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Prime Minister KP Oli’s China visit has stirred the pot, with some experts terming it as a diplomatic maneuver aimed at counterbalancing India and fueling speculations that India was not too keen on extending an official invitation to him. Additionally, the two major ruling coalition parties, the CPN-UML and the NC, have differing interpretations of the Belt and Road Initiative (BRI), such as viewing it as grants versus aid. These differences, along with their political and ideological leanings toward either China or India, have sent out mixed signals regarding Nepal’s relationships with its neighbors.

Many Indian politicians, media outlets and think tanks view the BRI as China’s key foreign policy tool aimed at influencing the signatory countries' domestic and foreign policies. For instance, a recent heated debate in the Indian Parliament focused on the perceived shift of India’s neighbors toward China and India’s failure to build trust with them. India’s Member of Parliament Manish Tewari questioned the efficacy of Prime Minister Narendra Modi’s ‘Neighborhood First’ policy even as Nepal and China signed on the BRI cooperation framework during Prime Minister Oli’s recent visit to China, triggering considerable debate in India’s nationalistic media.

India’s relationship with Bangladesh and other neighbours is on a rough patch. Bangladesh’s popular movement, which toppled the regime of Prime Minister Sheikh Hasina in August this year, has created friction between the two countries, with Bangladesh asking India to extradite the former PM. Sri Lanka, the Maldives and Nepal have tried to strengthen their relations with China often creating friction with India. In South Asia, critics also argue that the appeal of BRI funding and other assistance to India’s neighbours is less about China’s efforts to contain India, which accounts for almost 80 percent of the region’s economy, and more about these countries’ desire to counterbalance or challenge India’s Monroe Doctrine-style regional dominance.

Global politics also plays a significant role in South Asian geopolitics. Military conflicts like the Russia-Ukraine war and trade tensions, such as the US chip embargo and reciprocal tariffs coming from the US and China, underscore the renewed great power competition involving the US, a rising China, and a revisionism ambition of Russia. India’s fast economic growth, coupled with rising global influence, is also reshaping alliances and the world’s political and economic orders. 

In this context, the Quadrilateral Security Dialogue (the Quad) comprising India, Australia, Japan and the US seeks to counter China’s growing military and political influence in the Indo-Pacific. Recently, the global economic landscape is shifting in India’s favour, with 69 percent of companies, up from 55 percent in 2022, planning to leave China, and 39 percent favouring relocation to the Indian subcontinent, according to Fortune Magazine.

India’s reservation toward Nepal’s closeness with China through the BRI also emanates from the fact that in global power competition, superpowers and rising powers are likely to use military, economic, diplomatic, intelligence and technological tools to influence other states and reshape the world order by leveraging foreign assistance in all forms—military, economic and development. For example, China has invested billions in African infrastructure projects and established a military base in Djibouti, with plans for another in Gabon. A key lesson for Nepal is to carefully assess each form of assistance or alliance, accepting or rejecting them based on national interests.

At the technical level, Nepal should be aware of risks and opportunities associated with BRI fundings under which China has provided an estimated $1.34trn to more than 20,000 projects based in 165 countries in the form of grants and loans. 

The top three recipients of BRI funding over the past two decades have been Russia, Venezuela and Pakistan. China has provided nearly $170bn in development loans to Russia for multi-sector projects, including industry, mining and construction, budgetary assistance to Venezuela for stabilizing the economy and funding of more than $67bn to Pakistan (almost 20 percent of its GDP) whose economy continues to struggle.

Chinese loans have been a major source of sovereign default risk in countries like Pakistan, Sri Lanka, Ghana and Zambia, prompting some to label it as China’s ‘debt-trap diplomacy’. According to World Bank estimates, in 2022, one-third of debt service payments by the 74 poorest countries in the world were owed to China, with many borrowers unable to repay. This has led Beijing to reduce spending on infrastructure projects under the BRI and focus more on rescuing countries in financial distress to help them repay their loans. China is also increasingly focusing on smaller-scale strategic projects, such as green technologies, political party training and cultural exchanges.

The key question is not whether to accept BRI funding, but to assess whether proposed projects are financially and technically viable and offer a high rate of return. Fitch's credit rating recently highlighted Nepal’s strong debt affordability, with more than 40 percent of government debt being external and highly concessional. This suggests that accepting BRI loans is less challenging for Nepal than for countries like Sri Lanka or Pakistan. However, the projects must be transformative for Nepal’s development; otherwise, they risk becoming ‘white elephant’ projects.

China has recently been scaling back funding for large-scale projects, making it increasingly difficult to secure substantial grants. The challenge for Nepal now lies in its ability to develop projects with high rates of return and secure adequate fundings. Otherwise, submitting a list of projects without concrete funding agreements would amount to little more than a symbolic gesture aimed at counterbalancing India.

Most importantly, Nepal should prioritize what is beneficial for the nation while improving its communication of priorities. Nepal must clearly explain why development assistance from its neighbors, including BRI, is not only crucial for its own economic growth but also contributes to regional and global economic integration. This can be achieved by dispelling common myths, addressing information gaps and building trust with both India and China. Countries like Singapore and Mongolia have successfully crafted foreign policies that serve their national interests by earning the trust and confidence of rival powers. 

At the same time, Nepal should adopt a balanced approach, maintaining strong ties with both neighbors to secure financial support for infrastructure and development projects, without becoming overly reliant on large loans from either country. Such a strategy would encourage healthy competition between the two regional powers, enabling Nepal to negotiate more favorable terms for its development. As long as Nepal clearly communicates to both India and China that accepting BRI promotes Nepal’s stability, growth and prosperity, maintaining close economic ties with China may not be as sensitive an issue for India as often perceived.

Given a divided national political landscape, Nepal needs a consensus on how to handle foreign development assistance and decide which projects to accept or reject. While the US Millennium Challenge Corporation (MCC) funding sparked political division, it also led to a more open debate. In contrast, discussions on the BRI have been less transparent, with limited public information, making the call for parliamentary debate and oversight both valid and reasonable.

