Popular and cultural ties with Nepal have consistently been close and have reflected the historical, geographical, cultural and linguistic links between the two nations. In terms of language, religion gods and goddesses, food and clothing the two countries have more in common than any third world country of world. The bilateral relationships between India and Nepal are characterized by ups and downs in all these years. Nepal is in the phase of transition where on the one hand it has transformed itself to republic from monarchy; while on the other hand, Maoists have joined mainstream politics.

Brief Background of Relationship

• India and Nepal share a very special relationship with each other. They share a common culture and terrain south of the Himalaya. Bound by languages and religions, marriage and mythology, the links of their civilizational contacts run through both the countries.
• At the people to people level, relations between India and Nepal are closer and more multifaceted than between India and any other country.
• Republic of India and Nepal began their formal relationship with the 1950 Indo-Nepal treaty of Peace and Friendship. This treaty is the cornerstone of our current relation with Nepal.
• Indian strategists and policy makers consider Nepal as critical to India’s security. The British Indian Empire saw Nepal as the buffer with China and after 1947 India continued with that policy. Any signs of close ties between Nepal and China are anathema to New Delhi.
• While Nepal and India have close historical, religious and cultural ties, Nepal’s strategic ties with India date back to the Treaty of Sugauli of 1816 which was signed between the Nepalese monarch and the British East India Company.
• As per the treaty, large parts of the Nepalese kingdom (including parts of present day Uttaranchal, Himachal Pradesh and Sikkim) were annexed by the British empire, a British resident was stationed at Kathmandu, Nepal agreed to refer to the British with respect to its foreign policy and Gorkhas were recruited in large numbers by the British for military service. Nepal regained some of the lost territory when the monarch helped the British during the 1857 uprising. However, even today Nepal lays claim to certain parts of Indian territory, like Kalapani, along the India-Nepal border.

Phases in relations

1947-1955

During these eight years, bilateral relationships were governed by the following factors

Stand Still Agreement (1947)

By this two countries agreed to maintain the old treaty of 1923 until the conclusion of the new treaty.

A Tripartite Agreement between India, Britain, and Nepal

An agreement was reached in which 12 Battalions of Nepalese Gorkhas shall be employed by India and 9 Battalions by Britain.

Treaty of Peace and Friendship 1950

Background of the treaty

• The Himalaya Nation of Nepal borders northern India in the south, east and west. During British rule in India, Nepal’s ties with the British Government were governed by the 1816 Treaty of Sugauli that was replaced by the 1923 “Treaty of perpetual peace and friendship”. After the independence of India in 1947, the two nations sought to forge close strategic, commercial and cultural relations.

Key Provisions of the treaty

• The India-Nepal Treaty of Peace and Friendship was signed by the last Rana Prime Minister of Nepal, Mohan Shamsher Jang Bahadur Rana, and the Indian Ambassador to Nepal, Chandreshwor Narayan Singh on 31 July 1950 and came into force the same day. It has ten articles.
• The treaty provides for everlasting peace and friendship between the two countries and the two governments agree mutually to acknowledge and respect the complete sovereignty, territorial integrity and independence of each other.
• As per Articles 6 and 7, the two governments agree to grant, on a reciprocal basis, to the nationals of one country in the territories of the other, the same privileges in the matter of residence, ownership of property, participation in trade and commerce, movement and other privileges of a similar nature. This enables Nepali and Indian citizens to move freely across the border without passport or visa, live and work in either country and own property or conduct trade or business in either country. There are a large number of Indians living, owning property and working or doing business in Nepal as a beneficial aspect of the treaty for India. Reciprocally, many Nepalese live, own property and conduct business freely in India.
• For centuries, Nepal remained in self-imposed isolation. After the 1860 treaty with the East India Company, Prime Minister Jung Bahadur Rana of Nepal allowed Indians to purchase and sell land in Nepal’s Terai. After the ascent of Mt. Everest by Edmund Hillary and Tenzing Norgay, Nepal completely lifted its ban on foreigners.
• The King of Nepal enacted the Citizenship Act of 1952 that allowed Indians to emigrate to Nepal and acquire Nepalese citizenship. But as more and more Indian immigrants from Bihar started acquiring Nepalese citizenship, most Nepalese became resentful of this provision.
• It was clearly provided in the Treaty that, “neither government shall tolerate any threat to the security of the other by a foreign aggressor,” and the two countries promised to “consult each other and device effective counter-measures” in case of any threat from a third country. Nepal would ordinarily purchase war equipment from India.
• The treaty provided that Nepal would consult India before buying war material from any other country. After such consultation Nepal would “import from or through the territory of India, arms, ammunitions, or warlike material and equipment necessary for the security of Nepal.” Indo-Nepaleserelations have been based on this treaty.

