Introduction: A Unique and Evolving Bond
The relationship between Nepal and India is not just unique but deeply intertwined. The open border, shared culture, economic interdependence, and deep-rooted people-to-people connections form the bedrock of their bilateral ties. As we delve into the dynamics of this special relationship, we explore the avenues for continued partnership and the mutual benefits reaped from recent developments.
Economic Interdependence: The Pillar of Bilateral Ties
India stands as Nepal’s largest trading partner, a vital source of tourism, the sole supplier of petroleum products, and the principal source of foreign investment. Additionally, India facilitates almost all of Nepal’s third-country trade and accounts for a substantial share of inward remittances from pensioners, professionals, and laborers working in India. During disasters, India has consistently been the first responder, providing immediate rescue and relief, as well as financial aid for reconstruction, exemplified by the $75 million aid for earthquake-hit areas in Nepal.
Addressing Trade Deficit: A Collaborative Approach
However, Nepal’s trade deficit with India, close to 18% of its GDP, poses a significant challenge. High transaction costs and inadequate infrastructure have made Nepal a high-cost economy. Both nations are now focusing on reducing this trade deficit by enhancing cross-border digital financial connectivity, easing trade, tourism, and remittance flows. These efforts are complemented by initiatives to improve physical connectivity, thereby reducing the cost of doing business and strengthening people-to-people ties.
High-Level Engagements: Re-Energizing Relations
The bilateral relationship has gained substantial momentum with eight high-level visits, including four prime ministerial ones, in the past two years. These engagements have re-energized the ties, leading to the implementation of numerous agreements. A Joint Vision Statement on Power Sector Cooperation, signed in 2022, marked a significant milestone. This statement covers bilateral cooperation in the production, transmission, and cross-border trading of hydropower.
Hydropower Cooperation: A Win-Win Scenario
The progress in electricity cooperation has been remarkable, with Nepal exporting around 650 MW of electricity to India in 2023, generating over Rs 10 billion. These earnings have played a crucial role in reducing the trade deficit and bolstering foreign exchange reserves. A long-term power trade agreement signed in 2023 aims to export 10,000 MW of electricity from Nepal to India over the next decade. This agreement is pivotal in boosting investor confidence in Nepal’s hydro sector and ensuring returns on investments.
Cross-Border Projects: Strengthening Infrastructure
The bilateral agreements have spurred several new projects by investors from both countries, especially in building cross-border transmission lines. Investment in hydroelectricity production and distribution has surged, with Nepal initiating the export of hydroelectricity to Bangladesh under a tripartite agreement with India and Bangladesh. This initiative aims to export 40 MW by 2025, with potential for significant increases.
Regional Grid and Renewable Energy: Expanding Horizons
The prospect of a regional grid in the BIMSTEC and SAARC regions to promote, develop, and trade renewable energy has gained traction. These activities are not only beneficial for Nepal but also boost India’s economy by reducing reliance on coal and gas, lowering pollution, and achieving renewable energy goals.
Digital Financial Connectivity: Enhancing Convenience
In 2023, Nepal and India decided to establish and enhance digital financial connectivity. This initiative allows Indian tourists to make payments through their mobile phones in Nepal, with similar facilities for Nepali citizens in the pipeline. This digital integration will facilitate hassle-free payments for traders, tourists, pilgrims, students, and those seeking medical treatment in India. Additionally, a mobile transfer mechanism will soon enable workers in both countries to transfer earnings through formal channels.
Banking and Aadhaar: Simplifying Processes
To support this process, the requirements for opening bank accounts for Nepalis in India are being simplified, and the process for obtaining an Aadhaar card is straightforward. These measures will further facilitate cross-border financial activities and strengthen economic ties.
Reducing Business Costs: Infrastructure Projects
Several measures have been taken in partnership with India to reduce the cost of doing business in Nepal. Notably, the construction of two new petroleum pipelines between Siliguri, India, and Jhapa, Nepal, and between Amlekhgunj and Chitwan is underway. These projects, inspired by the success of the Motihari-Amlekhgunj pipeline, are expected to save transportation costs significantly. Additionally, the implementation of integrated check posts (ICPs) in Bhairahawa and Dodhara-Chandani will facilitate smoother movement of cargo and passenger vehicles.
Enhanced Connectivity: Roads and Railways
To further reduce transportation and transaction costs, border roads have been upgraded, and cross-border freight rail between India and Nepal is operational. Several cross-border roads and bridges are under construction, and the feasibility study of the Raxaul-Kathmandu railway has been completed. A direct rail service from Ayodhya to Janakpur is also being considered.
Conclusion: Sustaining Momentum and Addressing Concerns
The relationship between Nepal and India is multifaceted and profound. While there are numerous concerns to address, the recent momentum in partnership and progress must be sustained. Established bilateral mechanisms to address cooperation and concerns, including boundary issues, should be activated to maintain the robustness of this relationship.
Summary Table:
| Key Learning Points | Description |
|---|---|
| Economic Interdependence | India is Nepal’s largest trading partner and crucial in various sectors. |
| Addressing Trade Deficit | Focus on reducing trade deficit through digital and physical connectivity. |
| High-Level Engagements | Frequent high-level visits have strengthened bilateral relations. |
| Hydropower Cooperation | Significant progress in hydropower cooperation, boosting exports and investor confidence. |
| Cross-Border Projects | Several new projects initiated, enhancing infrastructure and connectivity. |
| Regional Grid and Renewable Energy | Prospects for a regional grid to promote renewable energy, benefiting both economies. |
| Digital Financial Connectivity | Enhancing convenience for traders, tourists, and workers through digital integration. |
| Banking and Aadhaar | Simplifying processes for Nepali citizens in India to facilitate economic activities. |
| Reducing Business Costs | Infrastructure projects reducing costs and improving efficiency. |
| Enhanced Connectivity | Upgraded roads, railways, and new pipelines to improve cross-border trade and transport. |
| Sustaining Momentum | Importance of continuing the momentum of partnership and addressing concerns through established mechanisms. |
Advanced Vocabulary Table:
| Word | Meaning |
|---|---|
| Intertwined | Closely connected or linked together. |
| Bedrock | The fundamental principles on which something is based. |
| Facilitates | Makes an action or process easy or easier. |
| Traction | The extent to which an idea, product, etc., gains popularity or acceptance. |
| Augmenting | Making something greater by adding to it; increasing. |
| Pivotal | Of crucial importance in relation to the development or success of something. |
| Multifarious | Many and of various types. |
| Egregious | Outstandingly bad; shocking. |
| Repercussions | Unintended consequences of an event or action, especially unwelcome ones. |
| Robustness | The quality or condition of being strong and in good condition. |
Sunil Garnayak is an expert in Indian news with extensive knowledge of the nation’s political, social, and economic landscape and international relations. With years of experience in journalism, Sunil delivers in-depth analysis and accurate reporting that keeps readers informed about the latest developments in India. His commitment to factual accuracy and nuanced storytelling ensures that his articles provide valuable insights into the country’s most pressing issues.
