Nepal-India: An Understated Partnership

Anurag Acharya - Former journalist and currently Director at a Kathmandu-based think-tank

Nepal of the 1950s comprised  inaccessible hills and mountains as the country struggled with limited infrastructure in the form of highways,  airports, hospitals or even universities. In fact, Nepal was beset with multiple socio-economic issues like poverty, food-shortages, epidemics which occurred with grave frequency reducing life expectancy – in a country where life expectancy was already less than 60 years. Considering Nepal’s proximity to India, as the latter  surrounds Nepal from three sides, it was only proper that India would support Nepal in its initial years of development following the end of Rana autocracy and Nepal’s self-imposed isolation. It was not as if India was a highly-developed nation back then. The country had just liberated itself from British colonialism, and had endured a painful partition, deeply affecting society and the economy. But  democratic India never forgot  the support Nepali leaders and its people had provided during their independence movement. 

India generously invested in building not one but six airports, including its first international airport in Kathmandu. India also supported construction of the East-West highway that connects different parts of the country with Kathmandu. Other infrastructure  projects that saw Indian support during the early decades included the construction of Nepal’s oldest Tribhuvan University campus, 14MW Devighat Hydropower and Irrigation Project and the extension of cross-border railway services to Janakpur. These infrastructure initiatives were pivotal in enabling Nepalese development in its initial years.  

Indian Imperatives in Nepalese Infrastructure Assistance 

Although India’s decision to support Nepal’s development was not entirely altruistic as national interest and security were abiding considerations for India — Indian interest in Nepalese infrastructure was linked to the protection of its northern frontiers in the aftermath of the Cold War and India’s own military posturing with Pakistan and China. 

Furthermore, India has enduring border disputes with China in the north, but the roughly 1500 kilometres of buffer that Nepal provides is of vital importance to New Delhi that drives its foreign policy vis-à-vis Kathmandu. Additionally, Nepal’s snow-fed rivers are an important source of irrigation and drinking water for India’s bordering states of Bihar and Uttar Pradesh. But, until the 1950s these rivers annually flooded large parts of these states, which led to India negotiating water sharing and flood-control treaties. Although Nepal had also benefited from irrigation water and flood control, the Koshi, Gandak and the Mahakali river treaties have  undoubtedly benefited India more. But, the trade-offs cannot be simply ascertained without taking into account Nepal’s pressing needs back then and the limited options it had. 

Therefore, India has reciprocated and supported infrastructure development in Nepal across different sectors. Moreover, it is believed that the construction of a Trauma Centre Hospital in Kathmandu, petroleum pipelines in Amlekhgunj, the ongoing extension of East-West railway network and construction of multiple hydropower projects will facilitate more robust trade, connectivity and development partnership between the two countries in the years to come.

Nepal’s Options

It is evident that India wants to consolidate its influence in Nepal through these new development projects and Nepal must tactfully protect its national interest by engaging in hedging practices — without irking either India or China as a small state within South Asia.   

Nepal should rely on its diplomatic skills and leverages and engage in diplomatic manoeuvres that protect its interests. Given the rise of an economically and militarily powerful China that is competing for influence in South Asia in general and Nepal in particular, it is understandable that India will eschew the use of the  ‘Gujral doctrine of non-reciprocity’. 

Nepal must rely on smart diplomacy that brings to the negotiating table a compelling set of incentives, for India to consider deeper engagements that mutually benefit both countries. 

To begin with, Nepal must acknowledge that it has benefitted immensely from an unrestricted movement of goods and people through the open borders. But when it comes to bilateral trade, the numbers suggest that India has disproportionately benefited from its exports. In 2021, Indian exports to Nepal stood at over USD 9.5 billion, while Nepali exports to India was approximately USD 1.3 billion. With approximately 65 percent market share that India enjoys, Nepal is among the largest consumers of Indian goods and services in South Asia. Hence, there is a strong merit in arguing that increased physical connectivity between the two countries through highways and railways will benefit India more in the future. 

However, there may be an element of robust complementarity in the hydropower trade, where the export of electricity to India and to Bangladesh could potentially benefit Nepal in the future. Currently, the volume of energy trade still favours India, as Nepal imports more than it exports in the Indian market. This does not help to balance the trade deficit between the two countries, and is therefore not sustainable. 

Nepal must negotiate with India for greater access to its energy market, and to facilitate trade with Bangladesh. India, on the other hand, must take stock of  the existing geopolitical realities  to ensure the government in Kathmandu remains incentivized for deeper physical and trade connectivity.

For instance, facilitating goods trade between Nepal and Bangladesh, in addition to the electricity trade, could provide New Delhi with a strong leverage vis-à-vis both the countries. Indian foreign policy architects must get-over their Cold War era mind-set, and be more pragmatic in their thinking. After all, if India espouses a ‘neighbourhood-first’ policy, it must first exhibit greater trust and consideration for developmental priorities of its closest neighbours.

Like any other developing countries in need of aid and investments to propel its growth, Nepal continues to seek both bilateral and multilateral development partnerships. Countries like India, China, United States and Japan have contributed immensely to build Nepal’s large physical infrastructures, besides the support of multilateral institutions like the World Bank and the Asian Development Bank. In that sense, Nepal maintains a fairly open and balanced outlook in its aid and infrastructure diplomacy. 

Conclusion 

However, past assessments or ongoing development partnerships suggest, India is by far Nepal’s most reliable development partner despite the strained ties at different interludes. This is the result of the sum of historical, social and geopolitical realities that make the two countries all-weather allies. 

The two countries can still take this friendship to the level that translates into unprecedented benefits for both. Greater connectivity and genuine integration of Nepal, with the markets in India and beyond, will offer stronger incentives to present and future governments in Kathmandu to maintain deeper ties and engagements. In return, New Delhi will wield a stronger leverage and reputation across the political and social spectrum in Nepal. 

Although existing disputes and diplomatic differences may continue to exist, these differences  will pale in comparison to the economic, trade and developmental benefits that both sides will accrue on account of a burgeoning bilateral partnership. 

(Exclusive to NatStrat)