Nepal is a “priority partner” of India under its ‘Neighbourhood First’ policy’. India and Nepal share a unique relationship of friendship characterized by open borders, shared culture and deep-rooted people-to-people contact. This relationship is also often described as the Roti-Beti relationship.

With a long tradition of free movement of people across borders, a substantial number of Nepali citizens live and work in India. In the India-Nepal Treaty of Peace and Friendship of 1950, Nepalese citizens enjoyed unparalleled advantages in India.

Importance of Nepal for India:

Nepal is important for its strategic and economic points.  Nepal is located as a buffer zone between India and China. Thus, strategically it is very important for the security of India. Nepal is a landlocked country with huge hydro-energy resources. Thus, Nepal can play an important role in energy security.

Areas of cooperation:

India and Nepal have cooperation in different areas. It has been discussed in the following headings:

Political:

The Treaty of Peace and Friendship signed in 1950 acted as a bedrock of the relationship between India and Nepal. There are regular high-level interactions and exchanges between the leadership of India and Nepal.

• India- Nepal Joint Commission: It was established in 1987. It provides a platform for both countries to review all aspects of the bilateral partnership. In these meetings, various aspect of relations like economic matters, trade and transit, power, water resources, education and culture and political matters among others is discussed. It is co-chaired by the external affairs minister of India and the foreign minister of Nepal.
• Nepal showed support for India’s permanent membership of an expanded United Nations Security Council (UNSC) to reflect the changed balance of power.

Economic Cooperation:

India is Nepal’s largest trading partner and a source of foreign investment:

• Trade: India is Nepal’s largest trade partner, with bilateral trade is more than US$ 7 billion in FY 2019-20. India provides transit for almost trade of Nepal going to the third country. India’s exports to Nepal have increased over eight times in the past ten years while exports from Nepal have almost grown two times. Despite the issues related to the pandemic, India ensured an uninterrupted flow of trade and supplies to Nepal.
• Remittance: 30% of Nepal’s nominal GDP comes from global remittances. Thus, it is one of the most remittance-dependent countries in the world. About eight million Nepalese people work in India and play an important role in the Nepali economy through their remittance.
• Investment: Indian companies are among the largest investors in Nepal, Indian investment accounts for more than one-third of the total FDI stock in Nepal, which is worth nearly USD 500 million.
• Integrated Check Posts (ICPs): The idea of constructing 4 ICPs on the India-Nepal border to facilitate the movement of goods, vehicles and people was mooted 15 years ago and is being realized now. Out of these two IPCs at Birgunj and Biratnagar have been constructed.
• New Partnership in Agriculture (2018): The two countries agreed upon a new partnership to reaffirm to promote cooperation in agro-processing, agricultural science and technology and agricultural production.
• NICCI (Nepal-India Chamber of Commerce and Industry): It assists the investors of Nepal and India in finding ways of business and markets.

Energy Cooperation:

India and Nepal are developing nations. Nepal imports most of their energy requirements, despite having huge hydropower potential. Keeping these requirements in mind following agreements have been signed:

• Electricity Supply:
  • An Agreement on ‘Electric Power Trade, Cross-border Transmission Interconnection and Grid Connectivity’ was signed in 2014 to facilitate and further strengthen cross-border power trade between India and Nepal.
  • India is also presently supplying about 600 MW of power to Nepal.
  • There are more than 20 cross-border transmission lines for power trade.
• Border petroleum line: The expansion of the Motihari-Amlekhganj petroleum products pipeline to Chitwan and the establishment of a new pipeline on the eastern side connecting Siliguri to Jhapa in Nepal. In 2019, the first cross-border petroleum line was inaugurated between Motihari in India and Amlekhgunj in Nepal.
• Joint hydropower projects:
  • Maitri Irrigation Project: India extended financial aid of Rs. 99 million to Nepal for the construction of 2,700 shallow tube wells (STWs) irrigation systems in 12 districts.
  • 5,000 MW Pancheshwar hydroelectric project on Kali Nadi on the India-Nepal Border.
  • Arun-III 900 MW hydroelectric project.

