influence in Nepal and at the same time cautiously reining on China’s growing influence on Nepal. China’s overt political involvement during Oli’s tenure has left no doubts about Dragon’s deep inroads into the Himalayan nation. Given Nepal’s immense strategic significance for India’s security, New Delhi is calibrating its moves, especially in the aftermath of the Galwan clashes. Decision to not buy electricity from the Chinese projects and putting a halt on the supply explosives to projects involving Chinese companies in Nepal are part of India’s new framework for Nepal.

Indo-Nepal bilateral relations replete with contentions had their own share of ups and downs has entered a “new phase” as remarked by PM Prachanda. Amid cliches of the “roti-beti ki Rishta” dogged bickering over the Akhand Bharat mural and the boundary issues are some of the red herrings hard to ignore.

While India is accommodative of Nepal’s pursuit of shifting from the state of “dependence” into “inter-dependence” Nepal’s deepening engagement with China is adding a new layer of geopolitical anxiety to the already charged power play in the region.

Assuaging Nepal’s concerns PM Modi assured, “We will continue to strive to take our relationship to Himalayan heights. And in this spirit, we will resolve all the issues, be it boundary related or other issues”⁵ and committed to making the partnership a “super hit” in the future. The onus of making taking the relations to the next level by reposing trust and faith in the traditional ties that guide the journeys of both countries’ vests with both leaderships. A visit to the Ujjain Mahakaleshwar temple to strike a cultural connection with India would be meaningless if Nepali leaders refuse to tone down their anti-India posturing.

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