India’s development partnership with Nepal: The paradigm shift and future prospects

Nepal is one of the earliest recipients of India’s development cooperation initiatives and today, India is among its top bilateral partners. According to the Development Cooperation Report 2019, India ranked fifth amongst the top bilateral development partners of Nepal for the financial year 2017-18, with USD 56.7 million in official development assistance (ODA) disbursements. ^<1> With assistance from India since 1951, over 559 large, intermediate and small-scale projects at an estimated cost of NPR 76 billion have been implemented across Nepal. The design of the development partnership programme has been key to the India-Nepal relationship. In the year 2003, to facilitate the development of small projects in Nepal, the two countries entered into a Memorandum of Understanding for the Small Development Projects (SDP) scheme. It was a tripartite agreement between the local community, the Indian embassy and the District Coordination Committee, which is local government authority. The scheme started with the commitment to provide assistance at the grass-root-level, particularly for social sectors. An interesting feature of the scheme was that anybody in Nepal who felt that there was a need for a project could approach the embassy either directly, or by contacting the local body. The scheme enabled the Indian embassy to increase its outreach in Nepal.

With assistance from India since 1951, over 559 large, intermediate and small-scale projects at an estimated cost of NPR 76 billion have been implemented across Nepal.

However, in the year 2017 there were certain administrative and constitutional changes in Nepal. The SDP scheme was not renewed. Instead, in July 2018, the Nepali Cabinet had tightened norms for the inflow of Indian grants for SDPs.  As per the new engagement, the role of the central government of Nepal was strengthened, while the power of Embassy of India was abrogated.  Development aid from India had to be routed through the Central Government. It is worth mentioning that the experience of other countries ^<2> highlights that the design of aid is crucial in determining its success. In most developing and least developed countries, since institutional and governance mechanisms are not strong in most developing and underdeveloped countries, the cases of corruption and misutilisation of development aid are high. In such a scenario, it is important to design the aid structure in such a way that it reaches the beneficiaries rather than being diverted to unintended purposes. The ICRIER working paper 377 titled, “The Role and Changing Paradigm of India’s Assistance to Nepal: Case of the Education Sector”, found that through the SDP scheme, the Indian Embassy has been successful in directly reaching the beneficiaries. The fact that it was a demand driven, performance-based scheme — wherein no direct cash transfer was involved — were all instrumental factors. Funds release was contingent on the progress of the project and therefore, the scheme was successful in not only creating infrastructure but also creating an impact at the grassroot level.

Considering that central government and line ministries in Nepal had concerns with the design of the SDP scheme, the study made a few recommendations for future development partnership between India and Nepal. The first is that the Indian Government may discuss and rework the design of the SDP scheme to ensure greater involvement from the Ministry of Finance and the line ministries. During the previous engagements under the SDP scheme, the Government of India allocated a stipulated amount (INR50 million) every year. Going forward, the scheme can be re-designed so that the Embassy of India can decide the sectors where the amount will be allocated every year — rather than directly inviting applications — in consultation with the Ministry of Finance. Based on the sectors selected for grant, the Embassy can invite applications; recommendations should be made by both line ministries and local bodies.

The Indian Government may discuss and rework the design of the SDP scheme to ensure greater involvement from the Ministry of Finance and the line ministries. During the previous engagements under the SDP scheme, the Government of India allocated a stipulated amount (INR50 million) every year. Going forward, the scheme can be re-designed so that the Embassy of India can decide the sectors where the amount will be allocated every year — rather than directly inviting applications — in consultation with the Ministry of Finance.

Further, for a few key projects in certain districts, a panel may be constituted for directly taking concurrence or seeking advice on projects from specific ministries and governmental departments. The panel may comprise relevant representatives from the line ministries, municipal authorities or local bodies, civil engineers and relevant sector experts representing the Government of India. Secondly, there is a need for data transparency on the Indian Embassy website. The Indian government is doing a lot of work in Nepal and large grants are channelled into socio-economic projects. The data and progress reports of key projects should be made available on the embassy website. Three: there is a need for improved outreach with respect to India’s work in Nepal. While some work gets reported in the local media, a large number of projects do not get adequate coverage. Social media can be used as an effective medium for spreading information.

While development cooperation has a crucial role in shaping political relations between countries, political relations should not undermine the effectiveness of aid. Development aid must meet its core objective of achieving social and economic development. Through dialogues, countries must confirm that their schemes and policies are being utilised for the core, outlined purposes.

---

^<1> Refers to Nepal’s fiscal year – 16 July to 15 June.

^<2> For Pakistan’s experience see Anwar and Aman (2010) and for Afghanistan see Khomba and Trew (2019).

• Development
• Development Partnerships
• India
• Neighbourhood
• development cooperation
• India-Nepal Relations
• Small Development Projects
• social development

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.