Once functional, these hydropower plants can be an extremely important source of revenue for Nepal and can help both countries in bridging our energy needs.

Connectivity Infrastructure:

Nepal is a landlocked country with critical infrastructural needs. It aims to expand its connectivity in India and is also a part of China’s Belt and Road initiative. In this context, various Infrastructure projects have been developed for the connectivity of people, and trade relations.

Rail Connectivity

• For Nepal’s own capacity building, RITES (Rail India Technical and Economic Service) plays a significant role in the development of transport infrastructure (transfer of technology).
• Railway link projects have been undertaken between Jogbani, Biratnagar, and Jaynagar-Barbidas. The First upgraded passenger railway line between India and Nepal from Jaynagar to Kurtha via Janakpur has been commenced.
• Cross-border rail connectivity projects, including a possible Raxaul-Kathmandu broad gauge railway line, are in consideration.

Road Connectivity with India

• Nepal and India are also part of the BBIN road connectivity project. It facilitates the seamless flow of passenger, personal and cargo vehicular traffic between and among the BBIN countries (Bangladesh, Bhutan, India and Nepal).
• India has also upgraded 10 roads in the Terai region to boost Nepal’s internal connectivity.

Integrated Check Posts (ICPs):

An Integrated Check Post (ICP) is a one-stop solution that has all regulatory agencies such as customs, immigration and border security. The idea of constructing 4 ICPs on the India-Nepal border to facilitate the movement of goods, vehicles and people was mooted 15 years ago and is being realized now. These include:

1. Nepalgunj,
2. Biratnagar,
3. Birgunj and
4. Bhairahawa

Out of these two IPCs at Birgunj and Biratnagar have been constructed.

Other important projects

• Sagarmatha Sagar connectivity project: This reflects the connection between Mt Everest (locally known as Sagarmatha) and the Bay of Bengal. It is envisaged as a waterway’s connectivity project through the Kosi River.
• Cultural heritage projects in Nepal: India will support two such projects that are the Bhandarkhal Garden Restoration in Patan Durbar and Pashupatinath Riverfront Development.

Defence cooperation:

India and Nepal have wide-ranging cooperation in the defence sector.

• Training and Modernisation: India has been supporting the Nepal Army in its modernisation by providing equipment and training. 250+ slots are provided every year for training of their personnel in Indian army training institutions.
• Joint exercise ‘Surya Kiran’ takes place alternatively in both nations. 17th edition of this military exercise held in Pithoragarh, Uttarakhand, in 2023.
• Gorkha Regiment of Indian Army: The Gorkha regiments of the Indian Army are raised partly by recruitment from hill districts of Nepal. Recruitment of soldiers in Gurkha Rifles regiments is done from Nepal-domiciled and India-domiciled Gurkhas in a 60:40 Nepal is the only foreign nation whose men are part of the Indian army.

Impact of the Agneepath Scheme on the Gurkha Regiment

The Nepali Gurkhas are steadily declining in the Indian Army as the recruitment has halted for four years. First, due to the COVID-19 pandemic, the recruitment was halted. Next, after the recruitment through the Agneepath Scheme, the Nepal government has blocked its nationals from participating in the recruitment. Nepal’s contention: The Agneepath Scheme violates the tripartite agreement between India, Nepal and the United Kingdom signed in 1947. It states that the Nepali soldiers would receive equal pay pension and other facilities on par with the Indian soldiers. Indian Reasoning: The Agneepath scheme treats every soldier equally. Currently, 60% of the 32,000 Gurkha soldiers are of Nepali origin. The Pension and salary earned by them are crucial in sustaining the Nepali economy. Repercussions of declining Nepali Gurkha numbers: Nepalis might find new permanent recruiters. China is considering the recruitment of Nepalis into its Army. Some Nepali nationals have already joined the Russian army on a monthly pay of $2000 to fight against Ukraine. This might be a blow to India’s strategic reach in Nepal.

