India-Nepal Relations: From Dominance to Equality

18 August 2016 Lindsay Hughes, Research Analyst, Indian Ocean Research Programme Download PDF

Key Points

  • India shares very close historical, economic and cultural ties with Nepal.
  • Their relationship extends to having an open border between the two countries.
  • India, however, has played too influential a role in Nepali politics, to the resentment of the ruling élite, who responded by making overtures to China.
  • It remains for India, therefore, to treat Nepal as an equal partner in the relationship if that relationship is to at least retain its status quo.


India and Nepal have had a close cultural relationship that allegedly goes back as far as 900 BCE to the Kirat dynasty of Nepal. Legend has it that the founder of the dynasty, Yalambar, was beheaded by the Indian deity Krishna prior to the epic battle between the Pandavas and Kauravas, which forms the basis of the Indian epic, the Mahabharata, because he was afraid that the brave and powerful Yalambar might have fought with the Kauravas against Krishna’s allies, the Pandavas. Another legend has it that Gautama, the Buddha, visited Nepal during the rule of the seventh Kirat King, Jitedasti. If nothing else, these legends serve as an indication of the long-standing cultural ties between the two states. Nepal remains the world’s sole Hindu state and India is overwhelmingly Hindu, no matter that it also has one of the world’s largest Muslim populations.

In more recent times, Colonial Britain saw Nepal as a buffer between its Indian dominion and Russia. Independent India, in turn, saw (and continues to see) Nepal as a buffer between itself and China, a perception that plays a large role in India’s relationship with the Himalayan state. Nepal, with a population of around 29 million, shares a border of around 1,850 kilometres with five Indian states to its east, south and west – Bihar, Sikkim, Uttarakhand, Uttar Pradesh and West Bengal – and with Chinese-administered Tibet to its north. The two countries have an open-border policy to facilitate the free movement of their citizens who, by and large, share a common culture. Nepali citizens have almost all the rights that their Indian counterparts enjoy in India. An estimated six million Nepali citizens, including two generals in the Indian Army, live and work in India. There are, in turn, an estimated 600,000 Indians who live and work in Nepal.

These factors notwithstanding, the relationship has seen a severe downturn in recent times. This paper will examine the reasons for this downturn by first reviewing the factors that caused the relationship to grow in the ways it did.


There have been several factors that caused India and Nepal to develop their relationship. From the Indian perspective, the most important of these was Nepal’s geographical location. Situated as it is on the southern slopes of the central Himalayan range, Nepal acts as a strategic buffer between Chinese-administered Tibet and the Gangetic plains of India. Nepal’s northern borders contain a number of mountain passes that were historically used by China to invade the former, as it did during, for instance, the Tibetan-Nepalese War of 1789-92. This factor, coupled with the open border between India and Nepal, concerns New Delhi, which views its own relationship with Beijing to a very large degree through the prism of the 1962 India-China border war, during which Chinese forces invaded Indian territory. China’s development of a major road and rail network in Tibet is another motivator of Indian concerns. India can scarce afford to have major battles fought on the densely populated Gangetic plains, the heartland of its Hindi-speaking population.

From the Nepali perspective, the land-locked country needs the access to the sea that India provides it via the twenty or so transit points that it has made available to Nepalese exporters in addition to the major ports in Kolkata, Mumbai and Kandala. India is, moreover, Nepal’s largest trading partner, accounting in 2015 for US$419 million of its total exports of US$600 million, or over 63 per cent of Nepal’s total exports. The United States was a distant second, accounting for around US$70 million of Nepalese exports. India also remains Nepal’s primary source for its imports, accounting for US$4 billion or just over 60 per cent of total imports. China was Nepal’s second-largest supplier of imports, with an estimated value of US$920 million worth of goods imported from the Middle Kingdom.