Most importantly, a national consensus is crucial on the principles for accepting foreign assistance, including inclusion (with civil society participation), transparency (openness about projects and funding), parliamentary oversight (for broader legitimacy) and honest communication with donors on Nepal’s approach and position. While parliamentary approval for each foreign funded project may not be necessary, it is essential for larger projects like the BRI or the MCC Compact.

The author is a member of the board of directors at the Institute of Foreign Affairs,Nepal. Views are personal

In the literature on foreign policy, two key issues are often cited. One, no foreign policy develops in isolation but is expanded from domestic policies. Two, national security is and should be any government’s main responsibility, even as the country’s real security depends on national unity.

After an intense national debate, discussions and political blame games, the Nepal government finally decided not to participate in the US government’s State Partnership Program (SPP). To bring uniformity in communication and harmonization in foreign policy agenda, the government has also decided to channel all correspondences to foreign missions and countries through the foreign ministry.

Both these are welcome steps. The main lesson of the SPP controversy is that it is important to build national consensus on sensitive issues such as national security and foreign policy. Otherwise, foreign powers get to influence the country’s major stakeholders in their favor.

The way the SPP issue was handled in Nepal also revealed many fault lines in our approach and communication. Nepal Army, which is primarily responsible for Nepal’s security, came into controversy because of its non-coherent communication with the public, revealing an institutional weakness.

Given the changing world order to multipolar power centers, Nepal is likely to be dragged into more security and foreign policy dilemmas. There was a similar dilemma a few years back over whether to participate in BIMSTEC’s joint military training.

Nepal still has to rely on foreign assistance or loans to support about 30 percent of its general expenditure and 100 percent of its capital expenditure. It thus needs a balanced approach to development and security. On development assistance, Nepal needs to open its arms for cooperation by keeping its national development goals at the center. On the other hand, with the exception of training and technical assistance on security matters, it needs a policy of non-alignment. It should give a clear signal to all major powers that Nepal doesn’t want to be in any security camp.

The ongoing war in Ukraine is almost a proxy war between Russia and the West. Russia is projecting itself as a leader of anti-American forces, much as it did during the Cold War. Last week, at the International Economic Forum in St. Petersburg, Russian President Vladimir Putin announced the end of the US-dominated unipolar world.

In the early days of Russia’s invasion of Ukraine, China’s position was to find a mutual solution to end the war, but more recently, China is focusing on strengthening its security and trade ties with Russia. In a phone call on Putin’s birthday, Chinese President Xi Jinping is said to have assured Russia of  security assistance. Recently, a new Amur River crossing has been opened to boost trade ties between Russia and China with the goal of carrying more than two million people and four million tons of cargo annually. China has increased its gas imports from Russia by 40 percent, while the European Union, the US, Canada and other countries have banned the purchase of Russian oil. Analysts say growing cooperation between Russia and China is creating a strong anti-US pole, while Russia's invasion of Ukraine could also set a pretext for China’s invasion of Taiwan.

In a few years, China and India, Nepal’s two neighbors, are set to become the world’s first and second economic powers. In recent times, in its national security agenda, the US has been prioritizing the Indo-Pacific region to check China’s global dominance. In a global power competition, both China and the US are trying to forge strategic, security, trade, and other partnerships in Asia and the Pacific.

‘The Pivot to Asia’, ‘The Policy of Strategic Rebalancing to Asia’ and ‘The Trans-Pacific Partnership for the Asia-Pacific Regional Cooperation’ were initiated by the United States under President Obama. In 2018, President Donald Trump announced an ‘Indo-Pacific Strategy’ aimed at curbing China’s growing dominance in the South China Sea. The US, India, Japan and Australia also revived the Quad (The Quadrilateral Security Dialogue) in 2017 to curb China’s growing influence in the region.

China, meanwhile, has pushed for trade and security agreements with 10 Pacific nations, including Fiji, Samoa, Tonga, Kiribati, Papua New Guinea, Vanuatu, Solomon Islands, Niue and Micronesia, to counter US and Australian strategic, security and economic influence in the Pacific.

In East Asia, China has close ties with Cambodia and Myanmar, and Cambodia has even provided a base for the Chinese navy. Southeast Asian countries such as Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam, which have close economic and trade ties with China, are nonetheless at odds with both the US and China over their security.

Prior to the announcement of the Indo-Pacific Strategy and the revival of Quad, military training and technical assistance were considered normal. In Asia, Bangladesh, Maldives, Cambodia, Thailand, Malaysia, Philippines, Vietnam, and Mongolia have benefited from SPP. Nepal Army has traditionally been engaged with China, India, US, UK, and Pakistan on education, joint military training activities, exchanging experiences and knowledge and high-level visits.

To engage in these activities is one thing, to be a strategic partner of a global power’s military alliance-like mechanism is another. Given Nepal’s unique geopolitical position, its coming under the umbrella of any one power will not only destabilize domestic politics but also increase the danger of Nepal becoming a playground for foreign powers.

In the global competition for dominance, the major powers are also vying to increase their partnerships by packaging foreign aid, trade, transit and security assistance. The Indo-Pacific Strategy was initially a security strategy, but is now becoming more comprehensive with focus on trade, economic and other cooperation. China is also putting together a trade and security agreement with the Pacific countries.

Now, what kind of help do we accept and what kind do we reject? Although the MCC compact was a purely development project, the growing polarization between China and the United States had a direct impact on its approval. Given its need for development assistance and its geopolitical location, the country needs to redefine its policy of non-alignment. Nepal, in fact, should adopt a policy of alignment and cooperation with all major powers on its development, prosperity and progress. On the other hand, Nepal should strictly adhere to a policy of nonalignment on any security and defense partnerships.

Another important lesson from the SPP controversy is that Nepal should focus on strengthening its civil-military relationships. Nepal Army was blamed for the SPP fiasco by politicians, including former prime ministers and ministers. Civilian supremacy over the military also depends on the strategic, security and technical knowledge and skills of the two sides. In Nepal, the army has been pursuing military diplomacy for years on its own and most of the military's proposals, including budgets and promotions, have been formally approved by the civilian leadership, without much oversight and discussion.

Political leaders’ blaming of the military and the army’s inability to defend itself highlights Nepal’s weak military-civilian relationship. Going forward, policy issues, such as security and foreign policy, should be decided at the political level, while technical matters, such as training and knowledge exchanges, should be decided at the military leadership level.

