Context: The Foreign Secretary did not touch upon the issue of the Eminent Persons Group in his latest address while visiting Nepal. Indo-Nepal relations have taken a few hits in recent years.

  • The EPG was constituted during the India visit of Nepali PM in 2016, towards the end of the blockade that was imposed by the Madhesi agitators from Nepal’s plains bordering Uttar Pradesh and Bihar. As per the agreement, the EPG is to consist of eight members with four members representing each side.
  • The EPG has sought extensive review of the 1950 India-Nepal Friendship Treaty.
  • Nepal wants India to consider this proposal on priority abscess.

Present phase of relationship

  • India’s unofficial blockade of 2015 :It was in opposition to certain terms of Nepal’s constitution. It had triggered a wave of anti-India sentiment in the Himalayan Kingdom. 
  • Prime Minister’s recent visit to Nepal 
    • He declared Nepal to be the centrepiece of his government’s "neighbourhood first" policy.
    • PM inaugurated the Ramayan Circuit Bus Route that will connect Janakpur, Goddess Sita’s birthplace, to Ayodhya .
    • The foundation stone was led for the $1.4 billion Arun-3 hydropower plant in the east of the country.
    • In the fourth BIMSTEC Summit, Nepal and India signed a deal on the construction of the Raxaul-Kathmandu railway line.

The India-Nepal Treaty of Peace and Friendship of 1950

  • It forms the bedrock of the special relations that exist between India and Nepal. 
  • Nepalese citizens avail facilities and opportunities on par with Indian citizens in accordance with the provisions of the Treaty. 
  • Treaty obliged Nepal to inform India and seek its consent for the purchase of military hardware from third countries. Nepal wants to change this provision.
  • The Nepal-India Eminent Persons’ Group (EPG) is revisiting all bilateral agreements to submit a comprehensive report to both governments on how to reset bilateral relations

Economic relations:

  • India, which is Nepal's largest trading partner for both exports and imports, accounts for about 65.8% of the total trade deficit.
  • India currently grants duty-free access to Nepalese products with at least 30 percent value addition.
  • Nepal’s main imports from India are petroleum products (13.7%); motor vehicles and spare parts (13.1%); etc.

Indian Investment in Nepal 

  • Indian firms are among the largest investors in Nepal, accounting for about 30% of the total approved foreign direct investments.

Water Resources Cooperation 

  • A three tier bilateral mechanism established in 2008, to discuss issues relating to cooperation in water resources, flood management, inundation and hydropower between the two countries, has been working well.
  • Two mega hydropower projects – Upper Karnali and Arun III are being proposed.

Inland waterways: India consented to grant access to the inland waterways- Kolkata-Kalighat, Raxaul; Kolkata-Sahebgunj, Biratnagar and Kolkata-Varanasi-Raxaul routes in Ganges river connecting the seaport of Haldia, Kolkata.

India’s Development Assistance to Nepal 

  • Recently,  South Asia’s first cross-border petroleum products pipeline was inaugurated from Motihari in India to Amlekhgunj in Nepal. 
  • Apart from grant assistance, the Government of India has extended Lines of Credit of USD 1.65 billion for undertaking development of infrastructure, including post-earthquake reconstruction.

New Partnership in Agriculture 

  • In 2018, the ‘India-Nepal New Partnership in Agriculture’ was launched with a focus on collaborative projects in agricultural research, development and education. 

Defence cooperation 

  • India has been assisting the Nepal Army (NA) in its modernisation by supplying equipment and providing training.
  • The ‘IndoNepal Battalion-level Joint Military Exercise ‘SURYA KIRAN’ is conducted alternately in India and in Nepal. 


  • India is currently supplying a total of about 600 MW of power to Nepal. 
  • Agreement on ‘Electric Power Trade, Cross-border Transmission Interconnection and Grid Connectivity’ between India and Nepal: The Agreement provides a framework for power trade between the two countries.
  • Indian Community : Around 6,00,000 Indians are living/domiciled in Nepal. These include businessmen and traders professionals (doctors, engineers, IT personnel) etc.

Cultural: Many Hindu and Buddhist religious sites are in Nepal making it an important pilgrimage site for large number of Indians. Cross-border marriages are also quite common. 

Significance of Indo-Nepal relations: 

  • Nepal shares a border with 5 Indian states- Uttarakhand, Uttar Pradesh, West Bengal, Sikkim and Bihar. If India wants prosperity in Indian States, Nepal is a powerhouse economy potentially because it is so resource-rich. 
  • Nepal is right in the middle of India’s ‘Himalayan frontiers’, and along with Bhutan it acts as buffer states against any possible aggression from China
  • Rivers originating in Nepal feed the perennial river systems of India in terms of ecology and hydropower potential
  • Military diplomacy: Over 50,000 Nepalese Gorkha soldiers are in the Indian army.

Importance of India for Nepal

  • India is Nepal’s largest trading partner
  • India has provided a transit facility to Nepal for the third country trade. 
  • It has played a critical role in all the political transformation in Nepal.

International cooperation: Both the countries have been deeply engaged in the regional and sub-regional frameworks of SAARC, BIMSTEC and BBIN for enhancing cooperation for greater economic integration.