Diaspora and culture:

About 6 lakh Indians are living/domiciled in Nepal. These include businessmen, professionals, and labourers. They play an important role in the cultural exchange between the two countries.

• People-to-people contact: Indian people are employed in various institutions, business establishments, and trade-related activities, as blue-collar workers, and as seasonal migratory labourers in the construction sector. Most Nepalis have Indian academic roots.
• Language: Most Nepalis understand Hindi which paves the way for greater economic and P2P relationships.
• Religion:
  • Lumbini in Nepal is the birthplace of Lord Buddha, who lived most of his life in India.
  • The citizens of both nations also visit each other’s nations for pilgrimages.
• Sister city agreements have been signed between Varanasi-Kathmandu and Ayodhya-Janakpur. Bus services have also been launched between the two cities to facilitate transportation.
• Vaccine Diplomacy: An early provision of vaccines to Nepal was positively considered by India.

India’s development assistance to Nepal during 2015 earthquake:

India was the first responder during the 2015 earthquake in Nepal.

• India launched Operation Maitri which is one of the largest disaster relief operations carried out abroad.
• India immediately pledged assistance and granted $67 Million during the crisis and a further amount of $1 Billion after the crisis for post-disaster reconstruction.
• Construction of 50,000 houses: for those whose belongings had been lost in the earthquake and aid in the education, health and cultural heritage sectors.
• India dispatched National Disaster Response Force (NDRF) teams: It provided relief materials and extended a New Line of Credit agreement for $750 million for post-earthquake reconstruction projects in Nepal.

Challenges in Indo-Nepal relationship

1. Territorial dispute of Kalapani, Limpiyadhura and Lipulekh:

Anglo-Nepalese War concluded with the Treaty of Sugauli (1815-16). In this treaty, the King of Nepal renounced all the territory west of the Kali River. Thus, the Kali River marked Nepal’s western border with British India.

However, the concern raised by Nepal as to which stream will be considered the Kali River. Nepal consider the western stream as the Kali River where whereas India considers the eastern stream as the Kali River.

Timeline of the Territorial dispute

Nov 2019: Nepal strongly protested when the updated Indian map was published following the changes in the status of Jammu and Kashmir. This map removed the label “Kali river”, showing the region as part of Uttarakhand. May 2020: In response, Nepal unveiled the new map on May 20 after Defence Minister Rajnath Singh inaugurated the Darchula-Lipulekh link road on May 8, which Nepal considers its territory. June 2020: The 2nd Constitution Amendment was passed unanimously by the Lower House of the Nepali Parliament, which gave legal status to the new political map that included part of Indian territory in Uttarakhand. It was termed as reversing centuries of diplomatic humiliation by then Nepalese PM Oli.

2. Dispute over the Origin point of Kali River:

The boundary along the course of the Kali River is only defined till the Kalapani. Beyond this, there is a dispute between India and Nepal.

• According to Kathmandu’s understanding, the river has its origin from Limpiyadhura giving it access to a triangular-shaped land defined by Kalapani and Limpiyadhura-Lipulekh. It claims India was allowed to station troops there in the 1950s and it has refused to remove forces from the region ever since.
• India opposes the claim of Nepal and says that the origin of the river is much further down, which reduces Nepal’s territorial claim.

3. Political issues of people in the Terai region:

Madheshis and Tharus constitute 70% of the Terai population. They are not happy with the new constitution that was promulgated in 2015.

Madhesi and Tharu People

Madhesi are an ethnic group living mostly in the southern plains of Nepal (Terai region), close to the border with India. They comprise various cultural groups such as Hindus, and Muslims. These share cultural tradition, education and family ties with the people living in the south of the International border in Uttar Pradesh, Bihar and West Bengal.