The latest government decision seems to have put a full stop on SPP controversy, but a key question remains: How could we effectively communicate Nepal’s decision not to be a part of SPP without jeopardizing the traditional military and development ties with the US? One option could be to organize a high-level all-party meeting to discuss the government’s decision and forge national consensus on Nepal’s position and messaging on national security issues.

The author is a member of the board of directors at the Institute of Foreign Affairs, Nepal

Indian Prime Minister Narendra Modi made a one-day trip to Lumbini, Nepal on 16 May, coinciding with the 2566th birth anniversary of Lord Buddha. This trip was of high significance not because it was Modi’s fifth trip to Nepal as India’s Prime Minister, but because the jaunt was widely viewed as ‘religious diplomacy’.

Many foreign policy pundits have argued that the main objective of Modi’s religious diplomacy was to send political messages. Thus his Lumbini visit overshadowed important political and economic issues, including border disputes and discussion on the outstanding EPG report.

In this context, two important questions need to be asked. Did religious diplomacy this time trump all Nepal-India political and economic issues? And should Nepal continue promoting religious diplomacy with India as an effective foreign policy tool to strengthen bilateral ties?

Even though Modi’s visit to Lumbini was religious in nature, Nepal also achieved some of its foreign policy goals by inviting him. For example, this is the second time Modi spoke of Lumbini as the birthplace of the Buddha. The visit has also given continuity to dialogues between India and Nepal on many issues. The pact on developing hydropower projects with India’s investment, five memoranda of understanding on education and culture, and Prime Minister Deuba’s request for additional air entry routes from Bhairawa, Mahendranagar, Nepalgunj and Janakpur were some notable outcomes of Modi’s visit.

Previously, to give impetus to Nepal-India religious and cultural ties, Modi visited Janakpur, the birthplace of Sita, and Muktinath, a sacred temple for both Hindus and Buddhists. These two visits made headlines in the Indian media, widely promoting Nepal as a religious tourism site among Indians. Please note that Saudi Arabia’s religious tourism to Mecca and Medina is not only instrumental in bringing in revenue but also strengthening goodwill with many countries through cultural and religious exchanges.

Some benefits of religious diplomacy as a soft foreign policy tool are well known, but the question is: How and to what extent should Nepal promote religious diplomacy given its constitutional identity as a secular and pluralistic country?

Since Narendra Modi came to power in India in 2014, there has been an increased emphasis in employing India’s soft power in foreign policy, including the promotion of yoga through a UN Yoga Day, the global image of Mahatma Gandhi, and the worldwide outreach of India’s music and movies. However, critics also argue that Modi’s strong promotion of Hindu religious diplomacy somehow undercuts India’s other soft powers, such as its traditions of non-violence and pluralism, diversity and tolerance.

No doubt, religious diplomacy, which incorporates religious dimension into the practices of international relations, is an increasingly used diplomatic tool.  It is true that traditionally state and religion had no demarcation. Over time, when the right-based democratic systems and institutions became the cornerstone of democratic societies, the rigorous separation of state and religion started. Madeleine Albright, the former US State Secretary, once said, “Many practitioners of foreign policy– including me–have sought to separate religion from world politics, to liberate logic from beliefs that transcend logic.”

However, as Samuel Huntington noted in his famous book ‘Clash of Civilizations’, religion is also a defining element of culture and thus, having good cultural ties between nations could strengthen relations. The Obama Administration acknowledged the possibilities of religious diplomatic cooperation with the realization that religion motivates people and shapes their views. For example, the recent conflict in Iraq and Afghanistan taught the world a hard lesson that bridging the gaps between political and religious spheres is important for both peace-building and nation-building.

When there is a rupture in relations between two nations, religious diplomacy can reconcile the relationship when the antagonists cease dehumanizing each other, and start seeing a bit of themselves in their enemy. For example, in track-two diplomacy, the inter-faith religious leaders often engage with diplomats and foreign policy analysts to seek solutions to complex foreign policy issues, including conflict, stabilization and peace.     

However, when religion is pushed too far as a diplomatic tool, it can disbalance a society with a secular identity. Leaders like Slobodan Milosevic of the former Federal Republic of Yugoslavia have manipulated religion for their own purposes.

The main purpose of religious diplomacy should be to promote culture and interfaith dialogue to bridge gaps between people and societies. In the current world, diplomacy often takes place in cultural and religious contexts. This helps us understand the interplay of religion and diplomacy. Religious misunderstanding and misinformation are also fueling the ongoing Russia-Ukraine crisis. Russian President Vladimir Putin has claimed that Ukraine is an inalienable part of Russia’s history, culture and religious space. Putin’s claim originates from the history of Orthodox Christianity in Russia. On the other hand, the Ukrainians claim that both President Vladimir Putin and Patriarch Kirill, the head of Russia’s Orthodox Church, ignore a long history of Ukrainian independence and diverse religious landscape that is fundamental to Ukraine’s national identity. Similarly, religious and social reconciliation as well as the interfaith dialogue could play an instrumental role to end the protracted conflict between the Israelis and Palestinians.

With this background, the question is: How could Nepal effectively use religious diplomacy to enhance diplomatic ties between Nepal and India? No doubt, the relationship is age-old and people-to-people based with many historical, social and cultural linkages. The joint prayer by Prime Minister Modi and Deuba for the peaceful and prosperous planet on the auspices of Budhha’s birthday sent a clear message to the world about how close India and Nepal are in terms of their common culture, festivals, religion, languages, and traditions.

There have been many ups and downs in Nepal-India ties in the past seven years, including during India’s undeclared economic blockade in 2015 and Nepal’s revision of political and administrative maps to claim Lipulekh, Limpiyadhura and Kalapani. These two issues stalled diplomatic correspondence between India and Nepal for a while. But Modi’s visit to Janakpur and Deuba’s visit to Varanasi have helped reopen the lines of communication.  Modi’s visit to Lumbini should be seen in this larger context.

In a nutshell, Nepal should effectively use all diplomatic measures and channels to continue dialogue with India and to find amicable solutions to outstanding issues. Given Modi’s strong affinity for elaborate Hindu religious rituals and visits to holy sites, Nepal could continue promoting its soft power through religious diplomacy, albeit with some caution.

