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Indo-Nepal Relations (Part-2)

In the previous article, we mainly discussed the historical perspective of Indo-Nepal relations and Nepal’s journey to date. We shall now discuss the various cooperation and challenges in bilateral relations. 

Indian Prime Minster with Nepalese Prime Minister

Development Projects:

India has long helped Nepal in its infrastructural development. As per the Indian Embassy in Nepal, the Government of India has supported various Lines of Credit (LOC) extended by the EXIM Bank of India to the Government of Nepal. Currently, India has provided four lines of credit to the Government of Nepal for USD 100 million, USD 250 million, USD 550 million, and USD 750 million. These lines of credit were signed in June 2006, September 2007, and September 2016. These lines have financed 44 road projects, 7 projects in hydropower and transmission lines, and several others in housing and reconstruction spread all across Nepal. A large number of these projects are either completed or are nearing completion, including some iconic and major projects such as the Solu Corridor Transmission Line, Koshi Corridor Transmission Line, Muzaffarpur-Dhalkebar Transmission Line, Rahughat Hydroelectric Project, Devighat Hydroelectric Project, etc. Both sides are undertaking regular discussions to identify projects under the LOC that remain unutilized.

Hydro Power diplomacy:

Nepal being an upper riparian state, has a lot of hydropower potential. As per the Asian Development Bank report of June 2020, Nepal has a hydropower potential of ~83 GW out of which ~42 GW is commercially viable. Nepal has developed less than 1.2 GW of hydropower, which is a tiny fraction of the total economic potential. Cooperation in the hydropower sector has been an important agenda between the two nations.

India is currently developing the 900-MW Arun III project in Nepal Satluj Jal Vidyut Nigam (SJVN). Further, the SJVN and Nepal Electricity Authority signed an MoU to develop the 679 MW Arun-4 hydropower project in May 2022. SJVN has also been awarded the 450 MW Seti River 6 Project. Another Indian corporation, the GMR group, has been given a license to construct the 900-MW Upper Karnali project. The NHPC Limited of India was awarded another prestigious 750 MW West Seti Project in August 2022, which earlier was awarded to China’s Three Gorges Corporation. In November 2021, India also began to purchase Nepal’s hydropower electricity and Nepal can export over 450 MW of electricity to India. In fact, in 2022, Nepal’s hydropower electricity exports to India generated a revenue of ~12 billion for it. Both countries have also agreed to act swiftly on the detailed report of the Pancheshwar Multipurpose Project. Additionally, India has also agreed to facilitate Nepal’s hydropower exports to Bangladesh.

Dam in Nepal made under Hydropower Diplomacy of India and Nepal

Other Infrastructure projects

  • Construction of the Jaynagar (India) to Bardibas (Nepal) rail link, being constructed under the assistance of the Government of India, is already ongoing with two phases (i.e. Jaynagar to Bijalpura) already becoming operational.

  • The 136-kilometre-long Raxaul-Kathmandu railway with India’s financial assistance worth USD 3.15 billion is also planned and its DPR has been recently submitted by the Indian consultant Konkan Railway Corporation Limited (KRCL).

  • Work on some cross-border electricity transmission lines, including the Dhalkebar-Muzaffarpur transmission line, is also underway.

  • In 2020, South Asia’s first cross-border oil pipeline was inaugurated to supply petroleum products to Nepal. 

  • To increase people-to-people contacts, both nations have also signed three sister-city agreements for Kathmandu-Varanasi, Lumbini-Bodhgaya, and Janakpur-Ayodhya.

  • So we can say both countries are working well in terms of economic and people-to-people relations.

Indian Prime Minster with Nepalese Prime Minister


Having said that, one must note that India-Nepal relations are not free from issues. Nepal continues to urge India to amend the 1950 friendship treaty which many in Nepal perceive as unequal. Apart from that, some unsettled border issues are pending. As mentioned earlier, both countries share a border of ~1850 km. Most of it is already settled except for two main areas i.e. Lipulekh / Kalapani area (in Uttarakhand) and the Susta area (bordering Bihar).  

Further in 2015, there were blockades by some sections of Nepali groups in the Terai region, especially Madhesis, who opposed the constitution. They undertook a long blockade at the Birgunj border leading to a severe shortage of essential items including LPG in the Pahadi regions. This did not go well with Nepal and it blames India for it.

Another main concern in Indo-Nepal relations is the rising Chinese influence in Nepal. It is said that the Maoist insurgency in Nepal was supported by China to exert its influence in Nepal and contain India. Further, China has made its inroads in the Infrastructure, education, and health sectors. China is undertaking various projects including airport development, transmission lines, and road connectivity. Pokhara International Airport is one such example. As per recent reports, the Chinese government is providing scholarships and sponsoring study tours for Nepali students, civil servants, and journalists. Mandarin has been introduced as a compulsory subject in many schools across Nepal. A huge number of hotels, restaurants, and other businesses are now owned by Chinese nationals. However, Nepal claims its relations with China are purely economical and do not hurt Indian interests in any way. It is asking India to open new air routes and reverse anti-dumping measures. India has restricted its markets to Chinese-assisted Nepali infrastructure projects, hydropower plants, and airports.


Overall despite some challenges, both nations share cordial relations and are natural partners. India being a bigger nation and economy tries to accommodate Nepal to the extent possible and has been extending a helping hand in Nepal’s development. We must also understand that we cannot alienate China from Nepal in today’s world but can work to keep its influence minimal. A strong and friendly neighbor like Nepal is always in India’s favor and India must try to garner the support of Nepal for all strategic matters. Accordingly, Nepal too must understand India’s security concerns. With increased connectivity, deepening economic engagements, and people-to-people connectivity, we can hope to further strengthen the bilateral ties.

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