India's bilateral relations with the neighbourhood in 2014

Modi government ushered new chapter in Nepal-India ties in 2014

India-Nepal relations are bound by history, geography, economic cooperation and socio-cultural ties. Strong people-to-people relations have continued since centuries which were further strengthened with the 1950 Indo-Nepal Treaty of Peace and Friendship that give special privileges to people, of both the countries.

Jan 10, 2015
By Pramod Jaiswal
India-Nepal relations are bound by history, geography, economic cooperation and socio-cultural ties. Strong people-to-people relations have continued since centuries which were further strengthened with the 1950 Indo-Nepal Treaty of Peace and Friendship that give special privileges to people, of both the countries.
Unlike most of the borders of the world, Nepal-India share an open border and cross border marriages are common. India is Nepal’s largest trading partner and has significant contribution in development of the nation. It has played a crucial role in the political transition of Nepal by mainstreaming the Maoists. However, the presence of anti-India sentiments in Nepal portrays that India has failed to manage the public perception in Nepal.
It must be noted that Nepal figured prominently in Indian foreign policy in 2014, especially after Narendra Modi got elected as the new Indian prime minister. His invitation to the heads of governments of the South Asian Association for Regional Cooperation (SAARC) member-states to his swearing-in ceremony was the clear signal that under his tenure as the prime minister India will prioritise her relation with neighbours. After his first foreign visit to Bhutan, Prime Minister Modi paid a bilateral visit to Nepal in August 2014. He became the first Indian prime minister to visit Nepal in 17 years. The last bilateral visit to Nepal was by Inder Kumar Gujral in June 1997. Atal Bihari Vajpayee had visited Kathmandu in 2002 for a SAARC summit. There have been several visits to India by the prime ministers and the president of Nepal since.
Modi’s visit to Nepal ushered a new chapter in relations between the two neighbours. He enchanted Nepalese with a rousing address in the Constituent Assembly and Legislature-Parliament of Nepal - the first by a foreign leader. He announced a soft loan of $1 billion and promised several infrastructure development projects. The prime ministers of both the countries agreed to review, adjust and update the most talked about Treaty of Peace and Friendship of 1950 and other bilateral agreements. Similarly, the Joint Commission which was formed in 1987 at the Foreign Ministers’ level with a view to strengthening understanding and promoting cooperation between the two countries for mutual benefits in the economic, trade, transit and the multiple uses of water resources was reactivated after a gap of 23 years during the Nepal visit of Sushma Swaraj, minister of external affairs of India in July 2014.
In October, the Power Trade Agreement (PTA) and the Project Development Agreement (PDA) between the Investment Board of Nepal and GMR Group of India for the development of Upper Karnali hydropower project was also signed. Both the agreements were expected to be signed during Prime Minister Modi’s visit to Nepal in August but were postponed by Nepal citing lack of enough deliberation. If the project completes on time, the 900 MW Upper Karnali Hydroelectric Project would generate dividends worth approximately $33 million from equity, royalty and free electricity throughout the concession period of 25 years. The project, constructed by an Indian company GMR, will be handed over to the state-run Nepal Electricity Authority (NEA) after 25 years. Since it is being constructed on BOOT (build, own, operate and transfer) basis, the NEA will not have to share the project’s financial burdens.
Modi paid another visit to Kathmandu in November to attend the 18th SAARC Summit. During his visit, he inaugurated a 200-bed trauma centre built by India and flagged off a Kathmandu-Delhi bus service being run by the Delhi Transport Corporation (DTC). He also handed over a helicopter to Nepal Army and a mobile soil-testing laboratory to Nepal.
India gave greater political recognition and priority to its Nepal policy because of its unique relationship and security implications. Only stable and peaceful Nepal can take care of India’s security interest. Hence, India wants to focus more on economic engagements with Nepal, which can provide stability. Nepal, which has a huge potential for generation of hydropower, faces a chronic power shortage which has affected the economy severely. India seeks greater connectivity and wants to harness Nepal’s huge water resources to strengthen Nepal’s economy. The PDA and PTA agreements are in that direction. India has major stakes on the peace process of Nepal. It played the role of facilitator in mainstreaming the Maoists of Nepal. 
Most probably this trend would continue in 2015 too. India would continue to have deeper engagements with Nepal in 2015; more on economic issues. Indian firms are the biggest investors in Nepal, accounting for about 40 percent of total approved foreign direct investments. There are about 150 operating Indian ventures in Nepal. They are engaged in manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries. The investment is expected to rise in days to come with the signing of BIPPA (Bilateral Investment Promotion and Protection Agreement) between Nepal and India.
Development will get priority in Nepal after the constitution is promulgated by the second Constituent Assembly. India can be the partner to Nepal’s economic development. India might increase its aid to Nepal in 2015 to challenge the growing Chinese aid in Nepal.
India, which has major stakes in the peace process and constitution-making process of Nepal, would have to make some hard choices. It has to observe the constitution-making process as it will have lasting implications on the relationship between both the countries. India should bring all the political parties together and pressurize them to draft the constitution by consensus. Constitution drafted by consensus can only bring lasting peace and stability in Nepal.
The current government in India has also added anxiety among the Nepalese who stand for a secular and republic Nepal. They fear that Modi’s government, whose leaders had openly expressed unhappiness after Nepal was declared a secular and republic country, might encourage the hard-line Hindu party and pro-Hindu forces of Nepal to fight for a Hindu Kingdom. India should not try to fiddle with these aspirations of Nepalese as it can have adverse effect on India-Nepal relations.
(Pramod Jaiswal is a SAARC doctoral fellow at the Center for South Asian Studies, JNU. He can be contacted at

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