First, religious diplomacy should be promoted as a cultural soft power, not as a boost for one religion. The religionization of politics and the politicization of religion should be avoided because this could challenge our cultural identity as a diverse country, peaceful, tolerant and harmonious society, and our status as a constitutionally secular and pluralistic country. Religious diplomacy should not be a tool to deepen religious divides but rather to bridge gaps between religions.

Second, religious diplomacy should be a means not an end. It should be used as an effective tool to promote Nepal’s tourism, investment, trade, transit and many other political, economic and social goals. 

The author is a member of the board of directors at the Institute of Foreign Affairs, Nepal

As Hubert Humphrey, former Vice President of the United States, once said, “Foreign policy is really domestic policy with its hat on”. The recent Nepal visit of Chinese Foreign Minister Yang Yi and the official India visit of Nepal’s Prime Minister Sher Bahadur Deuba should be analyzed within Nepal’s evolving political context. The resumption of high-level meetings, regardless of immediate gains, should also be seen as a good start in the rebooting of Nepal’s relations with India and China.

For example, Prime Minister Deuba raised outstanding border issues during the summit with his Indian counterpart and there was general understanding to address it through dialogue. This was indeed an icebreaker in the Indo-Nepal border dispute. Similarly, Nepal has successfully communicated with China its continued need for development assistance, preferably grants.

Nepal’s relations with two big neighbors have gone through many ups and downs in the past six years. KP Oli, now the leader of the main opposition, in his first stint as prime minister, signed the ‘Transit and Transportation Agreement’ with China in 2016, aiming to diversify Nepal’s third-country trade. In his second stint, Oli led the process to amend Nepal’s constitution to unveil a new map of Nepal by incorporating Kalapani, Limpiyadhura and Lipulekh.

However, Oli’s foreign policy approach was criticized for its vacillation between two neighbors, initially tilting towards China and later making overtures towards India. Oli famously ratchetted up anti-India sentiment through nationalistic rhetoric, including mocking India’s national emblem and also making an unsubstantiated claim over Lord Rama’s birthplace. However, in his last few months in office, Oli extended an olive branch to India by meeting India’s intelligence chief in Baluwatar and expressing his intent to mend fences by resuming high-level meetings. It was viewed by many as a 180-degree foreign policy turn from China towards India—just to save his chair.

When Deuba came to power in July 2021, he had challenges of improving strained relationships with both China and India. The recent visit from China seems to be more of a Chinese push, particularly after the disintegration of Nepal Communist Party, the formation of Deuba-led government, and parliamentary ratification of the MCC compact.

PM Deuba and his team seem to have made many attempts to reach out to India, including for party-to-party exchanges and interactions.  In late August 2020, the NC invited the Bharatiya Janata Party’s Foreign Affairs Department Chief Vijay Chauthaiwale for a Nepal visit and an NC team led by Prakash Sharan Mahat went to India.

In light of growing India-China competition in Asia, the US alliance with India, the American bid to counter China, the economic challenges brought by Russia’s invasion to Ukraine, and development challenges posed by climate change and the coronavirus, Nepal needs to reboot its foreign policy, particularly with its two big neighbors, and the resumption of high-level meetings is a step in right direction.

In foreign policy literature, weak states are those that lack resources or economic power or, alternately, those without strong foreign relations. Understanding its geography is vital to understating Nepal’s foreign policy, but in the emerging world order with multipolarity and multilateralism, it is equally important to understand how a state can maintain its foreign policy space bilaterally and multilaterally—regardless of its size and location.

The 2015 constitution of Nepal aims to pursue “an independent foreign policy based on the Charter of the United Nations, non-alignment, principles of Panchsheel, international law and the norms of world peace, taking into consideration of the overall interest of the nation.” However, these guiding principles enshrined in the constitution need to be tweaked in line with the emerging world order and evolving relationships.

For example, the principle of neutrality has also been evolving. For example, Switzerland has abandoned its traditional neutrality to join Western countries in imposing sanctions against Russia after its invasion of Ukraine. Together with 141 UN member states, Nepal voted in favor of a UN resolution deploring the invasion, although Nepal’s two big neighbors China and India abstained from voting. Nepal’s position this time was strikingly different to those of India and China, not because Nepal wanted to be different, but because Nepal chose a straightforward position to call a spade a spade.

For decades, although there has been occasional tilting towards one or the other, Nepal’s geography as a landlocked country has always been considered a key for balancing India and China. The traditional sense of balance of power was largely based on the principle of being cautious to the interests of its neighbors rather than maximizing Nepal’s opportunities as an economic link. Nepal’s new foreign policy approach to India and China, two emerging global powers, should be based on a connectivity-driven development strategy with a shift from a ‘landlocked’ state to a ‘land-linked’ state, focusing on cross-border infrastructure investments for transport, trade, information and power connectivity.

The ratification of the MCC compact has signaled to the international community that Nepal is open for foreign aid investment. This might have worked as a reverse psychology: China decided to send its foreign minister to assure Nepal on Sino-Nepal relationships.

A sense of competition among major powers in supporting its development is what Nepal needs for the self-sufficiency of its economy. Most importantly, Nepal’s foreign policy reboot should be based on two principles: The principle of engagement with all major powers for Nepal’s socio-economic development, and the principle of mutual respect for each other’s territorial integrity, security and sovereignty.

During the recent visit of Chinese Foreign Minister Wang, Nepal and China reinvigorated bilateral ties by signing nine agreements, related to grass to railway and vaccines to economic and technical cooperation. None of these agreements, however, were about the Belt and Road Initiative (BRI), from which many countries in the world are benefitting as a development financing mechanism.

As a follow up to Wang Yi’s visit, Nepal needs to put more effort into achieving its long-term strategic goals by focusing on results-oriented discussions on security, development assistance and investment (including on BRI), as well as transit, trade and tourism.

Nepal has also experienced a blockade-like situation from China since January 2020. China has halted issuing visas to Nepali traders. China is Nepal's second largest trade partner after India; however, it is not the second largest trade partner for Nepal's exports. This means Nepal needs more open and productive follow up discussion with China on a preferential trade agreement.