These figures reflect the increased importance that the Modi Administration has placed on developing India’s ties with its immediate neighbours. The previous Indian UPA coalition government, headed by Prime Minister Manmohan Singh, showed little inclination towards developing its ties with Nepal. For instance, no Indian Prime Minister visited Nepal between 1997 and 2014 and the Minister for External Affairs visited Kathmandu twice under the UPA Administration. Modi, in contrast, visited Nepal twice after taking office in 2014, his Minister for External Affairs, Sushma Swaraj, has made five trips to Kathmandu since then and the Foreign Secretary four. Again, under the Modi Government, India’s share of bilateral trade, which languished below thirty per cent between 1995 and 1996, rose to over 63 per cent in 2015. Until Modi took office, India supplied Nepal with 180 megawatts of power for the previous two decades. That figure had risen to 330 MW by 2016, with another 400 MW planned to be supplied. India, moreover, signed an agreement with Nepal to construct two 900 MW power generation plants with another power project proposal to be delivered to Nepal this year. Between 2009 and 2010, the UPA Government provided Nepal with just over US$24 million in development loans and a further US$350 million in credit; the Modi Administration has raised those figures to just under US$45 million and US$1.3 billion respectively (all figures based on August 2016 exchange rates). In short, the Modi Administration has lived up to its word to enhance its relationships in its immediate neighbourhood.

Given these developments, it is surprising, therefore, that the bilateral relationship has run into stormy weather. In 2015, Nepal adopted a new Constitution which, in India’s perception, disadvantaged minority groups such as the Madhesi community, an ethnic group who live for the most part in the southern plains of Nepal, close to the border with India and who constitute one-third of Nepal’s population. This community believe themselves to have been marginalised by the country’s northern hill people, the Khas Arya. The Madhesis claim that the Khas Arya question their loyalty to Nepal because of their proximity to, and close relations with, India. They also accuse the Khas Arya of economic and political domination. The Madhesis claimed that the new Constitution failed to address their grievances, which included better political representation through the re-drafting of provincial boundaries, their economic backwardness in comparison to the élite Khas Arya and a discriminatory citizenship law that did not permit Nepali women to pass on Nepali citizenship to their children when they married Indian men. Arguably, most anger was directed at the failure of the Constitution to provide them with a separate Madhes state.

The Constitution was drafted by the major Nepali political parties, including the largest Madhesi-based party. India, which had a tacit role in Nepal’s political processes for a long time, was said to have been irritated at being left out of having input into the creation of the new Constitution, leading Mr Modi to circumspectly urge the major parties to pay more heed to the Madhesi demands in that document. When Madhesi protestors were killed by Nepali security forces, they blockaded entry points into Nepal from India. The Indian Government is alleged to have tacitly supported this blockade by arguing that it could not allow petrol tankers and food supplies, for instance, to enter Nepal due to the poor security situation there.

Violence broke out in August 2015 and seven policemen were killed by angry mobs. Fifty people were killed between August and September. The Indian Foreign Secretary urged Nepal’s rulers to address the demands of the Madhesi, stating that India did not wish to see a neighbour with which it shared close ties devolve into violence and bloodshed. The ruling élite, however, claimed that India was trying to control Nepal through divide and rule tactics by taking the side of the Madhesis. His efforts failed, consequently, and when the new Prime Minister, Mr Khadga Prasad Sharma Oli, took office on 11 October 2015, he fanned anti-India sentiment in Nepal. This led to an almost-total breakdown in bilateral relations.

In May 2016, the President of Nepal, Bidhya Devi Bhandari, cancelled her visit to India, Mr Modi cancelled his visit to the Buddha Purnima festival in Lumbini on 21 May and Kathmandu recalled its ambassador in New Delhi. Worse yet, in March, Mr Oli visited Beijing soon after visiting New Delhi. While there, he concluded several agreements, most notably one on transit facilities through China, thereby ending India’s monopoly over Nepal’s access to seaports. It did not escape Indian observers that obtaining imports via seaports in China and then through Tibet would cost Nepali importers two to three times more than it would to import goods via Indian ports. The fact that Nepal was willing to take this measure, however, caused consternation in New Delhi. That unease could only have been compounded by the joint Nepal-China statement issued on 23 March, according to which China:

… agreed to upgrade two road links between Nepal and Tibet, pledged financial support to build an international airport at the tourist hub of Pokhara, agreed to extend the Chinese railway to Kathmandu and then to Lumbini, and gave its nod to a long-term commercial oil deal.

