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In a historic political shift, the newly formed Rastriya Swatantra Party (RSP) and its prime ministerial candidate, rapper-turned-politician Balen Shah, swept the elections in Nepal and are set to form the government – dislodging the country’s old political institutions. While the mandate marks a pivotal moment in Nepal's political landscape following the Gen-Z protests that rocked the country last year, it also poses a significant strategic test for India in Kathmandu. 

Nepal occupies a key strategic place in India’s South Asian engagement strategy. India remains Nepal’s largest trading partner. Over the past decade, New Delhi has invested significantly in developmental assistance, strengthening cross-border connectivity projects and hydro and energy cooperation.

Initiatives such as amending the ‘Treaty of Transit’ to enhance trade flows via the Jogbani-Biratnagar rail link – enabling direct rail transport of containerised and bulk cargo to Nepal’s custom yard – and completion of the 34 km Jayanagar-Kutha rail link, similarly, integrated check posts have been operationalized to streamline customs procedures and reduce logistical delays – illustrate India’s effort in institutionalising supply chains that bind two economies closer together.

In the energy sector, India has invested heavily in several hydropower and electricity transmission projects. Multiple cross-border electricity transmission lines are already operational, while agreements have been signed for a new 400 kV transmission line linking Inaruwa to New Purnea and the Lamki-Dododhara corridor with Bareilly. Additionally, under a long-term power-purchase agreement, Nepal plans to export up to 10,000 MW of electricity to India over the next decade – reinforcing New Delhi’s ambition to position itself as the hub of a broader regional energy network. 

However, the smooth operationalization of these initiatives depends significantly on a cooperative and predictable political leadership in Kathmandu. It is precisely at this juncture that the landslide victory of the RSP carries profound significance. 

The RSP’s electoral triumph reflects the aspirations of a new generation shaped by the Gen-Z wave. For many Nepalis, the political mandate represents not merely a change in government but a generational reset in a political system long criticized for stagnation and persistent corruption. The anti-corruption sentiment that fuelled the September protests has now propelled a leadership that emphasises transparency, accountability, and institutional reforms while simultaneously articulating what many describe as a more “vocal sovereignty."

Within this emerging political cohort, relations with India may no longer be viewed through the lens of ‘historical obligation’. Sections of Nepal’s political discourse have historically accused India of excessive involvement in Nepal’s internal affairs and behaving as ‘big brother’ rather than engaging on equal terms. Whether justified or not, such perceptions have periodically strained bilateral ties in the past. The emergence of a political order committed to “strategic autonomy” and a “Nepal First” approach is therefore likely to scrutinize India’s role far more closely, particularly in negotiations concerning trade felicitation, customs procedures, and cross-border administrative arrangements. 

Consistent with this outlook, RSP under Shah’s leadership has pledged to reposition Nepal from a traditional “buffer state” between India and China into a “vibrant bridge” that facilitates trilateral economic partnerships. The RSP argues that Nepal must pragmatically maximize its sovereign interests with both neighbors through technical negotiations. 

China, meanwhile, is keen to steadily expand its economic and infrastructural footprint in Nepal. During K.P. Sharma Oli’s tenure, Kathmandu finalized several projects under the Belt and Road Initiative, deepening Chinese engagement in the country’s infrastructure sector. 

While Shah has expressed equal frustration with both India and China, it is very likely that the new government will seek to diversify Nepal’s external partnerships to reduce long-standing dependence on any single partner. Such balancing is common in South Asian diplomacy; yet, most of the party leadership’s relative lack of prior institutional experience in governing at the national level, coupled with a new political landscape, introduces an element of unpredictability regarding how these ambitions will translate into policy or whether the party’s “Nepal’s First” policy will slip into a “China First” reality – inevitably complicating India’s strategic calculations in the Himalayas.