Trade and Commerce Treaty 1950

Both countries agreed to exchange consulate general Nepal agreed to import arms and ammunition from India. India agreed to provide aid and assistance in the economic development of Nepal.

Colombo Plan Agreement (1954)

• India agreed to contribute Rs. 5 million during the next four years towards the development of communications, irrigation projects and water supply schemes in Nepal.
• The Indians and Nepalese cooperated during the freedom struggle. Indians, therefore, expected democracy in Nepal also. India was sympathetic towards the Nepalese congress fighting for the cause of the people. When the crisis reached its height, king Tribhuwan took refuge in New Delhi. India acted as a mediator and restored him and got assurance that government would take steps for the introduction of democratic reforms. India undertook several projects to improve transport and communication between India and Nepal.
• Thus in these years the bilateral relationships between India and Nepal were improving.

1955-71

• King Mahendra ascended to the throne in 1955. He was keen of developing relationships with China. These Strained Indo-Nepal bilateral relations. The emergence of the boundary dispute between India and China made them open rivals. Both tried to develop friendship with Nepal. In 1959 there was the establishment of the parliamentary system in Nepal Prime Minister Nehru declared, “Any aggression against Bhutan or Nepal would be considered an aggression against India”. Prime Minister B.P. Koirala replied” I take Mr. Nehru’s statement as an expression of friendships that in case of aggression against Bhutan and Nepal, India would send help if such help is required”. In 1960 again king Mahendra took over the administration of Nepal and Indo-Nepal relationships were strained. During the Indo-China war of 1962 Nepal maintained neutral stand after that India pursued the policy of appeasement, but was not successful because Nepalese Prime Minister and K.M. Biste came out with the demand of withdrawal of Indian military personnel from Nepal.

1971-77

• India played a big role in the liberation of the Bangladesh. India emerged as a power in South Asia. There was also Indo Soviet peace and friendship treaty. India decided to abandon its policy of unilateral concessions to Nepal. Trade and Transit treaty which expiredin November 1970 was revived after negotiations in August 1971. Nepal reacted strongly to Sikkim’s accession to India. India took stiff stand.During this period Nepalese Prime Minister N.P. Rizd visited New Delhi and Indian Finance Minister Y.B Chawan visited Nepal. But India maintained its stiffness and placed restriction on the movement of Nepalese nationals in specified areas of Indian Territory. All these things made government of Nepal realized the consequences of overlooking importance of relations with India.
• Thus in this phase, instead of appeasement reciprocity was made basis of bilateral relationships.-

1977-1991 (Janta Era Up To Liberalization In 1991)

• When Janata government came in to power, improvement of relations with India’s neighbours was described as the top priority. But government of Nepal felt that janata government can put pressure for introduction of democratic reforms in kingdom. Indian government gave assurance that India in no way wanted to interfere in Nepalese internal affairs. Inspite of these assurances Indo- Nepal relationships were strained. Sh. Vajpayee, then foreign minister visited Nepal in 1977 which helped in securing an understanding between India and Nepal. In 1978, India and Nepal signed two separate treaties .One, relating to trade and other relating to the transit facilities. In this year only Nepalese Prime Minister K. N. Bist came on an eleven days official visit to India. This visit further extended the level of understanding between Nepal and India. Thus Janta phase resulted in beneficial bilateralism,inspite of few irritants like Nepal proposal of zone of peace and issue of restriction upon Nepalese nationals in certain areas of India. When in 1980 Mrs. Indira Gandhi returned topower, the two countries increased their bilateral trade and took steps to overcome the complicacies. The period between 1980 to 1986 was of higher level contacts. In Nov, 1982 India’s Foreign Minister  P.V.Narshimarao  visited Nepal. Experience of SAARC also strengthened the economic trade and cultural cooperation between the two countries.
• In 1985 Rajiv Gandhi worked towards the cooperative bilateral relationships between India and Nepal. In 1986, Indo-Nepal relations began developing strains on the issue of trade and transit treaty. India wanted that there should be only one  treaty to cover both the issues, but Nepal wanted that there should be two separate treaties on trade and transit Nepal made an agreement to import arms from China. Thus there was pro-china tilt in the foreign policy of Nepal. India adopted hard stand and allowed the treaties to be lapsed. This created problems for Nepalese people. There was unrest among people, prodemocracy movement was launched and in 1990, there was restoration of democracy. India welcomed it New Prime Minister K.P. Bhattarai initiated the process of improving relationships with India.

