Nepal and India’s special relationship – and how it is getting better

On the other hand, Nepal’s trade deficit with India is close to 18 per cent of the GDP. Inadequate infrastructure and high transaction costs (paperwork and approval processes, processing and settling fees) have made Nepal a high-cost economy. Nepal and India, unlike before, are now focusing on reducing the trade deficit, initiating and strengthening cross-border digital financial connectivity to ease trade, tourism, and remittance flows. This is in addition to other physical connectivities to reduce the cost of doing business and facilitate people-to-people ties.

The newly-focused partnership has enabled relations to move from strength to strength in the last two years. Eight high-level visits, including four prime ministerial ones, have re-energised relations. Many agreements are being implemented.

Immediately after signing a Joint Vision Statement on Power Sector Cooperation, which covers bilateral cooperation in the production, transmission and cross-border trading of hydropower in 2022, there has been dramatic progress in electricity cooperation. The export of electricity from Nepal to India reached around 650 MW in 2023. The country earned more than Rs 10 billion and the earnings have begun to support reducing the trade deficit and augmenting foreign exchange earnings. The volume of exports is expected to increase significantly.

In 2023, another long-term power trade agreement was signed between India and Nepal to export 10,000 megawatts of electricity from Nepal to India in 10 years. This was essential for Nepal to boost investors’ confidence in the hydro sector and ensure returns on their investment.

These agreements have helped to initiate several new projects by investors from India and Nepal. Both countries have also initiated significant partnerships in building cross-border transmission lines. Investment in hydroelectricity production and distribution has overall increased. They have also helped Nepal initiate the export of hydroelectricity to Bangladesh under a tripartite agreement between Nepal, India, and Bangladesh. Nepal plans to export 40 MW in 2025, which may increase considerably.

Avenues for a regional grid in the BIMSTEC and SAARC regions to promote, develop and trade renewable energy, which is the priority of member countries, have also opened up. These activities will also boost India’s economy. By importing clean energy, India will reduce its reliance on coal and gas, help reduce pollution, and achieve renewable energy goals.

Last year, Nepal and India decided to establish and enhance digital financial connectivity. As a result, Indians travelling to Nepal can make payments through their mobile phones. Nepali people will be allowed to do so shortly after the Nepal government finalises the regulations in this regard. This facility will help hassle-free payments to traders, tourists, pilgrims, students, and people who travel to India for medical treatment. The soon-to-be operationalised mobile transfer mechanism will help workers in Nepal and India transfer earnings through formal channels in their respective home countries.

To augment this process, the requirements for opening a bank account by Nepalis in India are also being simplified. The process for Nepali residents to obtain an Aadhaar card is straightforward.

Several measures have also been taken in partnership with India to reduce the cost of doing business in Nepal. The countries are working on constructing two new petroleum pipelines between Siliguri, India and Jhapa, Nepal and Amlekhgunj and Chitwan. These projects were envisioned after the success of the Motihari-Amlekhgunj petroleum pipeline inaugurated in 2019, the first-ever cross-border pipeline in South Asia. It has saved transportation costs for Nepal by a minimum of Rs 1 billion per annum. In addition, the savings coming from pilferage, leakage, theft, and delays by using pipelines instead of trucks are significant.

It has also been agreed that two additional integrated check posts (ICPs) in Bhairahaba and Dodhara-Chandani in Nepal, which help facilitate the smooth movement of cargo and passenger vehicles, will be built with the grant assistance of India. Three ICPs have already been completed.

To reduce the transportation and transaction costs of doing business, border roads have been upgraded. Cross-border freight rail between India and Nepal has been operational and several other cross-border roads and bridges are being built. The feasibility study of the Raxaul-Kathmandu railway has been completed and a direct rail service from Ayodhya to Janakpur is being considered.

The relationship between the two countries is deep, broad and wide. There are many concerns of the people that need to be addressed. However, the momentum of partnership and progress of the recent past must be continued.

Established bilateral mechanisms between the two countries to address areas of cooperation and concerns including boundary issues should be activated. This will keep the relationship robust.

The writer is the Ambassador of Nepal to India. Views expressed are personal