Another sensitive dimension concerns unresolved territorial disputes. Shah and his party have taken a critical position on revisiting the India-Nepal Treaty of Peace and Friendship and have repeatedly called for a stronger Nepali stance on key territorial disputes, including Kalapani, Lipulekh, and Limpiyadhura, insisting that no foreign activity should take place in these regions without Nepal’s consent. The issue has remained a sensitive flashpoint between the two since Nepal’s controversial map revision in 2020. Now, with a two-thirds parliamentary majority, the new leadership could possess the domestic political capital to pursue a harder line on such issues, considering Balen Shah’s earlier anti-India rhetoric as a mayor of Kathmandu – possibly sharpening bilateral tensions.

New Delhi’s diplomatic outreach towards Nepal was traditionally anchored in the long-established political entities, such as the Nepal Congress and the Communist Party of Nepal – Unified Marxist–Leninist (CPN-UML). The RSP’s landslide victory signals the erosion of this familiar political landscape and the emergence of a new generation of leaders whose governance approach remains largely untested. In a country witnessing a dramatic shift, its younger generation is more digitally connected than ever before and uncompromisingly aspirational. Nepal’s electoral earthquake has brought the RSP into the corridors of power – one that India’s regional diplomacy has not previously had to navigate in such a form.

Although the new mandate sends some optimism in New Delhi's strategic circles. Analysts view the emergence of RSP, compounded by Shah's technocratic priorities – its emphasis on improving infrastructure, digital connectivity, and boosting GDP – could also open new avenues for cooperation. RSP ambitiously wants to be vehicle of change of a new Nepal and the trajectory of India-Nepal relations will therefore depend on how India adapts to this evolving landscape, making the RSP’s rise not a just a domestic phenomenon but a critical strategic test for New Delhi’s regional diplomacy in Kathmandu. 

Ammu S. Anil is a Senior Research Fellow at the MMAJ Academy of International Studies, Jamia Millia Islamia, New Delhi, and a Visiting Fellow at NIICE Nepal, Lalitpur.

Mahesh Ganguly, Teaching Assistant and Research Fellow, IIT Bombay. 

When a major neighboring currency weakens, Nepal cannot afford to ignore it. The recent pressure on the Indian rupee is not only India’s problem. Because  Nepali rupee is pegged to the Indian rupee, Nepal inevitably feels the impact. When the rupee weakens against the US dollar, the Nepali currency moves in the same direction. That simple fact ties Nepal’s economic stability closely to developments across the open border.

The rupee’s recent weakness is not the result of a deliberate policy choice by India. It reflects a mix of global shocks and structural realities. Oil prices have surged because of geopolitical tensions in the Middle East. Investors have become more cautious and moved toward safer assets such as the US dollar. At the same time, interest rates in the US remain relatively high, making dollar assets attractive.

India’s own economic structure also plays a role. The country imports a large amount of crude oil and many industrial inputs that are priced in dollars. When oil prices rise, India’s import bill increases quickly. This pushes up demand for dollars and puts pressure on the rupee. Even though India has strong growth and a vibrant services sector, its merchandise trade deficit remains large.

There's a growing argument that a weaker currency helps developing economies by making exports cheaper. In theory, that can be true. Countries with strong manufacturing bases can gain competitiveness from mild currency depreciation. But that argument has limits. India imports a lot of fuel, machinery, chemicals, and electronic components. When the rupee weakens too sharply, the cost of these imports rises. That increases production costs and fuels inflation.

In other words, a weak currency is not always a blessing. It can also act like a tax on the economy.

For Nepal, the implications are more complicated because of the currency peg. Nepal Rastra Bank maintains a fixed exchange arrangement where 100 Indian rupees equal 160 Nepali rupees. This peg has long served as a monetary anchor. It simplifies trade with India and provides stability in a small and import-dependent economy. But the peg also means Nepal imports India’s exchange-rate movements. When the rupee weakens against the dollar, the Nepali rupee weakens too. That affects import prices and inflation inside Nepal.