1991 Onwards

• A series of agreements on contentious issues of water resources development, separate trade and transit treaties and agreement for cooperation in curbing terrorism were signed. A very small period of tension emerged when in November 1994, communist party of Nepal came into power. But within two months communists went out of power. New government was formed under Prime Minister Sher Bahadur Debua. A very important treaty Mahakali treaty was signed in February, 1996. In December 1996, India and Nepal signed a new bilateral trade treaty which replaced the trade treaty of 1996 which had expired a day earlier. In April 1997, it was reported that the Joint Indo-Nepal Boundary Committee which has been in existence since 1981 had set up 1001 pillars along 1778 km border area till the end of 1996.
• The power pact signed aimed at promoting the participation of the private sector in the development of hydropower projects in Nepal.
• In 1998 India conducted nuclear tests Nepal hoped that recent nuclear tests by India will not unleash nuclear arms race in the region. In the end of 1999 it was Kandhar crisis and the hijacking of Indian Airlines plane which froze Indo-Nepal friendship at ion.

Relationships in the 21st Century

• In 2005, after King Gyanendra took over, Nepalese relations with India soured. However, even after the restoration of democracy, in 2008, Prachanda, the Prime Minister of Nepal, visited India, in September 2008 only after visiting China, breaking the long held tradition of Nepalese PM making India as their first port-of-call. When in India, he spoke about a new dawn, in the bilateral relations, between the two countries. He said, “I am going back to Nepal as a satisfied person. Iwill tell Nepali citizens back home that a new era has dawned. Time has come to effect a revolutionary change in bilateral relations. On behalf of the new government, I assure you that we are committed to make a fresh start.”
• In 2006, the newly formed democratic parliament of Nepal passed the controversial citizenship bill that led to distribution of Nepalese citizenship to nearly 4 million stateless immigrants in Nepal’s Terai by virtue of naturalisation. While the Indian government welcomed the reformed citizenship law, certain section of Nepalese people expressed deep concerns regarding the new citizenship act and feared that the new citizenship law might be a threat to Nepalese sovereignty. The citizenship bill passed by the Nepalese parliament in 2006 was the same bill that was rejected by Late King Birendra in 2000 before he along with his entire family was massacred. Indian government formally expressed sorrow at the death of Late King Birendra of Nepal.
• In 2008, Indo-Nepal ties got a further boost with an agreement to resume water talks after a 4-year hiatus. The Nepalese Water Resources Secretary Shanker Prasad Koirala said the Nepal-India Joint Committee on Water Resources meet decided to start the reconstruction of the breached Koshi embankment after the water level went down. During the Nepal PM’s visit to New Delhi in September the two Prime Ministers expressed satisfaction at the age-old close, cordial and extensive relationships between their states and expressed their support and co-operation to further consolidate the relationship.
• The two issued a 22-point statement highlighting the need to review, adjust and update the 1950 Treaty of Peace and Friendship, amongst other agreements. India would also provide a credit line of up to 150 crore rupees to Nepal to ensure uninterrupted supplies of petroleum products, as well as lift bans on the export of rice, wheat, maize, sugar and sucrose for quantities agreed to with Nepal. India would also provide 20 crore as immediate flood relief.In return, Nepal will take measures for the “promotion of investor friendly, enabling business environment to encourage Indian investments in Nepal.”
• In 2010 India extended a Line of credit worth US$50 million & 80,000 tonnes of foodgrains. Furthermore, a three-tier mechanism at the level of ministerial, secretary and technical levels will be built to push forward discussions on the development of water resources between the two sides. Politically, India acknowledged a willingness to promote efforts towards peace in Nepal. Indian External affairs minister Pranab Mukherjee promised the Nepali Prime Minister Prachanda that he would “extend all possible help for peace and development.”

