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Introduction

India–Nepal relations, rooted in geography, culture, and history, are evolving from sentimentalism to economic pragmatism. While past relations were marked by political fluctuations, the current phase emphasizes mutual growth through connectivity, trade, and energy cooperation. Economic trust based on equitable interdependence is now the key to ensuring long-term political stability and regional harmony.

Building Economic Trust: Emerging Dimensions

• Expanding Bilateral Trade and Market Access: India remains Nepal’s largest trading partner and transit route, accounting for over 60% of Nepal’s trade.
  Eg: Bilateral trade reached USD 13 billion (FY 2023–24), supported by new trade facilitation mechanisms.
• Cross-border Energy Cooperation: The India–Nepal Power Trade Agreement (2022) allows export of 10,000 MW of electricity to India in 10 years, transforming Nepal into an emerging hydropower hub.
  Eg: India currently imports over 1,000 MW of electricity from Nepal through Dhalkebar–Muzaffarpur transmission line.
• Infrastructure and Connectivity Projects: Enhanced road, rail, and transmission links are creating new interdependence.
  Eg: Jaynagar–Bardibas Railway (2022) operational. Motihari–Amlekhgunj petroleum pipeline (2019) expanded to Chitwan in 2024.
• Investment and Financial Integration: India’s FDI contributes significantly to Nepal’s manufacturing, telecom, and banking sectors.
  Eg: SBI Nepal Ltd., ITC, Dabur, and GMR’s Upper Karnali project represent long-term economic engagement.
• Tourism and Cultural Economy: Economic linkages are reinforced by shared heritage and mobility.
  Eg: The Buddha Circuit project and direct flights between Kushinagar–Lumbini boost tourism-led growth.
• Digital and Fintech Cooperation: Cross-border UPI integration (2024) facilitates smoother payments, reflecting growing trust in financial systems.
• Mutual Dependence for Resilience and Stability: Nepal relies on India’s market and ports, while India gains renewable energy, water resources, and geopolitical stability along its northern frontier.
  

Challenges and the Need to Deepen Economic Trust

• Trade Imbalance and Tariff Sensitivities: Nepal’s large trade deficit with India (~USD 9 billion) fuels economic anxiety and calls for diversified exports.
• Policy Uncertainty and Project Delays: Political instability in Kathmandu often stalls cross-border projects.
  Eg: Upper Karnali Hydropower Project delayed due to fluctuating policy commitments.
• Transit and Logistics Bottlenecks: Despite multiple trade routes, procedural inefficiencies and poor infrastructure persist at border points like Birgunj and Sunauli.
• Energy Pricing and Revenue-Sharing Issues: Nepal seeks fair pricing and more autonomy over hydropower exports, requiring transparent power-trade mechanisms.
• Geopolitical Pressures and Third-Party Influence: China’s growing presence through the Trans-Himalayan Connectivity Network occasionally complicates India–Nepal coordination.
• Environmental and Local Resistance to Projects: Hydropower and infrastructure projects often face protests due to displacement and ecological concerns.
• Trust Deficit from Past Political Irritants: Episodes like the 2015 border blockade created public resentment in Nepal; rebuilding trust requires sustained economic fairness and sensitivity.

Conclusion

Economic interdependence has become the new grammar of India–Nepal diplomacy. Trade, connectivity, and energy cooperation are reshaping ties from political volatility to pragmatic stability.

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