The most obvious impact is on fuel. Nepal imports petroleum products largely through India. If global oil prices rise and the rupee falls, Nepal faces a double shock. Transport costs increase. Electricity backup becomes more expensive. Food distribution costs rise. Construction materials and industrial inputs also become costlier. Inflation can therefore increase even if domestic demand is weak. Nepal’s central bank has long recognized that inflation in India often spills over into Nepal because of the currency peg and the close trade relationship.

This does not mean Nepal is currently in a crisis. In fact, the country’s external position is stronger than it was just a few years ago. Foreign-exchange reserves have recovered significantly since the stress period of 2022. Remittance inflows remain robust, providing a vital cushion for the economy. Inflation has also moderated from earlier peaks.

But comfortable numbers today do not guarantee long-term security. Nepal’s external stability is more comfortable than it is structurally secure. The economy still depends heavily on remittances and imports. A combination of higher oil prices, slower remittance growth, or a surge in imports could again tighten the external account.

Remittances illustrate this paradox well. They are a lifeline for Nepal. Millions of Nepalis working abroad send money home, supporting families and boosting consumption. These inflows help finance imports and stabilize the balance of payments. But they also reinforce an economic model built on migration and consumption rather than production and exports.

For many young Nepalis, the path to economic success still runs through a foreign airport.

This structural dependence means Nepal remains vulnerable to external shocks. When global conditions change, the impact travels quickly through exchange rates, import prices, and financial flows.

What should Nepal do in this situation? First, policymakers should not panic about the currency peg. The peg remains useful because India is Nepal’s dominant trade partner. It provides stability and credibility in monetary policy. Changing the exchange-rate regime abruptly would likely create more uncertainty than relief. Instead, the focus should be on strengthening the defenses around the peg.

Nepal Rastra Bank should continue to maintain strong foreign-exchange reserves. Adequate reserves give the central bank the ability to manage volatility and reassure markets during periods of stress. Careful monitoring of imports and external payments is also essential.

Second, the government should manage imported inflation carefully. Fuel pricing is a good example. Sudden price increases can hurt households and businesses, but delaying adjustments for too long can create fiscal problems. A balanced approach that smooths price changes while protecting vulnerable groups is more sustainable.

Third, Nepal must reduce its structural dependence on imported energy. Hydropower remains the country’s greatest economic advantage. Expanding domestic electricity use and exporting surplus power can reduce fuel imports and strengthen the external balance over time.

Fourth, export diversification is essential. Tourism, hydropower exports, agro-processing, and niche manufacturing sectors all offer potential. Without stronger exports, Nepal will continue to rely on remittances and imports to sustain growth.

Finally, governance and economic management matter. Investors and entrepreneurs need stable policies, efficient infrastructure, and predictable regulations. Without these foundations, economic transformation will remain slow.

Households and businesses should also avoid overreacting to currency movements. A weaker rupee does not mean people should rush to buy dollars or speculate in foreign currency. Panic behavior can create unnecessary instability. Instead, firms should focus on managing costs and adjusting contracts when imported inputs become more expensive.

Some sectors may even benefit modestly. Remittances sent in dollars or other foreign currencies increase in value when converted into Nepali rupees. A weaker currency can also help certain exports in third-country markets. But Nepal’s export base remains limited, so the inflationary impact of currency weakness is likely to dominate. In the end, the lesson is simple: Nepal is not in immediate trouble, but it cannot afford complacency; external conditions remain uncertain; oil prices are volatile; global financial markets can shift quickly; and the Indian rupee may remain under pressure for some time.

Nepal should use this period of relative stability wisely. Strong reserves and remittances have provided breathing space. That space must be used to build a more resilient economy. Because when the rupee trembles, Nepal inevitably feels the shock. The real challenge is ensuring that the country becomes strong enough to withstand those shocks.