Present phase of relationship

• Relation between India and Nepal was on a downward curve since 2015 when Nepal put out its draft constitution and alleged economic blockade by India
• With PM Oli back in power in 2018, the India’s outreach to the new government in Nepal was quick — announcing new connectivity and development projects.
• A series of bilateral visits have taken place by the Prime Ministers of both the countries.

Important determinants

Importance of Nepal for India

Nepal importance for India can be classified under following heads:

Political

• Important cog in the pursuit of regional integration & cooperation viz. bay of Bengal initiative for multi-sectoral technical & economic cooperation(BIMSTEC),Bangladesh, Bhutan, India, Nepal(BBIN) initiative.
• Vindicate the prudence of Gujral doctrine & exhort the continuance of the same vis-à-vis other neighbors.
• Comprises large sections of Madhesi population which has familial & ethnic ties with states of Bihar, UP. Thus any mishap on either side has significant political repercussions

Security

• Both nations share an open & porous border which makes India extremely vulnerable to any major agitations, revolts that can lead to huge influx of people.
• other threats emanating from open border-insurgency, trafficking, counter-fiet currency flow, drugs smuggling
• Nepal shares a long open border with India. There is alleged link between Naxalits and Maoist in Nepal thus coordination with Nepal is important to check the spread of naxalism in the red corridor.
• To counter terrorist activities close to border areas: Many hard core terrorists had been apprehended in Nepal close to India’s border.

Strategic

• Nepal is a buffer state between India and china. Buffer state is a small neutral country situated between two larger hostile countries and serving to prevent the outbreak of regional conflict.
• By virtue of 1950 treaty provisions, India & Nepal jointly man Nepal-Tibet border.
• Significant Gorkha regiments of Indian army trace their roots to Nepali Gorkha ethnicity.

Economic

• India is the largest exporter of petroleum products, thus Nepal forms one of the reliable export markets
• India is the largest destination of Nepalese migrant which over a period of time has assimilated in our social milieu & are contributing to the Indian economy
• Numerous Himalayan rivers flowing into the Nepal presents significant opportunity for joint power project development for hydropower generation. This can bring economic prosperity to border states like Bihar, UP

 Cultural

• Important Landmarks of Buddhism(eg lumbini) is located in Nepal which foregrounds its cultural significance to India.
• Nepal constitutes a significant pillar in furthering its diplomatic outreach in south Asia by completing Buddhist circuit that covers lumbini-bodh gaya-sarnath-kusinagar In all, Nepal shares a multidimensional relationship with India whose degree of success is significant for India’s rise in the region & large

Issues inIndo-Nepal Relations

Political

• Anti-India feeling in Nepal is largely politically motivated and has been present since the re-installation of monarchy in 1951. The monarchy used anti-Indianism as a rallying point, both to create a popular support-base for itself and to generate a sense of national unity amongst the people. The Nepalese monarchy viewed India’s latent support for democracy with suspicion, even though it benefited immensely from such policies, because they led to removal of the Ranas. In fact, over the years, both the monarch and the democratic forces have looked at India with suspicion, given their own interests. China has been seen as a potential support and as a countervailing force vis-à-vis India.
• Interestingly, the anti-India feeling among certain ethnic groups in Nepal emanates from the perception that India is still backing the monarchy clandestinely. On several occasions, both the right- and leftwing political forces in Nepal (the royalists, communists and the Maoists) have generated anti-Indian sentiment for their own political benefit.
• Since the 1990s, these elements have been frequently using the Treaty of Peace and Friendship between India and Nepal signed in 1950, as well as the Kosi, Gandaki and Mahakali Treaties, the alleged border encroachments by India, poor treatment of Nepalese workers in India, and unresolved trade issues to foment anti-India feeling for their political benefit. Even many Kathmandu-based intellectuals and journalists indulge in anti-India rhetoric to get monetary benefits from external agencies known for their adversarial position towards India.
• Interestingly, this trend has reached new heights since the decline of monarchy in 2006 and emergence of the Communist Party of Nepal- Maoist (CPN-M) as the largest party in the Constituent Assembly (CA) elections in 2008. While this phenomenon was earlier confined to the elites in Kathmandu, it is now also being reflected in rural areas. Some Nepal army officers and the royalists believe that India is responsible for the end of the monarchy and the rise of the Maoists.
• Senior officers in the Nepal Army point to the fact that India’s refusal to supply arms in 2005 after the royal coup d’état indirectly strengthened the Maoists.
• On the other hand, the Maoists accuse India of not letting them come to power and also hold it responsible for the political instability in Nepal and delay in the drafting of the Constitution. The most popular narrative in Nepal at present is that Indian bureaucrats, including those from RAW and IB, are responsible for the political instability in Nepal.
• The treaty of Peace and Friendship is called unequal by most Nepalese as Nepalese law does not permit an open border and Indians, by law, should not be able to buy lands and properties in Nepal or carry out businesses in their names.
• They claim that the 1950 treaty was signed by undemocratic rulers of Nepal and can be scrapped by a one-year notice. The treaty has been unpopular especially among Pahari segments of Nepal, who often regard it as a breach of its sovereignty.
• Nepal was a greater sovereign country before the East India Company’s impact on its freedom; the lands which were given to the East India Company according to the Sugauli Treaty must be returned to Nepal, because after the freedom proclamation in India, Nepalese lands should also be handed over Nepali people. Beneath this, agreements were manipulated in the favor of antidemocratic autocratic rule of Nepal where the power of the Nepali people is fragmented