In 2016, Nepal signed a landmark Transit and Transportation Agreement with China, followed by the signing of protocol on its implementation in 2019. However, Nepal’s transit deal with China has made no headway even after six years. Similarly, Nepal signed on to the BRI in 2017 with much expectation, but so far not a single project has taken off. These examples clearly point to lack of direction, planning and negotiation with China on issues of strategic importance.

Nepal’s relations with India have been severely strained, particularly after the 2015 undeclared blockade and dispute over Kalapani. There were no high-level visits between India and Nepal after the global spread of coronavirus. Although the main opposition party speculated that Prime Minister Deuba went to India to seek its blessings ahead of elections, this official visit has rather opened up a door to discuss all outstanding issues and strengthen multi-faceted relations.

Nepal and India agreeing to expand sub-regional cooperation in power and energy under the framework of BBIN (Bangladesh, Bhutan, India and Nepal) and to engage in bi-directional power trade are welcome news given the potential of clean energy to tackle the challenges posed by climate change. However, the real success of Deuba’s recent visit will depend on whether India will be open to resolve border disputes, grant more air routes, import more electricity during the summer, provide access to Bangladesh for electricity export, and be open for China-India-Nepal cross-border infrastructure development under the ‘trans-Himalayan connectivity’ concept.

With both India and China, Nepal should continue emphasizing its ambition and aspiration to be a country that could help markets in South, Central and Southeast Asia integrate.

The author is a member of the board of directors at the Institute of Foreign Affairs, Nepal

A shorter version of this article was published in the print edition of The Annapurna Express on 7 April 2022.

As former US President John F. Kennedy famously said, “Domestic policy can only defeat us, foreign policy can kill us”, the Millennium Challenge Corporation (MCC) compact has weakened Nepal on both domestic and international fronts. The debate over the compact has deeply polarized the Nepali society, Nepal’s major political parties and scholars, hinting at Nepal’s policy instability and political bickering to the international community. The protracted controversy and conspiracy over the compact are a reflection of two major challenges: 1) Lack of stability in Nepal’s major policies, both development and foreign, and 2) the emerging world order and fast-changing geo-political dynamics and polarization of world politics.

It is unfortunate that Nepal has failed to forge national consensus on vital development policies and projects. The major parties are changing their positions depending on partisan benefits, regardless of whether the policies and projects in question are beneficial to the country. The CPN (Maoist Center) and the CPN (Unified Socialist), two major factions in the Deuba-led government, have been protesting against the MCC compact both in and outside the parliament, without quitting the government.

The then KP Sharma Oli government had registered a motion for ratification of the MCC compact in the House in June 2019, but the same Oli-led UML has now done a U-turn and is accusing the Deuba-led government of tabling the compact in the House on the instruction of foreigners. This is a testimony to the deep-seated policy and political instability in Nepal, as well as to a purely partisan political culture and double-standards in Nepal’s politics.

For the most part, the debate over the compact is driven not by the stake of Nepal’s development, but by the imaginary threats to Nepal's sovereignty and security. It is less about safeguarding Nepal’s national interest with a foreign power trying to bully or intimidate Nepal, and more about politics of exaggeration and fear-mongering for partisan gains.

Nepal’s geo-political location between two emerging superpowers China and India and China’s increasing economic and political influence as an alternative superpower against the current US-dominated world order seems to be in full play behind the compact debate.

Given its vital implications for international relations and foreign policy, the communication about and the sensitivity around the compact could have been better handled, for instance by keeping the foreign ministry in the loop from the start. Due to globalization and increased connectivity in finance, people’s movement and technology transfer, domestic developments and foreign policy agendas are closely linked. This is why our own neighbors—including India, Bhutan, Bangladesh and Pakistan—have recently added weight to their foreign policy portfolio.

Sometime ago, the news media reported that Washington had warned that it would review its relations with Nepal in the event Nepal failed to ratify the compact from Parliament. As the foreign ministry has recently tried to communicate, the longstanding US-Nepal relations do not depend on one development project. The controversy over the compact has more to do with Nepal’s domestic politics and nature of the current coalition and less about Nepal’s overall relationship with the US.

Change and stability both guide a country’s foreign policy. In Nepal’s case, it may need to fine-tune its foreign policy in the context of emerging world order. But it is equally important to have a consistent, stable and coherent foreign policy so that Nepal does not send mixed or wrong signals to major powers, its neighbors and other countries with whom it shares vital security, economic, cultural and political concerns.

The world is in fact undergoing a momentous economic, military and technological transformation. The global center of gravity is shifting from the trans-Atlantic to the trans-Pacific. Existing security arrangements and alignments are also undergoing a pivotal change. China is emerging as a front-ranking power against the US and the West. But in the coming decades Asia will be a cluster of major powers such as India, Indonesia, Japan, and the four old tigers (Hong Kong, Singapore, South Korea and Taiwan), each with significant economic and military capabilities.

In 2050, according to the PricewaterhouseCoopers, a multinational professional services network of firms, in projected GDP at the Purchasing Power Parity, China will be number one economy in the world ($58.4 trillion). It will be followed by India in the second position ($44.1 trillion), the US in the third ($34.1 trillion) and Indonesia in the fourth ($10.5 trillion). According to the Global Power Index, the US and Russia have been ranked number one and two in military strength, but China, India, Japan and South Korea have been ranked third, fourth, fifth and sixth, respectively. With the economic growth of China and India, their military strength will also rise significantly by 2050. Asia is already a new leader in technologies (such as China’s lead in 5G, India in software-as-a-service (SaaS), and Japan and South Korea in electronics).

Between 1945-1989, the world saw a Cold War with the US and former Soviet Union facing each other. After the fall of the Berlin Wall and the disintegration of the Soviet Union, the US was able to assert its claim as the only superpower in the world. In the past decade or so, the rise of India and China, the reassertion of Russia’s military power, and the growth of European Unions’ collective strength have created a multipolar world. Because of the global challenges such as pandemics, climate change, cyber security, proliferation of weapons of mass destruction, the world is also increasingly interconnected and interdependent.