Four years ago, the Rastriya Swatantra Party (RSP) did not exist. Today, it is forming Nepal’s government. That alone should make every traditional political party stop and ask itself a very uncomfortable question: what went so wrong?

The March 5 election results were not merely a surprise. They were a rebuke, delivered quietly through the ballot box by millions of Nepalese voters who had run out of patience. RSP's landslide victory is historic not because a new party won, but because it signals something deeper: the collapse of public faith in the political establishment that has governed this country since the democratic revolution of 1990.

The weight of 35 years

To understand why RSP won, you have to understand what Nepali Congress, CPN-UML, and the Maoist Centre have come to represent in the minds of ordinary voters. These parties have had every opportunity. They have held power repeatedly. They have made promises repeatedly. And repeatedly, voters have watched corruption scandals unfold, unemployment persist, public services stay broken, and governments formed through deals that had nothing to do with governance and everything to do with political survival.

The Sept 2025 GenZ protests tried to force accountability through the streets. Young people came out in tens of thousands, angry and organized, demanding change. The response from the old guard was predictable: consolidate, maneuver, and wait for the storm to pass. Many of those same leaders tightened their grip on their party structures and assumed they would outlast the anger.

They misread the room. When the protest could not dislodge them, voters took matters into their own hands on election day. Quietly, and in massive numbers, they chose someone else.

The Balen factor

RSP’s strategic decision to align with Kathmandu’s popular mayor, Balen Shah, and present him as the incoming Prime Minister just weeks before the election was arguably the most consequential political move of this election cycle. It gave RSP something it badly needed: a face, a story, and a reason to vote.

Balen ran a campaign unlike anything Nepal had seen before. He traveled the country in a caravan-style tour, appearing in constituency after constituency, not as a party boss but as something closer to a movement. His interactions with the media remained minimal. His public statements were carefully measured. Yet none of that seemed to matter. What voters saw was someone different. Someone who had actually done something as Kathmandu’s mayor, and who carried himself with a quiet credibility that felt foreign in a political landscape dominated by familiar faces making familiar promises.

This is important to understand: many voters who cast a ballot for RSP could not name their local RSP candidate. Many had only a vague sense of the party’s actual policy platform. What they knew was Balen, and what Balen represented—the possibility, however uncertain, that things could be done differently. In a country exhausted by broken promises, that possibility was enough.

History has a pattern

Nepal’s political history follows a recognizable rhythm. The party that captures the energy of a major political turning point tends to win the election that follows. Nepali Congress led the government after the 1990 democratic movement. The Maoists swept to power after the peace process ended the decade-long armed conflict. Madhes-based parties rose in 2008 on the back of a powerful identity movement. UML and the Maoists dominated in 2017 after steering the promulgation of the new federal constitution.

RSP has now repeated this pattern. Whatever one thinks of the GenZ protests, RSP absorbed their energy and their symbolism. They carried the sentiment of that movement into the election. And history, as it tends to do, rewarded them for it.

The harder question

But winning is the easy part. Governing is not. RSP now inherits a country with a fractured economy, deeply entrenched patronage networks, a public service in disrepair, and a geopolitical position that requires careful navigation between India, China and the West. The very expectations that swept RSP to power are now its greatest liability. Voters did not just want RSP to win. They wanted someone to actually fix things. The mandate is real, but so is the weight of it.

Several questions will define RSP’s tenure before it even properly begins. Can the party hold together its internal dynamics—particularly the relationship between the party leadership and whoever leads the government—without fracturing under the pressure of real decisions? Will it have the discipline to focus on long-term governance rather than the temptation of short-term popularity through high-profile corruption investigations? And perhaps most critically: will it fall into the same patterns of compromise politics that eroded the credibility of every government before it?

There is also the question of capacity. RSP is a four-year-old party. It does not have the deep bench of experienced administrators and policymakers that comes with decades in politics. This is, in some ways, part of its appeal. But governing a country is not the same as campaigning through one. The distance between the promise of change and the delivery of it has destroyed many political careers in Nepal. RSP is about to find out how wide that distance really is.