Economic

• Economic factors also add to the growing anti-Indianism. This phenomenon is especially noticeable in the rural areas. Every day, thousands of unskilled labourers from mid-western Nepal cross the Indian border in search of jobs and are harassed in various ways (inhuman living conditions, lower wages than their Indian counterparts,ill-treatment by employers, generalization of Nepalese as gatekeepers, and misbehavior by security force [SF] personnel while crossing the border and at airports).
• When they share these experiences with their fellow villagers, it inevitably gives rise to a negative perception of India. In fact, many retired Gurkha soldiers from rural areas also narrate instances of harassment by Indian officers for retirement benefits. These voices were perhaps muted during the monarchy. However, with the emergence of the Maoists, who are perceived as a strong ‘pro-people’ party with the courage to stand up to India, these views are being expressed more openly. Another factor could be opening up of alternative job markets, other than India, for the Nepalese population.
• This has, to some extent, emboldened the Nepalese people to express their views openly against India. India’s decision, in March 1989, to close all the border transit points except four in response to Chinese arms supplies is often cited as an example of Indian high-handedness. As far as bilateral economic relations are concerned, firstly, the growing trade imbalance between the two countries has led some political leaders, economists and traders to allege that this is a deliberate strategy by India to keep Nepal poor.
• Despite a revised trade treaty in 2009 between two countries, Nepalese traders have often complained that India has not complied with the list of Nepali-manufactured goods that were given duty-free access on a non-reciprocal basis in accordance with the trade treaty in 1996. Nepal’s other major concern has been the non-tariff barriers on sanitary and phyto-sanitary measures (SPS) imposed by India.
• Secondly, Nepal is unable to export pharmaceutical products because these companies are denied registration in India.
• Thirdly, India does not allow Nepali entrepreneurs to send their machineries for repair and maintenance after three years of their import.
• Fourthly, Nepalese exporters are concerned about the restrictions on the export of industrial by-products, poor infrastructural facilities at the borders, congestion and delay while importing cargo from Kolkata port, and India’s decision regarding the double seals on Nepali cargo coming via Kolkata port.

The Issue of Water and Hydropower Cooperation

• Water has been a contentious issue between the two countries because of the controversies surrounding the water treaties on Kosi, Gandak and Mahakali . As a result, Indian investors in the hydropower sector in Nepal face problems on several counts.
• There is a sentiment in Nepal that India has cheated Nepal in those treaties and Nepal’s natural resources have been sold out without taking into account its interests. Deepak Gyawali has observed that in the case of Kosi and Gandak treaties, Nepal can do nothing as all management powers have been retained by the Indian side. Despite the chronic power/electricity shortage, large sections of Nepalese, including Kathmandu-based intellectuals, are not satisfied with the level of investment made by India in thehydro-power sector.
• The Nepalese perceive that the benefits from these investments may not accrue to them.