Issues of Terai People:

• Political Marginalisation: People of the Terai region feel a lack of political representation with respect to the proportion of their population in the new federal setup of the new constitution. Only eight districts in the Terai region, have been given the status of a province. The remaining 14 districts have been joined with the hill districts with the purpose of converting the local people into a minority.

• The new constitution has a provision for a 165-member parliament. 100 seats have been allocated to the hill and mountain region despite their population being less than 50%. Whereas, Terai region constituting over half of the country’s population has been allocated only 65 seats.
• Citizenship norms disallow the children of Nepali mothers married to foreigners from inheriting Nepali citizenship.

4. Issues with the Treaty of Peace and Friendship 1950:

The treaty was signed by the Indian ambassador to Nepal representing New Delhi and Nepal Prime Minister Mohun Shumshere Rana. This was seen by Kathmandu as a disrespect for protocol and insult.

Further, according to Nepal, provisions to give national treatment have never been respected.

• Article 1 of the treaty states that both governments notify each other of every severe abrasion with any neighbouring state. However, Nepal argued that India did not inform or consult Nepal during the 1962 Sino-Indian War and the 1965 and 1971 wars with Pakistan subsequently.
• Article 5 does not impose limitations on Nepal’s ability to bring in arms from third-party countries. However, India shows some reservations when Nepal imports weapons from China. India violated this section of the treaty in 1988–89 when it imposed an economic blockade on Nepal for making a secret deal with China with regard to intelligence-sharing and the acquisition of weapons.
• Nepal has not been able to reap benefits with respect to Article 6. Nepalese actors have not been competitive in the Indian economy and private sector.
• Article 7 talks about equal rights to be given with regard to residence, job opportunities and acquiring property in each other’s territory. However, Nepal enforced a work permit system for foreigners, including Indian citizens. Also, there has been a demand to cap the enlistment of Nepalese Gorkhas to increase the intake of Indian Gorkhas instead. There has been stereotyping against Nepali citizens in Bollywood. On the other hand, Indian companies are dictating Nepalese markets.

5. The China factor:

China’s political and economic engagement with Nepal has been rising in recent times. It gradually wants to dilute the pre-eminent position of India in Nepal by increasing its influence. Through connectivity and mega-development projects, China is intensifying its engagement as follows:

1. Nepal and China signed the BRI framework agreement in 2017. Now they are working towards the Belt and Road Initiative (BRI) Implementation Plan. Major projects under the BRI, include Kathmandu-Kerung Railway (US$2.15 billion), Rasuwagadhi-Kathmandu Road upgradation and Dipayal to South of China Road.
2. In 2022, China and Nepal agreed to build a Trans Himalayan Multi-Dimensional Connectivity Network (THMDCN). It comprises economic and connectivity corridors to be developed under the BRI.  It will start from the Nepal-Tibet border, pass through Sichuan, and end in Chongqing province. It will serve as an economic corridor between Nepal and China It is part of China’s periphery diplomacy policy.

Periphery Diplomacy Policy

It is China’s Policy approach and strategies to increase its interest in the neighbouring countries.  The primary objective of this diplomacy is to maintain stability, security and influence in its surrounding areas and to promote economic cooperation and regional integration.

3. P2P relation: China exempts Visa fees for Nepalese citizens. It has played a role in bringing together the Communist Party of Nepal (Unified Marxist–Leninist) and the Communist Party of Nepal (Maoist Centre). It enabled them to form a new coalition government.
4. Economic relation: China is the second largest trading partner of Nepal. Nepal opened all trading points that were closed after COVID. A Joint Commission at the Foreign Minister level has been formed to discuss issues related to China and Nepal.

There is competition between China and India in terms of investment as their investment sectors overlap in Nepal.

6. Water disputes:

Kosi: India and Nepal signed an agreement in 1954 to regulate the flow of the river to ensure effective flood management. However, due to stalled talks, a dam has not been a priority for decades by both countries.

Also, a catastrophic flood of 2008 took place due to a failed partnership for a dam. It cost 250 lives, and 800,000 acres of cropland, destroyed 300,000 homes and displaced over 3 million individuals.