A verdict, not a blank cheque

The March 5 result deserves to be read for what it is: a verdict on the past, and a conditional bet on the future. Voters did not give RSP unconditional trust. They gave it a chance and it is a rare, hard-won chance born out of collective frustration and a willingness to try something new. That is not the same as loyalty, and RSP would be wise not to confuse the two.

Nepal’s old parties will not disappear. They will regroup, recalibrate, and wait. If RSP stumbles—if governance fails, if corruption appears, if the internal politics become more visible than the public service—those parties will be ready to remind voters that the alternative they chose was no better than what came before.

The GenZ generation that lit the fuse of this political moment is watching. So is the far larger group of ordinary Nepalis who quietly voted for change without quite knowing what form it would take. They have done their part. The ballot box has spoken.

Now comes the harder work, and the real test of whether this is truly a new chapter in Nepal's politics, or just another turn of the same old wheel.

March 5: A democratic fest

The promise of an election is the promise of change, a peaceful transfer of the people’s voice from the ballot box to the halls of power. For Nepal, the historic election of March 5 represented this promise in its most potent form. Yet, the path to this democratic festival was paved with tragedy, and the victory it yielded for the Rastriya Swatantra Party (RSP) now presents a profound challenge: to translate a powerful electoral mandate into tangible, lived reality for its citizens. The question that hangs in the air is whether the echo of the ghanti (the bell, the election symbol of the RSP); the student protests that sparked this political realignment can truly move from being a symbol of agitation to a force for effective governance, ending corruption and shaping to the sustained economic development.

The election was not born of ordinary political circumstance, but from a crucible of national tragedy. On Sept 8-9 last year, students in uniform marching peacefully with a demand for effective governance and an end to corruption were met with lethal force. The image of school students in uniform, shot dead while exercising their civic voice, ignited a firestorm of grief and rage that consumed the nation. Public buildings, business houses including the hallowed halls of Singhdurbar and the Supreme Court, were set ablaze. The Khadga Prasad Sharma Oli (aka KP Sharma Oli) government collapsed, and the homes of political leaders across the spectrum were attacked. This was not a mere political crisis; it was a popular uprising against a systemic failure of governance, mayhem of corruption, a violent repudiation of a status quo that had prioritized power over people. It was from the ashes of this upheaval that Prime Minister Sushila Karki’s call for a national election emerged, not as a routine political exercise, but as a desperate bid to channel the nation’s fury into a democratic and constructive path.

Against this backdrop, the election itself became a powerful act of civic renewal. Citizens from the entire nation embraced it as a "festival of democracy," a collective affirmation of hope for an impactful future for them, their children and prosperity for future generations. The campaign trail became a magnet for this yearning, with the RSP under Rabi Lamichhane and the former mayor of Kathmandu, Balendra Shah, tapping directly into the public's desire for fundamental change. Their message was not one of transactional politics, but of a shared national prosperity: to connect people and communities to prioritize service over self-interest, and to dismantle the systems of deep-rooted corruption and phony governance. 

The result was a landslide of unprecedented proportions. The RSP’s victory—over 125 parliamentary seats and five million plus proportional votes—is more than a win; it was a seismic shift in Nepal’s political landscape of history. It signals the electorate’s decisive rejection of established, corrupt kitchen family-centric  political groups and a clear, unequivocal mandate for the reform agenda championed by  Rabi Lamichhane and Balendra Shah as the new guard. The challenge, however, is that securing a mandate and wielding power are two vastly different endeavors.

