Author: Rakesh Kumar Meena, Indian Council of World Affairs
The India–Nepal relationship is founded on strong historical, civilisational, cultural, religious, social, trade and economic linkages. The two countries also share an open border built as a result of the Peace and Friendship Treaty of 1950. Amidst Nepal’s shifting political climate over the last few decades — including the regime recent shift from a constitutional monarchy to a republic — India remains on balance a good neighbour. New Delhi has assisted Nepal during natural disasters by providing economic aid, investment, education and infrastructure. Yet there are a number of challenges to be addressed to reinvigorate relations.
In 2015 Nepal promulgated its new constitution, triggering a trade blockade on the India–Nepal border. The relationship suffered as India felt that the new constitutional provisions discriminated against the Terai people who share social and family relations across the border. After this incident, both sides have made fervent attempts to mend the relationship.
The predominant issues are contained in the Eminent Persons Group (EPG) report, which came out in 2016 to review bilateral issues and to bring about amendments to the Peace and Friendship Treaty of 1950. The Nepalese argued that the treaty was biased and did not reflect changing geo-political realities. India has not responded to the EPG’s final report. Nepal perceives that India is unhappy with some of the recommendations and is not ready to endorse it.
The demonetisation policy announced by the Indian government in 2016 affected Nepal severely. The issue was vehemently discussed in the Nepalese Parliament but was deliberately ignored during the visit of Prime Minister KP Sharma Oli to India. According to Nepal Rastriya Bank, approximately Rs 33.6 million (US$489,000) worth of demonetised Indian banknotes remain in formal banking channels. Due to the open border and an unregulated people flow, there may be larger sums circulating in informal financial channels in Nepal. Neither governments have been able to resolve this issue.
Another source of friction is the role of the South Asian Association for Regional Cooperation (SAARC). India’s foreign policy in the last five years has moved towards new policies — the Bay of Bengal Initiative for Multi-sectoral Technical Economic Cooperation (BIMSTEC), the Bangladesh Bhutan India Nepal Initiative (BBIN) and the Act East policy — rather than strengthening SAARC. India has lost interest in SAARC due to tensions with Pakistan.
During the fourth BIMSTEC Summit in Kathmandu in August 2018, Prime Minister Oli suggested the revival of SAARC and argued that BIMSTEC cannot replace it. Mistrust grew after the Nepalese Army withdrew from the first BIMSTEC military exercise held in India in 2018 and later joined a military exercise with China.
Kathmandu has made it clear that it is not comfortable with New Delhi’s meddling in its domestic affairs. Nepalese media was extremely critical of India after the promulgation of the new Constitution. But with the appointment of Subrahmanyam Jaishankar as Foreign Minister and Indian Prime Minister Narendra Modi’s invitation to BIMSTEC countries to attend inauguration ceremony in May 2019, Kathmandu has clearly been called to reassess its position. Modi retracted his comment about an ‘inclusive constitution’ which he mentioned during his first visit to Nepal.
A departure from his usual leftism, Oli’s gifting of a Rudraxa seed to Modi can be understood as more than just a symbolic gesture. It marks the willingness of the two neighbours to rebuild trust and reinforce their relationship on equal terms. To expand connectivity, both sides have signed framework agreements in 2018.
The construction of a new electrified rail line has been proposed. Funded with Indian support, it would connect the border city of Raxaul in India to Kathmandu. The two sides are also developing inland waterways for the movement of cargo to provide additional sea access for Nepal. India has opened the port of Vishakapatnam, allowing Nepal’s transit for third country trade.
Nepal is also building diplomatic ties with China, in part to counter India’s interference in Nepalese affairs. The Chinese outreach in Nepal has intensified after India’s 2015 trade blockade. In 2016, Oli visited China and concluded a number of trade and investment agreements.
Beijing’s economic assistance, investment in hydro power projects and support for small projects signifies its growing influence in Nepal. The Chinese language is being taught in Nepali schools and scholarships for students to learn Chinese have increased. While Nepal has joined the Belt and Road Initiative, India is not a part of this project.
An open border, job opportunities for Nepalese youth in India and the Gorkha regiment position within the Indian Army remain pathways for rejuvenating relations. It is up to the new leadership to reinvent the two countries’ traditional ties and to generate new momentum. The first step is for India to minimise interference by acknowledging Nepal’s strategic, political and economic compulsions. Nepal needs to assuage India’s concerns about Chinese activities in Nepal. Kathmandu should also keep an eye on illegal activities like human trafficking, black money dealings and terrorist intrusions which constitute a major security concern for the Indian establishment.
There is hope that the leaders of both countries — who currently both command a strong mandate — will be able to find common ground and reduce tensions. It is crucial for both sides to maintain regular dialogue in order to overcome misunderstandings of the past.
Rakesh Kumar Meena is a Research Fellow specialising in the India–Nepal relationship at the Indian Council of World Affairs, Delhi.