On the sidelines of the 81st United Nations General Assembly (UNGA), Nepal’s Foreign Minister Shisir Khanal engaged extensively with the international community through side events and bilateral engagements.
His engagement was focused mainly on two broad areas: to draw attention to the devastating impact of the August 26 Bhotekoshi flood, and to articulate the foreign-policy vision of the new government.
At a programme organized by the Asia Society, Khanal offered one of the clearest formulations yet of the foreign-policy thinking of the new government, which came to power with a two-thirds majority in the March 5 elections.
His remarks suggest an attempt to recast Nepal’s traditional balancing diplomacy around a distinctly economic objective.
The emerging doctrine, according to Khanal, is three directions, one strategy. The three directions are India, China, and the wider international community. The common strategy is to engage all three simultaneously to expand trade, investment, connectivity, and economic opportunities while preserving what Khanal calls development autonomy. “Development autonomy is not about choosing sides: it is about increasing our value across three confident, unified directions,” Khanal said.
The formulation is significant because it seeks to move Nepal’s foreign policy away from the idea that engagement with India, China, and the wider world represents competing choices. Minister Khanal said that, like in the past, political ideology would not guide external relations.
Instead, the government appears to view these relationships as complementary sources of markets, investment, infrastructure, technology, and diplomatic space. Khanal, in various engagements, made it clear that Nepal does not join any security and strategic alliances.
Nepal has long sought to maintain balanced relations with India and China while expanding ties with countries beyond its immediate neighborhood. What appears different in the new government's formulation is the attempt to organize these relationships around a single economic objective.
For Kathmandu, multi-engagement is not simply a diplomatic principle. It is intended to become an economic strategy.
India offers geographical proximity, a huge consumer market, and an expanding electricity market. China offers connectivity, investment, access to the northern corridor, and technology. The United States, Europe, Japan, ASEAN, and the Gulf offer additional markets, capital, technology, and partnerships.
The challenge for Nepal is to convert these relationships into economic leverage without becoming excessively dependent on any single external partner.
That is the essence of the government's formulation of development autonomy: engage widely, diversify economic relationships, and preserve the freedom to make decisions based on Nepal's own development interests.
With India, the new government appears to be shifting the emphasis from managing longstanding disputes to expanding areas of practical economic cooperation, identifying new areas of opportunities.
Energy is at the center of this approach, according to Khanal. Nepal wants to use its hydropower potential not only to generate electricity for domestic consumption, but also to become an important supplier of clean energy to India and, eventually, Bangladesh.
Khanal argued that Nepal could help power regional industrial decarbonization by exporting clean electricity to India and onward to Bangladesh. This would give the energy relationship a broader regional significance, positioning Nepal not simply as an electricity producer, but as part of an emerging South Asian energy market.
Geography strengthens the argument. Nepal shares an open border of more than 1,700 kilometres with five Indian states—Uttarakhand, Uttar Pradesh, Bihar, West Bengal, and Sikkim—giving it direct access to a large regional market.
Khanal described the government's approach as “Thick Connectivity and Thin Borders.” The objective is to make the border increasingly important as a channel for commerce, energy, and investment while reducing the economic friction associated with physical borders.
The Southern region could, therefore, become an important component of this strategy. Khanal argued that global and Indian companies seeking resilient supply chains could locate manufacturing in Nepal's border Special Economic Zones, combining access to relatively low-cost clean electricity with proximity to the Indian market and international market access.
If India represents Nepal's southern economic gateway, China represents the northern connectivity opportunity.
In Western capitals, Nepal's relationship with China is closely watched, particularly because of questions surrounding Chinese infrastructure financing and the Belt and Road Initiative (BRI).
Khanal sought to present the government's approach as one based on connectivity, but not dependency. The objective, he said, is not simply to open roads to the north, but to transform Nepal from a landlocked economy into a land-linked economy.
That vision involves a multidimensional Trans-Himalayan connectivity network encompassing roads, tunnels, dry ports, aviation, digital links, and cross-border rail.
Khanal also emphasized that Nepal has not implemented projects under the BRI, despite signing agreements with China. At the same time, he sought to reassure partners concerned about Chinese financing that project selection would be guided by transparent financing, rigorous feasibility studies, and value-for-money principles.
China is already Nepal's second-largest trading partner, according to Khanal, while Chinese investors are among the largest sources of foreign investment in Nepal. The economic relationship, therefore, extends beyond infrastructure and connectivity.
The most ambitious element of the new government's foreign-policy vision is perhaps its attempt to redefine Nepal's geopolitical geography.
For decades, Nepal has often been described in strategic terms as a buffer between India and China. The new formulation seeks to replace that image with that of an economic bridge. “We do not see our northern and southern corridors as competing directions,” Khanal said.
Instead, the government sees Nepal as being positioned between two of the world's largest markets, with a combined population of nearly three billion people. Its ambition is to turn that geography into a gateway for commerce and investment.
This idea also appears in the election manifesto of the Rastriya Swatantra Party, which envisaged a more economically connected and strategically relevant Nepal. Khanal described Nepal as a civilizational bridge in the past, an economic bridge in the present, and a strategic bridge for the future.
The formulation captures the central logic of the new approach: Nepal should not view its location between India and China merely as a geopolitical constraint. It should attempt to convert that location into an economic asset.
The third direction of the government's foreign policy extends beyond Nepal's immediate neighbourhood.
Khanal said Kathmandu intends to deepen partnerships with the United States, Europe, Japan, ASEAN, and the Gulf. The purpose is not merely to expand Nepal's diplomatic footprint. It is also to diversify sources of investment, technology, markets, and economic opportunity. This diversification is particularly important if development autonomy is to be more than a diplomatic slogan. The U.S., Japan, the United Kingdom, and European countries have shown enthusiasm to engage with the new government.
Khanal highlighted Nepal's potential as a digital hub, arguing that data and software face relatively little transit friction compared with physical goods. Nepal's hydropower resources and comparatively cool climate, he suggested, could support a digital economy, including through a Fintech and AI Sandbox.
The country's large global diaspora is another component of this strategy. Khanal described Nepal's roughly five-million-strong diaspora as a strategic asset that can help connect the country with markets and networks across the world.
The government's formulation is ambitious. But the success of the strategy will depend less on its diplomatic articulation than on implementation.
The first question is whether Nepal can build the infrastructure required to become an economic bridge between India and China. Roads, railways, tunnels, dry ports, electricity transmission lines, and digital infrastructure require substantial capital and long-term planning.
The second is whether Nepal can attract productive investment rather than simply announce investment opportunities. Special Economic Zones, for example, will require reliable infrastructure, efficient customs, predictable regulations, and competitive business conditions.
