Nepal And India’s Special Relationship – And How It Is Getting Better

Nepal and India have a unique relationship. The open border, shared culture, economic interdependence and deep-rooted people-to-people relationship make bilateral ties special.

Nepal And India’s Special Relationship

• India is Nepal’s largest trading partner, the top-source country for tourists, the only supplier of petroleum products and the largest source of total foreign investment.
• India also provides transit for almost all of Nepal’s third-country trade and accounts for a significant share of inward remittances from pensioners, professionals and labourers working in India.
• It has always been the first responder during disasters and emergencies in Nepal. 
• The country, in addition to the immediate rescue and relief package, provided a financial package of $75 million for the development of the recently earthquake-hit areas of Nepal.
• On the other hand, Nepal’s trade deficit with India is close to 18 per cent of the GDP.

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• 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.
• 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.

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Conclusion

India-Nepal relations are strengthening through enhanced trade, energy cooperation, and digital connectivity, addressing trade deficits and fostering mutual economic growth and regional integration.