7. Security Challenge:

Terror outfits like Lashkar-i-Taiba (LeT), Indian Mujahideen etc. have used open borders between Nepal and India to provide logistic support to their clandestine operations.

Fake Indian Currency Notes (FICN), smuggle arms, drugs and people into India. This has been highlighted in a report prepared by the US State Department.

India is reversing its policy of recruiting soldiers in Gurkha Rifles regiments from among Nepal-domiciled and India-domiciled Gurkhas in a 60:40 ratio. The Indian government has decided to recruit people from the Kumaon and Garhwal regions of Uttrakhand in GR regiments.

8. Delay in infrastructure projects:

The delay in the infrastructure projects is one of the biggest challenges in our relationship. It is important for Nepal, being a land-locked country, to develop and therefore delays are not appreciated. Both India and Nepal share responsibility for such delays.

• Delays by Nepali Government: Many projects such as the Pancheshwar Dam project have been delayed due to delays in land acquisition and preparatory paperwork.
• Example of Delays from the Indian side: The idea of 4 ICPs (integrated Checkposts) on the India-Nepal border to facilitate the movement of goods, vehicles and people was mooted 15 years ago and an MoU was signed in 2005. While the preparation of surveys and project reports moved slowly on the Indian side, the acquisition of land by the Nepali authorities got held up leading to delayed construction. Only Raxaul-Birgunj ICP has been completed and was inaugurated last week(April’18).
• Motihari Amlekhgunj cross-border petroleum products pipeline. Work Started. [MoU: 2004]
• It pays to be anti-India in Nepal.

An MoU has been approved between India and Nepal by the Union Cabinet for the construction of a bridge over the Mahakali River at Dharchula in India and Dharchula in Nepal.

9. Looking beyond India:

Nepal’s aspirational young population is also looking beyond the open Indian borders for opportunities. It desires to become ‘land-linked’ from being land-locked, PM Oli described.

The way forward:

The Indian establishment desperately needs a Nepal Reset. We want a normalisation of relationships, to ensure the conduction of international relations for mutual benefit.

1. Resumption of the SAARC summit which is stalled since 2016 after Jaish-e-Mohammad militants attacked the Army base in Uri.
2. Completion of the ongoing process of updating the 1950 Treaty of Peace and Friendship:

1. • Both the nations treat the citizens from each other’s nations as their own citizens and there is a provision for the free movement of people across the border.
   • Nepal’s citizens have benefited from the ease of employment and residence in India that the treaty provides.
   • It has been recommended that both nations set up an ‘Eminent Persons Group’ consisting of citizens from both nations to overhaul this treaty.

3. Deliverables: Road and Railway links, power projects and post-earthquake reconstruction commitments would determine the success of the partnership, not just the announcement of new initiatives.

1. • India can jointly develop the East-West Railway along the present alignment of the highway built by India.
   • Nepal’s viable hydroelectricity potential is about 40,000 MW, however, the country generates only 1,000 MW and must import 600 MW from India. More than 60% of the Ganga waters come from Nepal’s rivers and 80% of these flows take place in monsoon months, thus there is a need for effective water management.

4. Being careful in constitutional matters: Such Matters and Provisions relating to Plains where Madhesis lives must be taken discreetly(carefully) and diplomatically.
5. Potential of People to People: We can leverage this relationship.

1. • We can again make India a hub for Nepali students. This would strengthen the natural bonds that previous generations had with India.
   • India should also focus on developing its border areas for effective order management with Nepal. It can be done by developing better roads and amenities of interest (such as shopping malls) for the increasing Nepali middle class.

Conclusion: Nepal has considerably diversified relations beyond its deep ties with India but history has shown that close ties between the two countries have been beneficial for both. Mr Oli has yet again consolidated his position in Nepal’s fragile polity as a strong Nationalist leader, but how his brinkmanship resulting in antagonism in ties with India will play itself out can only be answered in the medium term.