Social

• Familiarity breeds contempt. Due to strong cultural linkages, certain sections in Nepal feel insecure about the demand for a separate Madheshi region.
• The Madheshis are commonly regarded as people of Indian origin and hence regarded as a pro-Indian constituency in Nepal.
• There is a suspicion amongst the Pahadis and major political leaders in Nepal that India is out to balkanise Nepal. Reportedly, during 2002-2004, India attempted to give a political colour to Madheshi grievances which encouraged Madheshis to organise themselves politically.
• As part of this initiative, the Nepal India Friendship Association was reportedly formed with the active support of India and some development projects funded by India were diverted to the Terai region to nurture this constituency. The Madheshis, on the other hand, believe that India’s policy towards Nepal is Kathmandu centric.They accuse India of neglecting the Madheshi movement. Upendra Yadav stated in a published Interview: India, especially South Block and the Indian Embassy, have been against the Madhesh and MJF. They created the TMLP [Tarai-Madhesh Loktantrik Party] to weaken us. In fact, one of the reasons the pre election alliance did not happen was because India was trying to boost up TMLP

Role of External Forces

• The role of external powers in fomenting anti-India feelings in Nepal has not been investigated so far. There are reports that both China and Pakistan are providing financial support to media houses who add fuel to the anti-India fire in Nepal. Pakistan has made its presence felt in Nepal since the 1960s and its intelligence agencies have used Nepalese territory to export terror to India, taking advantage of the open border between India and Nepal.
• Therefore, Pakistan’s ability to foment anti-Indianism through sponsorship should not be underestimated. Some Madheshi leaders indicated to the author that due to growing anti-India feelings in the Madheshi region, China, US and other countries have been trying to build their constituencies in the region.
• Some analysts in Nepal admitted that the Nepalese often shared their resentment against India with officials from the Western embassies in Kathmandu.
• There is a common view in Nepal that India’s insensitivity or overreaction to Nepal’s assertions of sovereignty (even when they do not affect legitimate Indian interests) has fuelled anti Indianism over the years.

Geographical Issues: The Case of Open Borders

• The 1950 Treaty and the unsettled border disputes at Kalapani and Susta have contributed substantially to the anti-Indian sentiments in Nepal. The issue of open borders has also been a point of debate in Nepal in recent years.
• A large section of people in Nepal believe that the open border is a historically unique arrangement. It symbolises the deep trust and friendship between the two countries. The livelihood of thousands of economically backward people on both side of border depends on the open border. Contrary to the belief in India, the Nepalese people argue that the India is benefiting more from it than Nepal. The fact remains that the Nepalese farmers benefit from the cheaper agricultural inputs and household products from India while the Indians benefit from better medical facilities and cheaper education in medical colleges across the Nepalese border.
• Given the socio-cultural linkages, the open border helps in cementing ties between peoples of the two countries. The open border and 26 transit points reduce the time and cost of the transportation of goods from India to Nepal.
• Thousands of Nepalese workers, who send remittances to Nepal, cross the border without any documents at any point of the border in search of jobs. Quoting a survey report conducted by the World Food Programme (WFP) and the EU, some commentators point out: ‘Thirty nine per cent of Nepal’s total households with one or more migrants have India as their destination.
• On the Indian side, availability of Nepalese labour takes care of the labour scarcity in different parts of India. Considering these challenge, both the countries have formed a joint Border Monitoring Committee and deployed their security forces along the borders.
• However, given the political instability in Nepal, these mechanisms are not sufficient. The infrastructure for patrolling and management of the border is very poor. The joint patrolling arrangement is not operational at this moment. Both sides believe that there should be some regulation of the border but there are also other views.
• One section in Nepal, including the Maoists, argues that the open border has been responsible for the underdevelopment of Nepal and that it should be closed. On the contrary, people living in the border districts of Nepal feel that it should be regulated and kept open.

Psychological

There is also a psychological factor at play the asymmetry in size between the two countries. Nepal feels vulnerable and insecure because it is landlocked, and its sense of insecurity is ironically fuelled by the very cultural affinities which are also touted as a great asset in the relationship. Trailokya Raj Aryal argued in an analytical piece in Republica on April 25, 2010: ‘With so many similarities between Nepal and India, naturally, Nepal had no other options but to contrast itself with India.