What are the challenges before Indo-Nepal relations?

Growing Nepal-China nexus:

  • China has overtaken India in FDI to Nepal which was about $300 mn in 2018. 
  • As India failed to deliver on its infrastructure commitments in time, Nepal gravitated towards China, especially in the hydropower sector. 
  • Xi Jinping’s recent visit to Kathamandu was defined by the determination to accelerate the development of an ambitious trans-Himalayan corridor between China’s Tibet and Nepal. 

About trans-Himalayan corridor 

  • It is a strategic railway link connecting the Gyirong trading port in the city of Xigaze in Tibet with the Nepali capital Kathmandu.
  • This will ultimately be extended via Pokhara to Lumbini in Terai as the China-Nepal Economic Corridor component of the Belt and Road Initiative. 
  • The Cross-Himalayan Connectivity Network will help Nepal become land-linked from land-locked with additional entry points. This will reduce the dependence on India. 
  • But Nepal is hesitant to choose projects in CNEC, fearing debt trap.
  • Nepal signed a Belt and Road framework agreement with China:  The CNEC is more strategic than economic, especially its envisaged outreach to Lumbini which will breach India’s red line on Chinese activities in Nepal. There is a Chinese military threat to India through Nepal in the gangetic plains.Image result for trans himalayan corridor
  • Transit and Transport Agreement: Nepal and China have finalized the much-awaited protocol of the treaty, paving the way for Nepal to use Chinese ports Tianjin, Shenzhen, Lianyungang and Zhanjiang open seaports and Lanzhou, Lhasa and Xigatse dry ports for trade. 
  • Nepal is keen to continue a policy of dynamic balancing and make the best of the possibilities with both China and India.
  • The Chinese ports that Nepal is going to use are over 3,000 kilometers away from the Nepal-China border. 
  • Currently, Nepal is using Kolkata and Visakhapatnam ports for trade with third countries. Kolkata is 742 km away from the Nepal-India border, while Vishakhapatnam is around 1,400 km from the border.

China proposed 2+1 format for India talks:

  • Under the Chinese proposal, China and India can jointly conduct a dialogue with a third regional country and can be applied to any other country in South Asia. 
  • India has been reluctant to directly take up any kind of trilateral cooperation in Nepal with China.

India’s meddling in Nepal’s internal affairs

  • India has often meddled in Nepal’s domestic politics, sometimes by preying upon its landlocked status. India imposed blockade on Nepal in 1962, 1989, and (unofficially) in 2015 after the country promulgated a controversial new constitution. 

India’s Internal Security 

  • Indo-Nepal border is virtually open and lightly policed which is exploited by terrorist outfits and insurgent groups from North Eastern part of India eg. supply of trained cadres, fake Indian currency. 

Border disputes: 

  • Susta and Kalapani issues: Slow progress has been made till date.
  • Issue of the four Integrated Check Posts (ICP) on the India-Nepal border : Several problems from both sides have caused the delays.

Unchanging perspectives

  • Nationalistic feelings in Nepal: Many in Nepal continue to equate being anti-India with being nationalistic. 
  • India’s overdependence on humanitarian assistance: India continues to think that by providing largesse to Nepal in the form of aid and development projects, it can win Nepali hearts. But despite pouring billions of rupees into Nepal over decades, it has still not been able to do so.
  • Muscular neighborhood policy: The fear in Nepal is that as a part of the Indo-Pacific Strategy, India and the United States will work in tandem to limit China’s role in Nepal.

Demonetized currency notes

  • Demonetization badly affected Nepali nationals residing in Nepal as well as in India because those notes were legal tender in Nepal. 
  • Nepali leaders have repeatedly requested that the Indian government make arrangements for the exchange of those notes held by Nepali nationals. 

Boycott of BIMSTEC Military exercise

  • Nepal declined to participate in the first BIMSTEC military exercise MILEX-18 organized by India.
  • But at the same time Nepal and China conducted their first-ever joint military exercise "Sagarmatha Friendship 2017”.

Import restrictions: Nepal has been urging India to lift the quantitative restriction on the import of acrylic yarn, copper utensils, vegetable ghee and zinc oxide which has been in place since 2002.

Two issues are important to understand here. 

  1. Indian aid is seen in Nepal as a favour bestowed on a constituency it wants to garner support from rather than a contribution to Nepal’s planned development. 
  2. Second, India competes with China in providing aid outside government budgets. And China picks up projects of visibility and strategic location. 
    1. Chinese involvement in Nepal has increased since the April 2015 earthquake and Nepal is surely an area of strategic influence in China’s Belt and Road Initiative.

Way forward:

  • Project delivery: India has to focus on implementation and delivery on the three key three of rail connectivity, developing inland waterways, and agriculture to address growing competition from China in its neighborhood in general and Nepal.
  • India can build on the natural geographic and cultural interdependence between the two nations which must be based on sovereign equality and mutual benefit
  • Promoting the Transnational Buddhist Circuit and Ramayana Circuit: India should leverage its soft power from a shared culture that has been nurtured over the course of more than two millennia. 

Geography, including the open border, for one, is in India’s favour. Winning back Nepal and the confidence of its people is the challenge.