A famous African proverb goes, “when elephants fight, the grass gets trampled”. When there are multiple competing great powers in the emerging world order, countries like Nepal in sensitive geo-political locations will be asked to be a part of each great power’s political, security and economic alliance and to support their positions at multilateral institutions, including in the UN Security Council and UN General Assembly.

Now the question is, what should Nepal do to protect its interests, remain relevant and effective in the emerging world order and yet not undercut the vital interests of major world powers?

Without a doubt, there will be more policy issues like the MCC compact in the future, including projects funded by China, India and multilateral institutions. Nepal should develop a coherent policy and decide whether a project with big geopolitical stakes and financial implications needs parliamentary approval.

On multilateral fora including at the UN General Assembly, Nepal should be stable in its policy, whether on Kashmir, South China Sea, Israel, Myanmar or Ukraine.

In an era of multipolar emerging world, Nepal should assure both India and China about their security and other vital concerns, but should emphasize that both these emerging powers could benefit from Nepal’s Trans-Himalayan connectivity. While balancing China and India, it is also important to maintain friendly relations with other powers, including the US, the EU, Japan, Russia, South Korea and Australia. This will help prevent heavy dependence on and influence of a single global power in Nepal’s domestic politics and economy.

For example, Bangladesh has maintained good relations with all major powers by focusing on economic development. Bangladesh has also turned its neighbors’ rivalry into billions of dollars in investment. It has indicated its keenness to sign a free trade agreement with China, which in turn has promised $24 billion for infrastructure-development during the recent visit of President Xi Jinping.

According to the US State Department, besides being the single largest importer of Bangladeshi garments, the US is also the top investor in Bangladesh, with $3.5 billion in accumulated investments in 2019. Likewise, Bangladesh-India relations are stronger than ever after the resolution of longstanding border dispute in 2015 and various high level official visits that have enhanced economic, trade and connectivity ties.

As BP Koirala eloquently outlined in the 1960 UN General Assembly, small nations have a role to play on the global stage. A country heavily impacted by global climate change despite its near negligible greenhouse contribution, Nepal should take the lead globally on the climate change agenda by working together with all major powers and affected countries.

Finally, regardless of whether the MCC Compact is approved or not, it is time to reboot Nepal’s foreign policy by organizing a series of international conferences with a proactive role of Nepal’s foreign ministry. The goal should be to give a clear signal to the international community that Nepal has stable and coherent foreign policy. 

The author holds a Master of Science in International Affairs from New School University, New York, and specialized Post Graduate courses from Harvard University, Boston

Recently termed the ‘lightning rod for controversy’, the MCC is among the most talked about topics among Nepali citizens, politicians, experts and media, and they continue to be divided over the $500 million-worth compact.

Who would have thought that a development cooperation project would be so politicized? According to political pundits, China and the US seem to be direct players in the MCC and India’s approach seems aligned with the US.

Nepal seems to be struggling to balance geopolitics and to develop broader political consensus on the issue. The MCC’s Vice President Fatema Sumar’s Nepal visit coincides with the Nepal government’s call for a new session of the parliament, which is expected to ratify or reject the compact. According to the US, Sumar’s visit will be aimed at assessing the compact’s progress, but many in Nepal view it as a US pressure tactic to force Nepal to make a final decision.

The ongoing debate has political and technical dimensions. At the political level, there are concerns about whether Nepal, through this compact, will fall into the sphere of the American Indo-Pacific Strategy. Although the compact is not directly related to any security agenda, many suspect Nepal is being tricked into agreeing to one.

At the technical level, there are few provisions in the compact, which are taken as a threat to Nepal’s sovereignty, independence and non-aligned foreign policy. 

The blessing in disguise is that the MCC debate has also contributed to the overall discussion about the effectiveness of foreign aid in Nepal. What kind of financing is needed for Nepal’s development projects? Should Nepal finance those projects of strategic importance on its own? What kind of projects should we accept? Regardless of whether Nepal’s parliament ratifies or rejects the compact, there is already a major lesson: Nepal should accept foreign aid only after a thorough study of terms and conditions and the project’s overall impact on Nepal’s political and economic future. 

If the MCC compact fails to get parliamentary approval, there are concerns that Nepal’s ties with the US could suffer. Nepal has over 70 years of diplomatic, development, and military engagements with the US, including recent cooperation on Covid-19 vaccines. Due to the prolonged process to approve the compact, the American patience seems to be running thin. Nepal’s credibility is also in line if the compact is rejected, potentially impacting US collaboration and assistance in other sectors (vaccine support, health and education support, etc.). 

Second, at the technical level, revisions are sought on many legal provisions in a mutually agreeable way. Amid rumors of a secret military conspiracy, there are some real concerns about the pact's implications for Nepal’s sovereignty, including the superiority of US laws against Nepal’s constitution and laws. Moreover, Nepal should not give the impression that it is leaning towards the Indo-Pacific Alliance against China. 

Given the growing geopolitical, security and economic US-China rivalry, many Nepalis suspect a hidden agenda behind the MCC. In fact, many Asian countries, including Sri Lanka, Malaysia, Maldives, and Nepal, are now reassessing the vaccine diplomacy of China and US, as well as assistance through both the MCC and the BRI. While donors emphasize their strong oversight for the money given for big infrastructure projects and expect aid recipient countries to appreciate the support, the receiving countries are also paying close attention to overall benefit of infrastructure projects. 

There are also arguments that Nepal could fund those two MCC funded projects on its own. However, the Nepal government’s borrowing from the internal and external capital markets have tripled in the past three years, reaching more than 40 percent of Nepal’s GDP. In this perspective, a development pact with a grant of a half a billion dollars is not a small amount for Nepal. 

What is the way out then? Given the level of politicization of MCC all the way down to the grassroots, there seem to be only two choices. First, there should be an open discussion in Nepal’s parliament regarding all provisions of the compact so that the general public clearly see the risks and benefits. Suspicion about the MCC seems to be a combination of two things: misinformation and a few unclear provisions. For example, there is misinformation that the US is desperate to give the grant to Nepal because of its security interest. In fact, the MCC board in 2018 approved Nepal’s grant proposal not just because the US chose Nepal for its strategic importance. It was because Nepal met the MCC’s eligibility criteria of good governance, economic freedom, and citizens-centered investments.

