Answer:

Introduction:

India and Nepal share longstanding ties that are rooted deeply in history, culture, and geography. These ties are underscored by extensive cultural exchanges, shared religious traditions, and open borders allowing fluid movement of people and goods. However, recent years have witnessed strains in this relationship, driven by a series of diplomatic and territorial disputes. These tensions have brought to light the complex dynamics of the bilateral relationship, challenging the traditional friendship and cooperation between the two neighbors.

Body:

• Border Disputes: The most prominent point of contention is the border dispute involving the Kalapani-Limpiyadhura-Lipulekh tri-junction. This area, claimed by both India and Nepal, saw escalated tensions when Nepal released a new political map in 2020 incorporating these territories, which India opposed, calling for diplomatic resolutions instead of unilateral actions​​.
• Hydropower and Energy Trade: India’s policy requiring bilateral agreements for importing electricity has been seen as a way to exclude Chinese investment projects in Nepal’s hydropower sector. While this has economic benefits for both nations, with Nepal aiming to export substantial hydropower to India, the policy is perceived in Nepal as limiting its options in developing its energy sector​​. 
  • For example, the Pancheshwar Hydropower Project, a joint initiative between India and Nepal, is aimed at harnessing the water resources of the Mahakali River which flows through both countries. This project, under a bilateral agreement, emphasizes collaboration but has faced delays and negotiation challenges, reflecting the complexities of bilateral energy agreements that need to balance national interests and developmental priorities.
  • Similarly, the Upper Karnali Hydropower Project, developed by India’s GMR Group, highlights how Nepal’s hydropower potential is being tapped with foreign investment under specific bilateral frameworks.
• Economic Dependency and Trade Deficits: Nepal’s trade deficit with India, highlighted by the Nepal-India Trade Treaty, continues to grow, having increased from Rs 735.29 billion in 2019-20 to Rs 921.16 billion recently. This growing imbalance reflects Nepal’s heavy reliance on Indian markets and raises concerns about its economic autonomy. The treaty, which was automatically renewed in 2023 without key amendments, has not effectively addressed the root causes of this deficit, thereby continuing to challenge Nepal’s efforts to stabilize its economic relationship with India.
• Political and Social Sensitivities: Political sentiments in Nepal have occasionally flared up with perceptions of Indian interference in Nepal’s internal affairs. This has been exacerbated by incidents perceived as cultural insensitivity, such as the portrayal of Nepali territories in Indian media and official documents. Such issues have fueled nationalistic sentiments in Nepal, leading to calls for a more balanced and respectful bilateral relationship​​.

Conclusion:

India and Nepal have taken positive steps such as renewing trade agreements and collaborating on significant hydropower projects like the Pancheshwar Development. Moving forward, they should institutionalize regular diplomatic dialogues and establish joint committees focused on resolving border disputes and economic imbalances. Annual bilateral summits could be instrumental in reviewing and adjusting strategies to foster a collaborative and forward-looking partnership. These actions will contribute to a resilient relationship that respects each nation’s sovereignty while promoting regional stability.