India-Nepal Relationship – Explained, pointwise

For 7PM Editorial Archives click HERE

India and Nepal share deep social, cultural, strategic, political, and economic ties that have been forged over many centuries. However, the relationship has witnessed many ups and downs in recent times. The electoral outcomes in the recent elections in Nepal were on the expected lines. But the post-election developments have created some uncertainties in India-Nepal Relationship. Foreign Policy Experts believe the new developments, a hung-Parliament and the post-election alliance has thrown new challenges for India’s Policy.

What are the areas of cooperation in India-Nepal Relationship?

Defence Cooperation: India has been assisting the modernisation of Nepal Army (NA) by supplying equipment and providing training. Assistance during disasters, joint military exercises, adventure activities and bilateral visits are other aspects of India’s defence cooperation with Nepal. The ‘Indo-Nepal Battalion-level Joint Military Exercise SURYA KIRAN’ is conducted alternately in India and in Nepal. The Gorkha regiments of the Indian Army are raised partly by recruitment from hill districts of Nepal. Currently, about 32,000 Gorkha Soldiers from Nepal are serving in the Indian Army.

Connectivity and Development Partnerships: India’s development assistance to Nepal is a broad-based programme focusing on creation of infrastructure at the grass-roots level. Various projects have been implemented in the areas of infrastructure, health, water resources, education and rural & community development.

Two important integrated checks One at Birgunj (Nepal) and another at Biratnagar (Nepal) have been built with Indian assistance.

India has built several hydroelectric projects in Nepal like Pokhra (1 MW), Trisuli (21 MW), Western Gandak (15 MW), Devighat (14.1 MW) etc. Agreements have been signed between Satluj Jal Vidyut Nigam (SJVN) Ltd and the Nepal Electricity Authority (NEA) for development and implementation of 490.2 MW Arun-4 hydropower project. The project is expected to generate electricity for Nepal, India as well as Bangladesh. The SJVN has 51% share and the NEA has 49% of the project. Nepal has also extended an invitation to Indian businesses to invest in the West Seti Hydropower Project.

Power Cooperation: India and Nepal have robust cooperation in the power sector. Three cross-border transmission lines were completed recently with GoI assistance (400 kV Muzaffarpur-Dhalkebar line (2016); 132 kV Kataiya-Kusaha and Raxaul-Parwanipur lines (2017). A total of about 600 MW of power is currently being supplied by India to Nepal through different transmission lines, assisting Nepal to overcome power shortage. The Government of India has granted permission to Nepal Electricity Authority (NEA) in November 2021 to sell its surplus energy under Cross Border Trade of Electricity (CBTE) guidelines.

Trade and Economic Ties: India remains Nepal’s largest trade partner, with bilateral trade crossing US$ 7 billion in FY 2019-20. India provides transit for almost the entire third country trade of Nepal. India’s export to Nepal has grown over 8 times in the past 10 years while exports from Nepal have almost doubled. In FY 2021-22, it constituted 2.34% of India’s exports. In fact, exports from India constitute almost 22% of Nepal’s GDP.

Indian firms are among the largest investors in Nepal, accounting for more than 33% of the total FDI stock in Nepal, worth nearly US$ 500 million. India and Nepal have also signed the Double Taxation Avoidance Agreement (DTAA) in November 2011. The bilateral remittance flow is estimated at approximately US$ 3 billion (Nepal to India) and US$ 1 billion (India to Nepal).

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

Water Resources Cooperation: A three-tier bilateral mechanism was established in 2008, to discuss issues relating to cooperation in water resources, flood management, inundation and hydropower between the two countries. The arrangement has been working well. There are specialized committees (like the Joint Team of Experts (JTE) on Saptkosi and Sunkosi projects, Joint Committee on Inundation and Flood Management (JCIFM) etc.) which implement the recommendations of the three-tier mechanism and meet more regularly.

Educational, people-to-people and Cultural Exchanges: India and Nepal extend visa-free entry in their respective territories to each other’s nationals. Nearly eight (8) million Nepalese citizens live and work in India and around 6,00,000 Indians reside in Nepal.

Indians account for about 30% of foreign tourists in Nepal. With a view to strengthen people to people exchanges, sister city agreements have been signed (Kathmandu-Varanasi, Lumbini-Bodhgaya, Janakpur-Ayodhya) & India-Nepal Ramayana Circuit have been launched.

 International Centre for Buddhist Culture and Heritage: The Centre presents the essence of spiritual aspects of Buddhism. The facility is aimed at catering to scholars and Buddhist pilgrims from all over the world who visit Lumbini. Sampark India-Nepal Alumni network is an initiative which seeks to bring Nepali alumni and students presently pursuing studies in India together on a common platform to establish a vibrant alumni network.

India has offered to set up a satellite campus of the Indian Institute of Technology (IIT) in Rupandehi and has sent some draft memoranda of understanding for signing between Indian and Nepali Universities.