The most immediate and formidable obstacle confronting the RSP is not a political opposition, but the deep-seated inertia and corruption within Nepal’s bureaucracy. This administrative machinery, long accustomed to serving the interests of the old political order, is now expected to implement the radical reforms of the government system currently operating. Many bureaucrats, with fixed loyalties to political groups, the electorate just repudiated, view the new leadership with suspicion, if not with outright hostility. Their mastery lies not in public service delivery, but in navigating and exploiting legal loopholes, perpetuating rent-seeking behaviors, and ensuring that the status quo remains unchallenged. For the RSP, this presents a paradox: their government must govern through a system they were elected to dismantle. Mobilizing the lethargic and often obstructive apparatus to improve public services, from administrative, health and education to infrastructure and market access will be the first true test of their governing capability in the Singhdurbar. Failure to do so risks rendering their electoral promises hollow and eroding the very public trust that swept them into office.

This form of bureaucratic resistance is compounded by profound structural weaknesses in Nepal’s economic governance. The nation’s fiscal health tells a story of chronic mismanagement. For years, the bulk of the national budget has been consumed by recurrent expenditures, salaries, pensions, and administrative costs, while capital investment, the lifeblood of development and job creation, has languished. The figures are stark: between the fiscal year of 2019-20 and 2023-24, ratio of expenditure on total recurrent averaged 70.36 percent of the total budget spending went to recurring costs, while a mere  of 16.67 percent allocated for capital expenditures and a 12.97 percent went for debt servicing in the reporting period of five years averaged. This imbalance starves the economy of the infrastructure and productive capacity it desperately needs financing. Furthermore, a banking system that is prohibitively expensive for small and medium-sized enterprises, a private sector often more focused on tax evasion than innovation, and a monetary policy that has historically favored a few large corporate houses all conspire to stifle broad-based economic growth. Compounding these issues is a burgeoning public debt, now approaching 46 percent of GDP. For the RSP,  the task is not merely to tweak the system, but to fundamentally re-engineer it. First, the RSP government must overhaul the Ministry of Finance, transforming it from a passive administrator of routine into a strategic engine for resource generation and investment. The RSP must create a financial ecosystem that rewards entrepreneurship and productivity, not rent-seeking and evasion.

The path to reform also runs through the marble halls of the judiciary and the complex architecture of fiscal federalism. For the average citizen, the promise of justice remains a distant dream, mired in a court system known for interminable delays and prohibitive costs. Without meaningful judicial reform, the RSP’s pledge of accountability will ring hollow. What’s more, the promise of federalism, now over a decade old, has largely evaporated into poor performance and misaligned incentives. Subnational governments, rather than becoming vibrant centers of local governance, have often devolved into parking lots for party pawns and resting places for bureaucrats awaiting their retirement, contributing little to the development of their federal polity. The RSP’s inception mandate is not to get bogged down in the complex Constitutional Amendments Affairs, but to focus on this practical, improving ground-level dysfunction. From the very first day in office, citizens expect to see a difference and change in how their government functions faster public service delivery, more efficient administration at all three tiers of government, and an end to the chronic delays and cost overruns that plague development projects, which are often themselves a form of sanctioned corruption.

From Ghanti’s echo to delivery

Ultimately, the RSP’s historic victory must transform the Ghanti’s echo from a cry of grief into a demand for impactful results that the student sacrificed for. The Ghanti has echoed with unprecedented clarity, delivering not merely a rejection of personality-driven politics and infamy patronage, but a direct mandate for meaningful reform and impactful performance. The obstacles before the RSP government are formidable: a bureaucracy resistant to change, a structurally weakened economy, and a collection of institutions that have long failed to serve the public. The RSP’s success, therefore, will not be measured by the size of their parliamentary majority, but by its capacity to overcome these deeply concreted forces. It must prove that democracy can deliver that the act of casting a ballot can translate into superior governance, cultivating inclusive microeconomic opportunity, a functioning system of justice that honors slain students. The opportunity before the RSP is as immense as the challenge it faces: to move Nepal beyond its cemented cycles of misgovernance and demonstrate that the people’s voice, even when forged in the tragedy of school student killed in uniform, can indeed shape a future where the promise of a better life is finally and faithfully kept.