Nepal’s growing proximity to China

• Nepal’s attempt to balance the overwhelming presence of India next door by reaching out to China is resented by India as such actions heighten India’s security concerns.
• Chinese are building a number of highways from the Tibetan side into Nepal, all the way down to East-West highway that traverses Nepal.
• China plans to extend the Tibet railway to Kathmandu across the border in the next few years.
• Nepal signed the Belt and Road Initiative (BRI) Framework agreement with China last year.
• China is trying to contest Indian interests by cultivating local interest groups that could advance China’s interests in Nepal.

Demonetization

• Demonetization has badly affected Nepali nationals because those notes were legal tender in Nepal too.
• Nepal has time and again requested that the Indian government make arrangements for the exchange of those notes held by Nepali nationals and its central bank.

Recent development in bilateral relations

The Recent Visit of Prime Minister Narendra Modi

• In a first in the last 17 years, Prime Minister Narendra Modi’s two day visit to Nepal, marked a new beginning in Indo-Nepal relations. Publicity of the visit to Nepal was taking a momentum after Sushma Swaraj, the Foreign Minister of India, visited Nepal as a preparation for the schedule.
• The reception event itself in the international airport could be perceived as a revealing example of how much enthusiastic the Nepalese Parliamentarians and political leaders were towards their guest. Against the international protocol, Sushil Koirala, the Prime Minister of Nepal, came to airport himself to receive his Indian counterpart.
• The Prime Minister of India expressed his commitment to Nepal’s development and promised to take all necessary steps to take the relations to a new height. Moreover, with repeated emphasis on sovereignty and assurance of non-interference in internal affairs of Nepal, a successful attempt was made to make it clear, both in words and spirit, about India’s intention and dispelling the image of the country as a hegemonic power to a certain extent.
• The willingness of India to revise the 1950 Treaty of Peace and Friendship was showcased and clearly stated and a statement to this effect was made that India is ready to consider suggestions from government of Nepal, if any, to review the treaty.
• Nepal considers the treaty, unequal, and in the past, has raised the issue of revision of treaty and tried to place it as a key agenda in bilateral talks, but without any suggestions. Nepal’s reservation to the 1950 Treaty is primarily based on the premise that the treaty weakens its ability to practice, sovereign foreign and security policy. Now it is for Kathmandu, to take up the offer and undertake necessary action to initiate the negotiations for a change.
• The Prime Minister extended his support to Nepalese constitution makers and political leaders and conveyed best wishes of the government and people of India to the Nepalese leadership and people for their commitment to promulgate the new constitution by early next year. Nepal is facing constitutional crisis since the Constituent Assembly was dissolved without drafting a new constitution in 2012. It was hoped that the Constituent Assembly would draft a constitution to support federal and democratic political structure and promote equality in the country.
• The address by the Indian Prime Minister to the Constituent Assembly of Nepal was appreciated by Nepalese leaders, across the political spectrum. Interestingly, Pushpa Kumar Dahal alias Prachanda, chairman of the United Communist Party of Nepal-Maoist (UCPNM), who has been a strong critic of India, praised Prime Minister Modi for his touching, inspiring and encouraging speech and expressed confidence that, a new chapter has begun in Indo Nepal relations.
• A joint statement issued at the end of the visit clearly underlined the need to explore ways to enhance economic and trade cooperation. The Indian Prime Minister outlined the new concept of HIT-to help Nepal through development of Highway, Information technology and Transmission lines for electricity (H. I. T.).
• The dilapidated condition of roads in Indo-Nepal frontier region, huge gap of demand and supply of electricity in bordering states and poor and pathetic state of communication networks in Nepal and border areas of Indian side need steps to improve the condition of roads, information ways and electricity on a priority basis. Nepal has approximately 83,000 megawatts (MW) of potential hydroelectricity capacity, out of which about 40,000 MW is technically and economically feasible, offering significant export potential and, obviously, a great opportunity to gain huge sum of foreign exchange.
• Concerned over stalled projects, it was urged by the Indian side that the 5600 MW Pancheswar multipurpose project on Mahakali River should be initiated quickly. According to a joint statement issued at the end of the visit both sides expressed desire for early conclusion of other three Project Development Agreements (PDA), namely Arun III, Upper Marsyangdi and Tamakoshi III.
• The joint statement reaffirmed the commitment of the respective governments, not to allow their territories to be used against each other. Despite repeated assurances, both sides have not succeeded to reduce the misuse of open border by transnational criminals.
• To reduce the trans-border crime, both countries need to develop an effective joint border management system. Situation along the border can be improved through constant vigilance, joint patrolling and creation of joint task force to combat the transnational crimes.
• Aiming to improve cross border trade and transit, both countries are planning to construct border railways along all five agreed border points and the four Integrated Check Posts (ICP’s). According to the Joint statement, two Prime Ministers directed competent officials to expedite construction of cross border railway. This is a welcome step which must be appreciated. Improved infrastructures of roads and railways in Indo-Nepal frontier region would complement India’s vision of greater economic engagement with Nepal.

