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India - Nepal relations

The new political map of India, recently released by the government to account for the bifurcation of Jammu and Kashmir, has triggered fresh protests over an old issue in Kathmandu.  India - Nepal relations have taken a few hits in recent years.

Background of current dispute

• Kalapani is a territory disputed between India and Nepal, but under Indian administration as part of Pithoragarh district in the Uttarakhand state. 
• The valley of the Kalapani forms the Indian route to Kailash–Manasarovar, an ancient pilgrimage site. 
• Kalapani lies at a tri-junction of India, China and Nepal, on the dividing line of the Kali River watershed and Tinkar River watershed.

Cause of the dispute

• The Treaty of Sugauli signed by Nepal and British East India Company in 1816 defines the Kali River as Nepal's western boundary with India. 
• However, what is meant by "Kali River" in the upper reaches is unclear because many mountain streams come to join and form the river.

Another major area of dispute between India and Nepal

• Susta: Susta is an area under territorial dispute currently in Triveni Susta, Lumbini Zone, Nepal and near Nichlaul, Uttar Pradesh, India. Gandak forms the international boundary between Nepal and India [Bihar]. Earlier, Susta was on the right bank of the Gandak, which falls in Nepal. But, in due course of time, the river has changed its route and Susta now falls on the left bank of the Gandak, which is controlled by India.

Brief History of Nepal

1768	Modern Nepal was reunified in the latter half of the 18th century, when Prithvi Narayan Shah, the ruler of the small principality of Gorkha.
1814-1816	Anglo-Nepalese war, Nepal defeated, Treaty of Sugauli signed
1951	Revolution against Rana rule, Shah family returns to power,
1991	Parliamentary democracy established, 1st parliamentary election held
1996	Nepalese Civil War between Communist Party of Nepal (Maoist) and parliamentary monarchy. Led by Dr. Baburam Bhattarai and Pushpa Kamal Dahal (also known as “Prachanda”). The Communist Party of Nepal (Maoist) established a provisional “people’s government” at the district level in several locations.
2005	King declares emergency
2007	Seven parties, including the former Maoist rebels and the ruling party, agreed to abolish the monarchy and declare Nepal a Federal Republic. In the elections held on 10 April 2008, the Maoists secured a simple majority.
2013	A second election for a new Constituent Assembly was held under a non-partisan government led by former Chief Justice Khil Raj Regmi.
2015	The Constitution of Nepal, passed making Nepal a federal democratic republic divided into seven unnamed provinces.  It gave extensive political privileges to the ruling hill tribes and discriminated against the people living in plains including Madhesis. The constitution gave representation to Madhesis which was not in proportion to their population. India objected to these discriminatory provisions and requested Nepal to rectify them. It was, however, rejected by the Madhesi nationalist parties, who intensified their protests, leading to an unofficial economic blockade by the Government of India.  An amendment had been agreed between India and Nepal, and the Madhesis slowly backed down after it was passed by parliament.
2017	Nepal Communist Party emerged as the ruling party with a strong majority at the federal level, as well as six of the seven provinces.

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 Narendra Modi’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, 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. 

Power 

• 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 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.

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.

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” amidst Beijing's increasing forays into South Asia causing concern in India.

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.

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.