Why India’s Investment In Nepal Is A Crucial Diplomatic Move

Posted on August 13, 2014 in GlobeScope, Politics

By Azra Qaisar:

On the 3rd of August, the Prime minister of India went to Nepal for a bilateral visit. Be it NDA or UPA, none of the preceding governments had made such a move since 1997. The Modi government is coming across as quite strategic in developing its relations with its neighbours. While the previous government kept much of their focus on the western world, Modi Sarkar is trying to maintain better relations with its immediate neighbors, but does India require these moves?

India Nepal

Let’s take a look at the situation at present. Due to the prevailing conflict in the area, Nepal has been unable to develop infrastructure projects like highways and cross border transmission lines and since the country lacks funds, it is dependent on donations for undertaking development plans. However, the donations are often channelized towards the social sector rather than investment in infrastructure. Over the years, while India has ignored Nepal, China has tried to improve its relationship by providing help in matters of energy and infrastructure. This, in turn, ensures cooperation from the state in future. Thus, by launching a Highways, Infoways and Transways (HIT) project in Nepal, India would improve its relations with the country. The proposed two phase pipe line to carry petrol products from Bihar to Kathmandu might also help in strengthening the economics between the two nations.

Nepal has abundant water resources, with nearly 2.2 percent of world’s total water resources. The nation has a hydropower potential of around 40,000MV, but it doesn’t have enough financial resources to invest. India is in dire need of electricity and some of it can be procured from Nepal. If India helps in development of hydro power in Nepal, it will export surplus to India therefore helping India with the power crisis. However, since India has made it clear that it intends to buy electric power from Nepal, it gives the nation more power of negotiation in the matter. Besides, China is also facing water scarcity issues, which might mean that influencing Nepal may not be an easy task.

The one billion dollars that Modi has offered in concessional line of credit is a strategic move to strengthen diplomatic and economic ties. However, the billion dollar deal might not fulfil the intended purpose unless some of the key agreements like the Power Trade Agreement are finalized first. Since Nepal is located between India and China, it acts as a buffer zone between the two countries, but since China has invested a lot in Nepal already, Nepal may cease to be a buffer in future. In that case, India might have to increase its defense expenditure to cope up, thus making the billion dollar deal a better plan which works well for both India and Nepal.

Just as it is important for a country to focus on domestic matters, foreign policy also needs to be strategically planned to ensure stability. The moves of the Modi government seem to be well planned but they need proper implementation to succeed. Nepal is a nation that has been much ignored in the past. Perhaps, the new measures might strike the right chords in strengthening the strained relationship between the two nations.