Nepal Earthquake and India’s Assistance

• When a devastating 7.8 magnitude earthquake struck Nepal, the Government of India swiftly dispatched National Disaster Response Force (NDRF) teams and special aircrafts with rescue and relief materials to Nepal.
• The total Indian relief assistance to Nepal amounted to approx. US$ 67 million.
• At an International Donors’ Conference organized by the Government of Nepal in Kathmandu on 25 June 2015 towards post-earthquake reconstruction, India announced Indian assistance of US$ 1 billion to Nepal, one-fourth of which would be as grant.

Nepal PM visit to India

• Nepal’s Prime Minister K.P. Sharma Oli paid his first state visit to India. In accordance with tradition, Mr. Oli made India his first destination abroad after becoming Prime Minister in October 2015. India and Nepal signed seven agreements.

List of the agreements

• MoU on utilisation of USD 250 million grant component of Government of India’s assistance package for post-earthquake reconstruction assistance to Nepal:
• The MoU includes four sectors — housing, health, education and cultural heritage have been identified. MoU on strengthening of road infrastructure in Tarai area of Nepal.
• MoU between Nepal Academy of Music and Drama and Sangeet Natak Academy· This MoU aims to enhance relations between India and Nepal in the field of performing arts through· exchanges of experts, exponents, dancers, scholars and intellectuals.

Letters of Exchange on Transit Routes

• Transit between Nepal and Bangladesh through Kakadbhitta-Banglabandh corridor aims at simplification of modalities for traffic of goods between Nepal and Bangladesh while transiting through India, through the Kakadbhitta (Nepal) and Banglabandha (Bangladesh) corridor.
• Operationalisation of Vishakhapatnam Port would provide transit facilities for Nepal through the Vishakhapatnam port.
• Inauguration of Muzaffarpur-Dhalkebar transmission line Establishment of Eminent Persons Group.
• At the third meeting of the India-Nepal Joint Commission held at Kathmandu in July 2014, it was decided to establish an Eminent Persons Group (EPG). Its mandate would be to comprehensively review bilateral relations and recommend measures including institutional frameworks to further enhance bilateral ties.

Significance of visit

• In August 2015, Nepal adopted new constitution since then there is continuous blocked at the indo-Nepal border by Madhesi. Nepal-India tensions spiked last year with the promulgation of a constitution that was perceived as non-inclusive of ethnic Madhesi and Tharu groups.
• The Nepal government accused India for imposing the blockade that led to a severe humanitarian crisis in Nepal. The Nepali government alleged that the Indian government had encouraged the blockade to apply leverage on Kathmandu to pursue constitutional reform.
• India refuted those allegations, stressing that the border tensions were caused by the Madhesi parties and were the outcome of internal protests in Nepal. India also accused Nepal of stoking ‘anti-India’ sentiment and has been irritated about Nepal’s attempt to use the ‘China card’.
• Nepal PM visit in such circumstance had provided opportunity to both sides to minimize misunderstanding.
• During the visit India conveyed that Kathmandu should urgently resolve the issue to create a sense of “security and harmony” in the Terai region and ensure “uninterrupted commerce.”
• Peace and stability in Nepal is vital for India’s economic development and security. Prolonged conflict in· Nepal will have spillover effect especially in Bihar and Uttar Pradesh that share open border with Nepal.
• Anti-India feeling in Nepal may provide opportunity for china to exploit the volatile situation.

Conclusion

• India must respect Nepal's sovereignty. Mutual respect is a key in bilateral relations and India should not meddle in the internal political affairs of Nepal.
• Our engagement with Nepal tends to be episodic and crisis-driven, and not backed by the human and material resources that our neighbor deserves.
• India should counter Chinese hard power by projecting soft power. In contrast to China’s efforts to muscle its way into Nepal, India should emphasize on its historically close cultural, religious, and people-to-people relations with Nepal.