Nepal needs to clearly convey to the US that it should agree to revise unclear or controversial provisions of the Compact. Nepal should also convey the message that the US should not expect any security favors in return. Most important, there has to be a broad consensus among Nepal’s major political parties, particularly among those in the current coalition, on whether to accept or reject the compact. 

There is a silver lining to the MCC issue. Nepal government’s request to the US to clarify the provisions deemed controversial is a good start. The US is also sending a positive signal that it is ready to revise these controversial provisions in a mutually agreeable way. 

But if the US does not revise unclear or controversial provisions and if there is no broad consensus about the MCC among the major political parties in Nepal, it is better to reject the compact than risk the instability in the government and rift among coalition partners. A development project, even if it has a good intent, should not be accepted if it brings long-term political instability. 

The author holds a Master of Science in International Affairs from New School University, New York, and specialized Post Graduate courses from Harvard University, Boston

In the past six months, many political pundits, analysts and foreign policy enthusiasts, both in India and Nepal, have been puzzled by India’s Nepal policy. India has been publicly saying that political developments in Nepal are its ‘internal matters’, but there was a strong perception that India was throwing its full weight behind Prime Minister KP Oli through various bargaining interactions.

Prime Minister Oli’s move to dissolve the parliament twice sparked a constitutional and political crisis. Nepal’s Supreme Court not only reinstated the dissolved parliament and ordered the President of Nepal to appoint Oli’s rival Sher Bahadur Deuba as prime minister. It also clearly mentioned that actions of the President and the Prime Minister were unconstitutional and hence the need for the judicial review.

With Deuba, the head of Nepali Congress, a moderate and often friendly political party for India’s strategic goals, there is an opportunity for India to reset its Nepal policy. But the question is: Will India, which has traditionally supported Nepal’s democratic movements, continue to advocate for individual persons rather than policies? 

However, the future of India-Nepal relations will largely depend on two issues: one, whether India realizes the larger risk of not fully engaging all major parties in Nepal and expressing its firm support for Nepal’s constitutional democracy and two, whether Deuba’s new government understands India’s key strategic interests and tries to address its concerns.

Nepal should also pay close attention to a couple of questions to understand India’s foreign policy conundrum. What would have been India’s strategic considerations behind its support of Prime Minister Oli, who, in the past, had earned a reputation of being a hardliner against India? Was India’s support driven by a short-term strategic goal of dismantling the unification of Nepal’s China-leaning communists or accommodating more Madhesis in the government? Who is actually leading India’s Nepal policy? India’s Prime Minister’s Office, its External Affairs Ministry or its intelligence agency? Are Indian Embassy and India’s other contacts in Nepal feeding right information or misleading Delhi? 

The Modi government’s foreign policy has been influenced as much by domestic political agendas, including Hindu nationalism, hardline stance against Pakistan, and India’s quest for world power, as by India’s rising concern over rapid expansion of China’s economic clout in India’s neighborhood and China’s military might in Asia. For example, in addition to the Belt and Road Initiative, China has recently launched the ‘China-South Asian Countries Poverty Alleviation and Cooperative Development Center’.

The ‘Neighborhood First’ policy, which was first articulated by former Prime Minister IK Gujaral for peaceful relations and co-development with its neighbors, has been one of the signature initiatives of the Modi government. However, in Modi’s second term, it turned into a policy to keep Pakistan aside and counter China’s rising influence in India’s neighborhood.

According to India’s Foreign Minister S. Jaishankar, “Irrespective of issues that the neighbors might have vis-a-vis India, we should be able to create an environment so that the neighborhood remains bound to and sensitive to India’s core security concerns”. In recent years, India seems to be moving away from the strategic approach (e.g., supporting democracy) towards a more selective approach with a focus on tactical gains to protect India’s security interests in the neighborhood.

Ajit Doval, the National Security Advisor, and S. Jaishankar, are both known for their hardline stance on managing China, dealing with Pakistan, and consolidating India’s position in India Ocean countries—Sri Lanka and the Maldives. These two leading foreign policy architects of India have often been trolled for acting more like apparatchiks and less like diplomats because of their tactics of not letting traditional relations or historical factors affect India’s interests and aspirations.

For example, despite its global recognition as the largest democracy in the world, India abstained from voting on the UN's Myanmar resolution that condemned its military coup. The resolution was approved with 119 countries voting ‘yes’, Belarus voting ‘no’ and 36 countries, including India, abstaining. India has walked a diplomatic tightrope by expressing its support for the democratic transition, but not criticizing Myanmar’s junta, with a tactical aim of preserving ties with the military to maintain India’s strategic security and counter-balancing China’s influence in Myanmar.

The Modi government’s focus has been improving relations with Bangladesh by supporting the ‘invincible’ Sheikh Hasina, who has been widely criticized for curtailing democracy by suppressing political opposition through rampant human rights abuses, extra-judicial killings, and corruption. In Sri Lanka, despite the Tamils’ ethnic roots in India and Modi’s strong Hindu nationalism, India abstained from a vote at the UN human rights body asking Sri Lanka to do more to protect minority Tamils from allegedly mass rights violations. In the Maldives, India is vying for influence against China by significantly increasing security, development and diplomatic engagement, despite Solih government’s police crackdown and indiscriminate mass arrests of protestors that triggered the ‘India Out’ campaign.

As in other South Asian countries, and with Oli’s 180-degree turn towards India, the strategy of countering China’s growing influence in Nepal could have been superseded by other India’s foreign policy goals. However, this policy significantly contributed to the growing perception of many Nepalis that India is against the current constitution and in favor of dismantling the current system.

Many former Indian diplomats (e.g., Ranjit Rae, Manjeev Singh Puri and Shyam Saran), who know Nepal’s geo-politics well, argued that India was risking its strategic gains by backing Oli and alienating other forces. India should rather have expressed its stand for political stability and constitutional governance in Nepal.

