A challenge of Himalayan magnitude

The Indian Embassy in Kathmandu and Nepal’s Ministry of Finance recently held a Projects Portfolio Performance Review Meeting, marking a ‘milestone’ in  Nepal-India development cooperation framework. In the meeting held under Nepal’s Finance Minister Prakash Sharan Mahat and India’s Ambassador Naveen Srivastavasa with representatives of concerned ministries and departments, the two sides deliberated on the potential sectors of collaboration in the future. 

India remains Nepal’s largest development partner, marking a profound relationship since the 1950s and the Nepal-India Peace and Friendship Treaty forms the bedrock of bilateral relationship. 

After Maoist party Chair Pushpa Kamal Dahal’s return to the political arena as Prime Minister of Nepal and Indian PM Narendra Modi’s insistence on neighborhood first policy, issues like regional connectivity, security and a departure from politics of the yore have gained prominence. There has been an increased focus on regional economic growth through the revival of the Bangladesh, Bhutan, India, Nepal (BBIN ) initiative and BIMSTEC (Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation). Notably, India’s development cooperation has been an important factor in Nepal’s economic vision.

A tight-rope walk

Despite political differences within the ruling coalition, there’s no denying that ties with India are extremely important for Nepal, considering the territorial proximity, historical bonhomie and trade dependence in the region. 

In this context, Prime Minister Dahal’s pragmatic approach with respect to India and China, Nepal’s two neighbors, is necessary for “balancing the scale”. During Dahal’s previous stint as PM, Kathmandu had a tumultuous relationship with New Delhi, but this time, his government has practised ‘matured statesmanship’ in resolving the border dispute and making the transformation of the economic landscape of the sub-region as the “real priority”. Dahal’s visit to Delhi earlier this year focused largely on economic and development partnership, pointing that Nepal’s foreign policy has to accommodate New Delhi’s interests even if it means not raising issues like the Eminent Persons’ Group (ESG) report.

Dahal's last visit to India garnered acclaim at home for advancing a crucial long-term power deal between the two nations, promising to import 10,000 MW of hydroelectricity from Nepal within a decade. This initiative not only held the potential to significantly reduce Nepal's trade deficit with India but also signaled increased foreign investment in Nepal's hydropower sector. The visit had been marked by a shift in focus, emphasizing mutually beneficial economic aspects over contentious political issues. Notably, in recent times India and Nepal have expanded their cooperation beyond bilateral agreements, allowing Kathmandu to export electricity to Bangladesh through the Indian grid. While the economic landscape flourishes with memorandums of understanding and groundbreaking ceremonies for key projects, Dahal's temple visits in India and Nepal have sparked discussions, seen by some as a nod to a larger Hindu constituency and an illustration of the growing influence of the BJP and RSS in India's Nepal policy. Despite these nuances, the economic collaboration between India and Nepal is making substantial progress, fostering a new era of bilateral relations.

Caught between BRI and MCC

During an eight-day visit to China earlier this year, Prime Minister Dahal signed a joint statement with Premier Li Qiang, part of which reads: “The Nepali side supports the Global Development Initiative (GDI)”. Dahal hastened to add later that the security partnership under the umbrella of Global Security Initiative (GSI) was not in the interest of Nepal  and it would offset the strategic balance it needs to maintain with India and the United States. A closer look at  China's push for Nepal to join the GSI underscores China's aim to establish security partnerships with developing nations in the pursuit of peace and development.

China has been significantly interested in its engagement with Nepal in various domains, showcasing a multifaceted approach, as high-profile visits from China have shown. 

As part of a China International Department delegation, Secretary of Communist Party of China (CPC)’s Sichuan Province Wang Xiaohui and Yuan Jiajun, a CPC Political Bureau member, held discussions with Nepali leaders, fostering political ties. 

China’s footprint extends beyond politics, evident in the launch of WeChat Pay in Pokhara and the China-Nepal Friendship Dragon Boat Race Festival, emphasizing cultural bonds. 

Xi’s flagship Belt and Road Initiative (BRI) aims to enhance Nepal's infrastructure, although the progress has been subject to scrutiny and differing narratives back home considering it as a risky amount of debt to pursue its strategic plans in Nepal. While China asserts that key projects like the Pokhara International Airport fall under the BRI framework, Nepal maintains that project discussions are ongoing. Nepal's perception of GSI as a military alliance and its stance on the Global Cybersecurity Initiative (GCI) remain pivotal aspects of maintaining neutrality in the region. 

At the same time, China considers the presence of the United States and India in the regional dynamics, often called the India+1 strategy to assist Nepal, challenging to navigate. Beijing seems to have perceived the ratification of the US’ Millennium Challenge Corporation (MCC) Compact as a threat to its BRI aspirations of Beijing, taking MCC as an extension of the Indo-Pacific Strategy to contain China. Although there is considerable opposition against MCC in the CPN (Maoist Center), there is a growing acknowledgement of it being a strategic debate which needs further deliberation for Nepal’s strategic balance.

As India’ former Ambassador to Nepal, KV Rajan, has stated, “The real challenge for Nepal is to depoliticize cooperation with India”. Nepal faces the intricate task of navigating a sensitive geopolitical landscape, strategically balancing the interests of India, China, and the United States while advancing its goals. 

Kathmandu's impartial approach to China is crucial for fostering peace in the Himalayan region. By adeptly employing policy tools, Nepal can leverage MCC to bolster its economy and signal openness to China, especially in the context of BRI. Yet, the journey ahead is not without obstacles. Effectively managing Tibetan refugee concerns, maintaining political stability and active participation in global forums will be tests of Nepal's resilience and diplomatic finesse. Amidst unpredictable currents of political shifts and unexpected alliances, Nepal must steer its geopolitical course with care, considering the potential impact on the developmental aspirations supported by India and the US. In conclusion, Nepal's strategic acumen and adaptability will be vital in charting a course that aligns with its national interests while navigating the complexities of the global stage.

Basu is an Assistant Professor of Political Science at Manav Rachna International Institute of Research and Studies, India and also serves as a Non-resident Fellow in International Development and Security Cooperation, the Philippines. He writes on Indian Foreign Policy and South Asian Politics

Acharya is a Research Assistant at the National University of Singapore under Dr Sahana Ghosh. She is also associated with Tillotama Foundation as a Senior Coordinator (South Asia)