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Being landlocked between two large countries, Nepal’s international trade has been basically limited to China and India. With the end of the Rana regime and opening up to the world, Nepal’s trade diversification began in 1951. In his seminal article “Nepal’s Recent Trade Policy” published in Asian Survey in 1964, YP Pant describes how Nepal’s favorable trade with India before 1951 had turned to a deficit. Nepal’s trade volume with Pakistan (including the present-day Bangladesh) accounted for less than three percent of the total. Pant also mentioned that Nepal’s trade with Tibet was negligible.

With the construction of the Kathmandu-Lhasa Highway and other land routes, China became our second largest trade partner, today covering 14 percent of total foreign trade. India remains our major trade partner, making for 64 percent of total trade. Nepal has active transit treaties with India, Bangladesh and China. Again, our trade is basically limited to India and China.

What is bothersome is Nepal’s trade deficit, which hit $11.69bn in 2020-21. Nepal exports to India a tenth of what it imports from there. With China, while Nepal’s import was $1.95 billion in 2020-21, our export was a negligible $8.35 million. In the first six months of the current fiscal, the balance of payment (BoP) was at a loss of $2bn. Such huge trade deficits and negative BoP can herald an economic failure. Immediate attention is called for.

Compensating such huge deficits with tourism, which brought Nepal total revenue of $668 million in 2019, is unrealistic. Remittance too is declining. The demography of Nepali workers overseas is changing, with an increase in the number of skilled workers who are going to more advanced countries and regions, and choosing to settle there. They are less likely to send remittances to Nepal where they do not intend to live. Nepal is thus yet to find an effective way to balance its trade.

Failing regionalism

Multilateral trade forums, including the WTO, have emerged as a solution to trade barriers, promising coordinated trade negotiations that enable smaller economies to get fair terms. Regional negotiations also help member countries avoid double standards in dealing with different neighbors of similar cooperation potentials.

Simplification of multilateral cooperation definitely facilitates trades. Unfortunately, not all member countries and regions can make equal gains. Multilateral cooperation helps those who prove competitive in global trade, and hinders the relatively weak and disadvantaged.

What Nepal needs is to identify geographical and economic regions, membership in which gives it an opportunity to carry business more fairly. At present there is little scope of regional trade cooperation with the north as it is difficult for cargos to get past the vast, neighboring China. South Asia is where Nepal belongs, which is also why it helped establish the South Asian Free Trade Area (SAFTA)—with Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka as its signatories.

Nepal also joined the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) in 2004 whose priority areas include trade and investment, and tourism. Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and Thailand are members of the BIMSTEC Free Trade Area. However, our economic and trade cooperation has been basically limited to India.

Not that there is no possibility of meaningful cooperation within SAFTA or BIMSTEC. With Indian help, there are already signs of trade in products and services like electricity, agricultural products, information technology, medicine, tourism and education. However, compared to India and China, trade volumes with other countries are small, and any trade surplus with them is unlikely to offset the deficits with India and China.

Go bilateral

Nepal’s efforts at Nepal-China-India trilateral cooperation have not been successful. China and India share a long land border, and are also connected with seas. The Chinese land connected to Nepal is sparsely populated, and has limited scope for trade other than in minerals, and Indian pilgrimage to Mount Kailash and Mansarovar. Connectivity alone will not bring Nepal substantial economic gains. Further, long-term rivalry between China and India is not conducive to trilateral cooperation.

India, which maintains a porous, open border with Nepal, frequently sets conditions to imports from Nepal. India says its favorable terms of term only extend to goods and services originating in Nepal, and exclude the goods and services where foreign raw material or investment is involved.

Nepal is a minor trade partner for both China and India. But, for us, they are major ones. Here, economic and trade diplomacy could be useful. First, we should classify our trade items into essential and non-essential. We should then allow import of non-essential commodities, provided such imports do not lead to bilateral trade imbalance. Second, we should request China and India to invest in Nepal in sectors that contribute to import substitution, and promote our export to the investing country or to other markets outside our reserved quota.

Third, we should listen to their suggestions on bilateral trade balance, and try to accommodate them so long as such measures do not negatively affect Nepali economy, jobs, social harmony, culture, values, politics and international relations.

Sure, some items we import from our neighbors are refined third-country raw materials, or are in short supply here. Such items can be considered essential, and thus should be excluded in the evaluation of bilateral trade balance. These items as well as security-related and life-saving goods and services and new essential technologies can be covered through donations, remittance and international cooperation.

With right decisions and modest austerity, we can become self-sufficient in food and basic services. Outside these, Nepal should adopt a policy of balanced bilateral trade.

The author is a professor of pharmacy at Tribhuvan University

Climate change-related migration is not a future hypothetical situation; it’s a global reality today. The climate crisis is redefining our world, as the Earth’s climate is changing at a quicker rate than at any other time in human history.