On the Nepali side, new Prime Minister Deuba has an opportunity to reach out to India and establish an open and honest line of communication to discuss all outstanding issues and find common grounds. In the past, Deuba’s government has agreed with India for early conclusion of the Agreement for Mutual Legal Assistance and updating the Extradition Treaty. However, more recently, the alliance with Prachanda, the head of the Maoist party with a soft corner for China, and the leadership competition in Nepali Congress, with some members of his own party feeding suspicions about him, might have contributed to Deuba-India trust deficit.

It will be clear in a few days whether India will reset its Nepal’s policy by choosing policies over persons, but one thing is clear. The ‘trust deficit’ between India and Nepal’s new government should be overcome. The image of an ‘interventionist neighbor’ could be counter-productive to India’s interests in the long term. On the other hand, Nepal needs India’s support for its stability, development and constitutional governance.

The author holds a Master of Science in International Affairs from the New School University, New York, and Specialized Post Graduate courses from Harvard University

The pledge of G7 countries to donate a billion Covid-19 vaccine doses to low-income countries has been praised by many as a unified front to intensify international efforts against the pandemic. But the question is whether this pledge will adequately address the deep gap between rich and poor countries’ access to vaccines.

Without an effective global vaccination plan, one billion doses of Covid-19 vaccines could be just a drop in the ocean compared to the World Bank’s estimate of 11 billion doses needed to end the Covid-19 crisis globally.

The delay in global vaccination rollout is as much about the stockpiling of vaccines by the US, the UK and other rich countries as it is about lack of seriousness on the part of the Western leaders, who could have agreed to waive the intellectual property protection and other export-related regulation on an exceptional basis to allow developing countries to produce these vaccines themselves. Moreover, keeping China, India and Russia out of the global vaccine discussions will not strengthen global efforts against this global problem. An effective global vaccine regime should monitor the production, supply and distribution of all vaccines.

Delays in vaccination rollout are not only reversing development gains for millions but also deepening global inequality. The UN ‘Sustainable Development Report 2021’ estimates a loss of four million jobs globally, and about 120 million people falling back into extreme poverty. According to Mckinsey, a management consulting firm, women's jobs are 1.8 times more vulnerable to the crisis than men’s. About 11.5 million migrant domestic workers, mostly women, have been left unpaid and stranded in the Middle East.

Nepal’s Covid-19 vaccines woes have been compounded not only by the global vaccine inequality, but also by its political crisis, failure in diplomacy, mismanagement, and corruption issues. The inefficiency in the procurement process, the rent-seeking behaviors of politicians and businesses, India’s own Covid-19 crisis, and China’s emphasis on non-disclosure agreements contributed to the delay of vaccine procurement. The non-transparent, uneven and unequal distribution of Covid-19 vaccines in the capital city and other parts of the country is also creating anger and frustration among people.

Nepal failed to effectively engage in vaccine diplomacy when it was hit by the second wave of ‘Covid-19 catastrophe’. With more than 8,000 new infections a day, Nepal’s health and humanitarian crisis was proportionally bigger than that of India, but Nepal failed to effectively mobilize its foreign missions to receive international support to address Nepal’s health and humanitarian crisis. Initially, the Prime Minister of Nepal, instead of asking for global support, was even claiming that the situation was under control.

Although belated, Nepal engaged its President to write letters to foreign leaders for vaccines, but except China, no other country has yet replied. In particular, Nepal has failed to convince India that the delay in supplying the second dose of vaccines has fueled anti-Indian sentiment in Nepal with the perception that India might be more interested in Nepal’s political crisis than its health crisis.

Nepal has so far received 4.2 million doses of Covishield vaccine from India and 1.8 million doses of Vero Cell vaccine from China. Some of those who have taken the first dose of Covishield are still waiting for the second dose after many weeks. The government is finally planning to purchase four million doses of Vero Cell vaccine, but it is too little, too late for a population of 30 million. According to many epidemiologists, 60-70 percent of the population needs to acquire resistance to safely achieve herd immunity against Covid-19. Thus Nepal should immediately increase the number of vaccine doses to be procured from China to at least 10 million (one-third of Nepal’s population).

Moreover, Nepal should also use its effective diplomacy to secure enough doses of AstraZeneca and Covishield vaccines for those who have taken the first dose of Covishield or for those above 64 who are yet to get the first shot. (Vero Cell has not been recommended for those above 64.) Nepal should also actively engage to secure as many doses of vaccines as possible from the US and UK-announced vaccine pledges.

What we learned from the first and second waves of Covid-19 is that if we cannot manage the pandemic, we cannot prevent the humanitarian and economic crises. Nepal currently seems to have fallen into a vicious cycle of Covid-19 pandemic and economic despair. Covid-19 has exacted humanitarian and economic costs on the society, while Nepal is also experiencing severe financing gaps due to the economic downturn.

Sustainable and resilient recovery from Covid-19 will require a deliberate effort to accomplish three main goals within the next 6-12 months. First, vaccines, vaccines and vaccines. Nepal needs enough vaccines to cover at least 60 percent of its population within the next six months to prevent the next wave of Covid-19 pandemic.

Second, Nepal’s health infrastructure needs to be urgently revamped so that the country has the capacity, infrastructure, and human resources to effectively handle and manage any future pandemic. It is time to upgrade state-run hospitals and make them well equipped with enough manpower, oxygen, ventilators, ICUs, ISO certified testing labs, adequate number of beds, and specialized viral and communicable diseases units.  All measures announced in the new federal and provincial budgets regarding the prevention, control, testing, and treatment of Covid-19 need to be properly and timely implemented. The main issue is whether the allocated budget can be spent to upgrade Nepal’s health infrastructure given a significant gap between policies and their implementation.

Third, Nepal’s economic recovery both in formal and informal sectors remains fragile and uncertain. Almost all small, medium and large-scale businesses, such as hotels, trekking, travel and tours, airlines, cinema halls, handicraft, media houses, advertising agencies, tailoring, beauty parlors, health and fitness clubs have been hit hard. The future of millions of workers employed by these businesses is now in limbo. The unemployment rate hit the record high of over 14 percent in 2020. Although several provisions of Nepal’s new budget aim at providing relief for people and businesses, Nepal’s growing political problem and poor budget implementation may prolong Nepal’s economic recovery.

The author holds a Master of Science in International Affairs from the New School University and Specialized Postgraduate courses from Harvard University