December 11, 2014 Sujeev Shakya

The Modi Effect: Redefining Nepal India Relationship

The relationship between Nepal and India has been one of mistrust, on both sides. The visit by Prime Minister Narendra Modi to Nepal in August 2014, the first Indian head of the government to make a bilateral visit to Nepal in 17 years, has re-defined the paradigm of the relationship between the two countries.

Following details the history of the relationship between Nepal and India, the change brought about by the Modi visit and outline for possible future relationship between the two countries. Nepal’s biggest concern is the fear of losing its identity to its neighbor. Nepal is concerned that India is interested in playing a strong role in Nepal’s internal affairs. Nepalis believe that any major political decision has to be taken in consultation with India. As such, Nepal is worried that it will be relegated Bhutan, where India plays is a strong role in the internal matter.

Similarly, India’s is worried about the possible security concerns with an open border with Nepal. Because Nepal is sandwiched between India and China, India is constantly worried the role that China will play in Nepal. The strong Sinophobia in the India is manifested in India’s need to keep an eye on Nepal. Another reason India feels the need to keep an eye on Nepal is because of the fear of Pakistan’s Inter- Service Intelligence (ISI) operation and movement in India through the open border between Nepal and India. Entering of fake Indian currency through the open border is also a big concern for India.

Prime Minister Modi’s visit was able to placate any concerns that Nepal may have with India and focus the bilateral relations on trade and investments. He even encouraged the two countries to look at the open border as a facilitator for positive relations between them; i.e., by supporting trade and investments. His address to the House of Parliament was able to help him connect directly to the Nepali populace and reassure Nepalis that India does not lay claims to on Nepal’s hydropower resources. He assured Nepal that it is up to Nepal to develop it hydropower capacity and sell it to India if Nepal desires and recognized that Nepal is the land of Buddha. Also, any notions in Nepal that Modi would support groups looking to support a Hindu nation in Nepal and the monarchy were put to rest. Further, Modi’s visit focused on concrete outcomes: he extended USD 1 billion line of credit and encouraged the signing of the Power Trade Agreement and Power Development Agreements. He also proposed possible development catalysts for Nepal, namely tourism (religious tourism) and center for healing and holistic care.

The most important development in the Indo-Nepal relationship after PM Modi’s visit is the building of trust. For the common Nepali, the anti-India rhetoric no longer makes sense as they believe the Indian Prime Minister’s declaration that India does not want to meddle with Nepal’s internal issues, unless Nepal specifically asks for help. Other positive developments include the building of bilateral relations in developing hydropower in Nepal. A Power Trade Agreement has been signed between the Nepali and Indian government. A Power Development Agreement has been signed with GMR Group for the Upper Karnali Hydropower Project and a few others under negotiation. Also important to note is that Nepal is taking the initiatives to build bilateral relations.

Given the current positive steps in Nepal-India relations, the key step now is to look ahead, at 2030 for example, rather than focus on the problems, which began in 1950, between the two countries. This changing of focus will also change the perspective, from grievances to opportunity, of the relationship between the two countries. The most important catalyst for change in the relationship is to build the people to people relationship, branching out from the discourse currently limited to Kathmandu and Delhi. Nepali citizens living at the border and their inter counter parts understand each other better than the political heads in Delhi and Kathmandu. In fact, the Border States are not understood by either of the two country’s leaders and yet the Border States is where Nepal and India can work together for mutual benefit.

The combined Border States, with their 300-400 million, is an economy that has a lot of potential. The Border States in both countries build benefit from trade and investment opportunities from their counterparts across the border. Nepal and India need to explore opportunities to put the open border to good use through the economic activities in the border economy. The focus in this region should be on the 3Cs, Connectivity, Communication and Communities. The region should maintain their connection by facilitating movement of people, goods and services and incentivizing investments. Nepal can learn from the successful activities in the border markets between India and Bangladesh.

Imagining the India-Nepal relationship can be taken a step further to look at an integration at the In Asia sub-region level. This region would integrate Nepal to the Northeastern Indian states, Bhutan, Bangladesh and even Myanmar. Many of these areas share open border with each other, which may be leveraged to support trade for a large market that this sub-region houses. Further this region can also stand to benefit from cross-border investments, which may be incentivized by each country/ region.

Although the visit by PM Modi was a small political break through, it has opened doors to cooperation between Nepal and India and as such supported positive developments between the two neighbors. The onus is on Nepal to position itself such that India takes a keen interest in Nepal. Nepal and India stand to benefit from trade and investment opportunities between the two countries, especially in the Border States, and even the North Eastern sub-region.

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