Climate change can jeopardize food, water, and economic security when paired with physical, social, economic, and/or environmental vulnerabilities. Displacement, loss of livelihood, weaker governments and, in some cases, political instability and conflict are secondary repercussions of climate change. Climate change is widely recognized as a contributing and exacerbating factor in migration and conflict.

Migration in response to climate impacts may range from mobility as a proactive adaptation strategy to forced displacement in the face of life-threatening risks. This mobility may occur within or across international borders. Specifically, one model forecasts climate change may lead to nearly three percent of the population (more than 143 million people) in three regions—Sub-Saharan Africa, South Asia and Latin America—to moving within their country of origin by 2050.

Climate change, rising sea levels, more frequent cyclones, flooding of rivers fed by melting glaciers, and other extreme weather events are intensifying internal and international migration in South Asia. Further, rapid economic expansion and urbanization are hastening and amplifying the impact and drivers of climate change. To make matters worse, many of the new urban developments are in low-lying coastal areas vulnerable to sea-level rise. 

The World Bank estimates that by 2050, South Asia (Bangladesh, Bhutan, India, the Maldives, Nepal, and Sri Lanka) will have lost 1.8 percent of its annual GDP owing to climate change.  According to the New York Times, living conditions of 800 million people could dramatically deteriorate, resulting in mass migration—possibly at an unprecedented level.

Although the majority of those displaced or migrating as a result of climate change stay in their home countries, cross-border flows are increasing, particularly in regions where climate change collides with conflict and violence. As the effects of climate change become more severe, it is critical to understand the factors that may mitigate or exacerbate migration, and to develop strategies to proactively and humanely manage these impacts.

Nepal’s situation

Poverty, marginalization, state neglect, inequality, discrimination, and out-migration have always plagued the Himalayan country, and these issues precede climate change. All these current structural problems are exacerbated by global warming. As 1.3 billion people live downstream and rely on its rivers, the loss of Himalayan ice will have disastrous implications. Glaciers in the Himalaya’s central and eastern regions are already receding at a rate of up to 30 meters a year.

In Himalayan villages, half of the youngsters are malnourished. The national poverty rate in Nepal is 23 percent, but mountain residents account for 42 percent of the country’s impoverished. Faced with irregular weather and other climate change effects, the poor are already being pushed to migrate.

Droughts, flash floods, and rising temperatures are becoming more common as a result of climate change, lowering crop yields across Nepal. Water tables have dropped, glaciers are melting, natural springs have dried up, and snowlines have fallen across the Himalayas. This monsoon, over 80,000 people were sick with dengue in an unprecedented outbreak, which scientists blamed on a changing environment. An unusual tornado struck the Bara area, killing 80 people and destroying towns. Every year, floods in the Tarai are getting worse. The change in climate is giving people no choice but to migrate.

How should we prepare?

First, early effort to reduce greenhouse gas emissions is necessary to alleviate climate pressures that cause internal climate migration. This must be a global effort starting now.

While climate migrants fleeing intolerable conditions are similar to refugees, they do not have the same legal rights. As there is no coordinated effort to monitor the migratory population, desperate individuals migrate where they can, not necessarily where they should. Dedicating greater resources to mitigate climate migration also helps.

Shifts in population distribution can also be part of a successful adaptation strategy if they are recognized and skillfully handled, allowing individuals to move out of poverty and develop more sustainable livelihoods.

The most effective method of improving the migratory process is to do research, which might include increasing migration monitors, offering safer forms of transport, and consolidating and extending integration resources to destination countries. More research, particularly new granular data on climate change consequences at the regional and country levels, is needed to support these plans.

To conclude, climate-induced migration reveals the deep link between climate change and development, which in turn has a direct influence on people’s lives and livelihoods.

This global challenge has and will continue to create a multitude of critical issues. Climate change is a risk amplifier as it can worsen economic insecurity or political instability, leading to migration. Climate change impacts are anticipated to get worse when coupled with growing backlash against migrants and refugees around the world, stretching institutional capacity and governance and increasing the cost of adaptation. In the long run, stopping climate change is the only solution.

The author is the founder of One Health Research and Training Center

After a gap of over two years, the Nepal-India joint steering committee (JSC) consisting of energy secretaries of Nepal and India met in Kathmandu on 23 February 2022. The meeting happened amid concerns of the Nepal Electricity Authority (NEA) and private investors over restricted electricity export to India and Bangladesh under India’s new export/import guidelines issued in February 2021. For Nepal, the meeting was crucial to clarify matters in order to enhance inter-country electricity export as Nepal will be adding 300MW by July 2022.