MoUs/Agreements have been signed between: (a) Sahitya Kala Akademi (India) and Nepal Academy, (b) Doordarshan (India) and Nepal TV, (c) Press Council of India and Press Council of Nepal, (d) Lalit Kala Akademi (India) and Nepal Academy of Fine Arts, (e) GoI and Government of Nepal for twinning of sister cities Kathmandu-Varanasi, Lumbini-Bodhgaya and Janakpur-Ayodhya etc.

The Swami Vivekananda Centre for Indian Culture was set up in Kathmandu in August 2007 to showcase the best of Indian culture. The Nepal-Bharat Library was founded in 1951 in Kathmandu. It is regarded as the first foreign library in Nepal.

Parliamentary Exchanges: In May 2019, the Federal Parliament of Nepal formed ‘Nepal-India Parliamentary Friendship Group’ comprising nine members from both, the House of Representatives (Lower House) and the National Assembly (Upper House) of the Federal Parliament of Nepal.

COVID Assistance: As part of COVID-19 assistance, India had supplied more than 23 tonnes of medicines and medical equipment to Nepal on Grant basis during the first wave of COVID-19. The total COVID-19 assistance provided to Nepal is more than US$ 7 million. India also ensure uninterrupted supply of Medical Oxygen to Nepal during the peak of the pandemic.

What the challenges in India-Nepal Relationship?

Economic: (a) The close cultural and family ties between people from both sides of border meant that a lot of India-Nepal trade occurred through network of informal arrangements. Lenders and suppliers offered credit based on family references. Such informal ties and the simplicity of those traditional businesses are now under stress due to transition to formal economy in India. For many small and medium Nepali businesses, it is now easier to trade with China because, the rules have made it harder to do business with India; (b) Decline in Indian Investments: Chinese investments are replacing Indian investments. In 2019, for instance, China accounted for approximately 40% of new FDIs against India’s 30%.

Territorial Disputes: India-Nepal boundaries had been fixed in 1816 by the British, and India inherited the areas over which the British had exercised territorial control in 1947. While 98% of the India-Nepal boundary was demarcated, two areas, Susta and Kalapani remained in limbo. In 2019, Nepal released a new political map claiming Kalapani, Limpiyadhura and Lipulekh of Uttarakhand and the area of Susta (West Champaran district, Bihar) as part of Nepal’s territory.

Read More: Kalapani territorial dispute between India and Nepal resurfaced

Issues with Peace and Friendship Treaty: The 1950 Treaty of Peace and Friendship guaranteed Nepali citizens free movement across the border and legal employment opportunities in India. But now, it’s seen as a sign of an unequal relationship and something that the Indians imposed. Since the mid-1990s, Joint Statements have sometimes, but not always, talked about the idea of revising and updating

Chinese Interference: Nepal has been moving away from India’s sphere of influence in recent years, and China has been filling the void with investments, aid, and loans. China plans to invest in Nepal’s infrastructure as part of its ambitious BRI (Belt and Road Initiative) to increase global trade. Rising cooperation between Nepal and China threatens Nepal’s status as a buffer state between India and China.

Terrorism: Terrorist organisations and insurgent groups operating in India’s northeast take advantage of the porous and poorly patrolled border between India and Nepal to smuggle in weapons, ammunition, trained cadres, and counterfeit Indian currency, all of which pose serious security risks to India.

Trust Issues: The trust gap between India and Nepal has grown over time due to India’s notoriously slow pace of project implementation. Some Nepalese ethnic groups dislike India because they think that India meddles too much in Nepal’s politics and interferes with their political sovereignty.

What should be done to further strengthen India-Nepal Relationship?

Strengthening Economic Relation: With China now a factor directly or indirectly influencing India-Nepal relations, the Government must act swiftly to remove challenges blocking economic engagements. They must allow people across the borders to share in each other’s growth just as they did before. There is a need to revitalise the socio-economic network which was the main driver of investments in the past.

Constructive Discussions for Resolving Border Disputes: Rather than engaging in heated rhetoric about territorial nationalism, it is important to lay the groundwork for a dialogue in which both parties show respect and consideration for one another while investigating what is realistically possible. For the Neighbourhood First Policy to take hold, India needs to be a considerate and generous partner. International law on Trans-boundary Water Disputes will be used to guide diplomatic talks about how to solve the problem. The boundary dispute resolution between India and Bangladesh should serve as a model.

Raising Awareness About Nepal: India needs to step up its interactions with Nepal on all fronts (political, administrative, and interpersonal) in order to better serve both countries. India should stick to its policy of staying out of Nepal’s domestic affairs.

Investments: India should step up its investments in Nepal. The focus should be on faster completion of projects. Projects benefiting local people will help create goodwill for India. This will also force the Left parties in Nepal to curb their anti-India rhetoric.


India and Nepal share age old civilisational ties. Nepal is crucial for India’s economic and strategic interests. A friendly and favorable Nepal will act as a vital buffer between India and an increasingly aggressive China. The Government of India should constructively engage with new regime in Nepal and work towards greater cooperation on multiple dimensions. This will be in favor of India’s long term interests.

Syllabus: GS II, India and its neighbourhood relations.

Source: The Hindu, ORF, The Diplomat, MEA

Print Friendly and PDF