Foreign Policy Watch: India-Nepal

India-Nepal relationship


From UPSC perspective, the following things are important :

Prelims level : Millennium Challenge Corporation (MCC)

Mains level : Paper 2-India-Nepal relation


The Nepal Prime Minister, Sher Bahadur Deuba, paid a long-awaited visit to India last week (April 1-3). Sworn in in July 2021, this was his first bilateral visit abroad, in keeping with tradition.

Positive outcomes of the visit

  • Among the highlights was the operationalisation of the 35 kilometre cross-border rail link from Jayanagar (Bihar) to Kurtha (Nepal). 
  • The second project that was inaugurated was the 90 km long 132 kV double circuit transmission line connecting Tila (Solukhumbu) to Mirchaiya (Siraha) close to the Indian border.
  • In addition, agreements providing technical cooperation in the railway sector, Nepal’s induction into the International Solar Alliance, and between Indian Oil Corporation and Nepal Oil Corporation on ensuring regular supplies of petroleum products were also signed.
  • The Mahakali Treaty covers the Sarada and Tanakpur barrages as well as the 6,700 MW (approximately) Pancheshwar Multipurpose project.
  • Both sides have agreed to push for an early finalisation of the detailed project report.
  • The joint vision statement on power sector cooperation recognises the opportunities for joint development power generation projects together with cross border transmission linkages and coordination between the national grids; it can provide the momentum.

Issues in India-Nepal relations

  • Over the years, a number of differences have emerged between India and Nepal that need attention.
  • The relationship took a nosedive in 2015, with India first getting blamed for interfering in the Constitution drafting process and then for an “unofficial blockade” that generated widespread resentment against India.
  • Revision of Treaty of  Peace and Friendship: As one of the oldest bonds, the 1950 Treaty of Peace and Friendship was originally sought by the Nepali authorities in 1949 to continue the special links they had with British India.
  • It provides for an open border and for Nepali nationals to have the right to work in India.
  • But today, it is viewed as a sign of an unequal relationship, and an Indian imposition.
  • The idea of revising and updating it has found mention in Joint Statements since the mid-1990s.
  • Demonetisation is another irritant. In November 2016, India withdrew ₹15.44 trillion of high value (₹1,000 and ₹500) currency notes. Many Nepali nationals who were legally entitled to hold ₹25,000 of
  • Indian currency (given that the Nepali rupee is pegged to the Indian rupee) were left high and dry.
  • The Nepal Rashtra Bank, which is the central bank, holds ₹7 crore and estimates of public holdings are ₹500 crore.
  • After more than five years, it should certainly be possible to resolve this to mutual satisfaction.
  • Kalapani boundary issue: These 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 November 2019, India issued new maps following the division of the State of Jammu and Kashmir as Union Territories, Jammu and Kashmir and Ladakh.
  • Though the new Indian map did not affect the India-Nepal boundary in any material way, a new map of Nepal was endorsed by the legislature through a constitutional amendment.
  • While it did not alter the situation on the ground, it soured relations with India and added a new and emotive irritant.

Way forward

  • The political narrative has changed in both countries and these issues can no longer be swept under the carpet or subsumed by invoking a ‘special relationship’.
  • Part of the success of Mr. Deuba’s visit was that none of the differences was allowed to dominate the visit.
  • Yet, to build upon the positive mood, it is necessary these issues be discussed, behind closed doors and at Track 2 and Track 1.5 channels.


The need today is to avoid rhetoric on territorial nationalism and lay the groundwork for quiet dialogue where both sides display sensitivity as they explore what is feasible. India needs to be a sensitive and generous partner for the “neighbourhood first” policy to take root.

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