With the guideline as a reference for future energy cooperation, Nepal adopted a new approach of wooing India by proposing joint investment in hydro projects and transmission lines. A day before the meeting, the NEA proposed a revised list of operational hydro projects—Upper Tamakoshi (456MW), Upper Bhotekoshi (45MW), Kaligandaki (144MW), Marshyangdi 69 (MW), Middle Marshyagndi (70MW) and Chameliya (30MW)—for India to import 814MW electricity.

In July 2021, the NEA had approached the Central Electricity Authority of India (CEAI) to export its surplus electricity after the operationalization of Upper Tamakoshi. After three months, the CEAI expressed its interest in purchasing 39 MW from the 24MW Trishuli and the 15MW Devighat as only these two projects were eligible to export electricity to India as per the new guidelines.

As per the guidelines, most Nepali power projects cannot sell electricity to the southern neighbor as they have the support of the countries with no energy cooperation with India. Only the projects either developed by NEA or with India’s support qualify.

For example, out of the five NEA-proposed projects, the civil works of the Upper Tamakosi were undertaken by a Chinese company (Indian companies carried out other works). In Upper Bhotekoshi, a JV between China and Nepal, only hydro-mechanical work is done by an Indian company. More such projects are being developed by contractors from multiple countries with 100 percent domestic investment.

Apart from this, there are concerns in India that a large number of these projects have Chinese investments, like shares in electrical-mechanical units and turbines. As Nepali companies failed to secure bank loans to purchase mechanical parts and turbines, they negotiated with Chinese companies, which supplied cheaper machines on the condition of owning shares in those projects. If so, this could create misunderstanding in India-Nepal energy trade given the uncomfortable state of relationship between India and China. 

As per the press release following the JSC, the meeting was successful and both sides committed to bilateral energy cooperation for regional and mutual benefit. Both agreed to explore developing storage hydropower projects. In this regard, they agreed to constitute a Joint Hydro Development Committee (JHDC). India’s SJVN is already developing 900MW Arun III, a storage-type project. The SJVN is also developing 669MW Lower Arun.

In any important development, during the meeting, the Indian side acknowledged enhancements in Nepal’s installed power generation capacity. The two sides reaffirmed power sector cooperation as a strong pillar of India-Nepal partnership and agreed to further strengthen it by joinly developing projects and cross-border power transmissions infrastructure. But there was no mention of Nepal’s new proposal to export 814MW from the five hydro projects. The issues and contents in the press releases of India and Nepal differed slightly, indicating a degree of disagreement on energy trade cooperation.

Nepal aspires to be a regional energy hub by 2040. That won’t be easy. First, for sustainability, the hydroelectricity projects, both run-of-the-river and storage types, are highly dependent on weather, river drainage systems, connectivity, transmission lines, and markets. Several studies have found the Himalayan region vulnerable to rising global temperatures. According to the Independent Power Producers’ Association (IPPAN), floods and landslides damaged 16 under-construction projects in 2021. Ten projects generating electricity, both small and big, incurred damages worth around $83.9 million.

Apart from that, the impact of climate change will determine Nepal’s production, with a lean winter, as most of the current operationalized projects are designed as run-of-the-river. Except Arun III, other storage-based projects are yet to take off. There is also domestic resistance to the shortage-type projects on the grounds of possible earthquakes and people’s displacement.

The second challenge is marketing. Given the small market and the huge gap between domestic energy consumption and production, a guaranteed market is needed to attract investments. Nepal is perhaps motivated by growing renewable energy requirements in the region and perhaps by the prospect of trans-border energy trade under the BBIN framework and the setting up of an energy bank in South Asia. But India will purchase electricity only from those projects that are developed either with 100 percent investment of the exporting country or of Indian investors. As per the new guidelines, only a few Nepali projects are eligible. But the implementation of these guidelines will also depend on the future geopolitical situation in the sub-Himalayan region.

Lastly, domestic politics of Nepal has been a major hurdle in hydropower development. The decade-old Maoist insurgency hindered infrastructure development. And other old issues remain as they were. Despite having a constitution in 2015, political instability, policy paralysis, corruption, and bureaucratic apathy toward the energy sector continue.

Hydropower has the potential to support peak-hour demand, cheap and clean energy, and operational flexibility, which may not be possible with fossil fuels. The role of hydropower would also be critical for the stability of the national, bilateral, and sub-regional grids.

In that context, Nepal’s importance as a major energy source will only grow. Despite its potential of over 40,000MW electricity, Nepal’s energy dependence on other countries has not ended. Although there have been certain improvements in energy production, Nepal needs to devise new energy policies to address existing challenges and to project itself as a reliable and sustainable energy supplier in South Asia.

The author is a Research Fellow with MP-IDSA, New Delhi. The views are personal 

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