India saw itself at risk of losing its influence to China in the very state it sought as a buffer against China. Some observers stated that, by visiting New Delhi before travelling to Beijing, Mr Oli had demonstrated that he fully recognised India’s importance to Nepal. Others theorised that India was angry with Mr Oli not so much because of his deals with China as much as his decision to strike his own foreign policy, one that was independent of India’s wishes. Mr Oli took further measures to ensure that India remained side-lined in Nepal. He offered captured Maoist guerrillas an amnesty, thus settling an issue that had plagued several Nepali administrations with violence, persuaded the Nepali President to cancel her trip to New Delhi, thus obviating any attempt by India to use her to pressure him into acceding to New Delhi, sacked the Nepali Ambassador to India, who belonged to the pro-India Nepali Congress Party, which he believed worked against him, and ordered local body elections by the end of the year, fanning, in the meanwhile, anti-India sentiment.

In the event, the Maoists deserted Mr Oli, stating that he had reneged on his previous commitments to them and calling the new Constitution into question. That decision followed the withdrawal of another coalition member, the Communist Party of Nepal, two weeks previously, which cost the coalition its parliamentary majority. Facing a no-confidence motion in Parliament, Mr Oli chose to quit his office. He was succeeded by the Chairman of the Communist Party of Nepal (Maoist-Centre), Mr Pushpa Kamal Dahal, who is also known as Prachanda. Mr Dahal was previously Prime Minister of Nepal from 2008 to 2009.

One of Mr Dahal’s first acts as Prime Minister was to send an envoy to Beijing to reassure the Chinese leaders that despite the change of government he was committed to continuing with the agreements his predecessor signed with China. It was disclosed, however, that even before he was elected to office, Mr Dahal sent another envoy to New Delhi to meet with political leaders in government and the opposition, ostensibly to canvas for support. As one report noted, ‘Prachanda wants to balance ties with neighbours at the same time show to India that Nepal has not slipped out of its hands.’ Interestingly, the envoy sent to India was a representative of the Madhesi community.

Mr Modi was quick to react after his new Nepali counterpart was re-elected to office. He congratulated Mr Dahal; other Indian leaders did likewise, commenting that he was someone with whom they could do business. India would, nevertheless, be very aware that when Mr Dahal previously was Prime Minister, he stated that China and India ought to be equally significant to Nepal, thus overturning India’s long-standing dominance of Nepal’s economy and foreign policy. As if to make the point, he also called for a review of all bilateral treaties with India, including the 1950 Treaty of Peace and Friendship, which was instrumental in creating the open border between the two countries. Dahal also tried to sack the commander of the Nepali Army because he was perceived as leaning too much towards India. The sacking was stayed by President Ram Baran Yadav but Dahal blamed India for engineering the stay. It was unsurprising, then, that when he was replaced as Prime Minister, Mr Dahal blamed New Delhi for his ousting. There remains little reason to believe that his thinking vis-à-vis India has changed to any significant degree.

India is more than likely aware that it has reached a watershed in its relationship with Nepal. The latter is no longer a mere buffer that can be dominated through economic asymmetry or because it requires access to sea ports. Given Mr Modi’s stated objective of developing India’s relationships with the countries in its immediate neighbourhood, New Delhi will need to re-calibrate its relationship with Kathmandu. It will need to talk to Nepal as an equal, a smaller country that depends on India to a very large extent and one that has cultural ties that extend backwards for millennia, but an equal, nonetheless. India must recognise that Nepal serves India by virtue of its geographic location and its cultural ties. If India, moreover, could demonstrate that it is willing to treat Nepal as an equal, just as it gained much praise for treating Bangladesh as one and ceding maritime territory to it, it is very likely that it will gain the goodwill not only of Nepali citizens but also of the majority of its neighbours.



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