India’s economic diplomacy towards Nepal seems to be a win-win situation for both as cooperation in the hydropower and energy sector expand
Relations between Nepal and India started improving further when former Maoist guerrilla Pushpa Kamal Dahal became Prime Minister on 26 December 2022, after the general elections in Nepal in November 2022.Some of these developments have impacted Nepal’s relations with both its southern and northern neighbours. The relations between Nepal and India that were set back by the left government of Nepal, especially when KP Sharma Oli served as the Prime Minister for the second time between 15 February 2018 and 13 May 2021, were back on track as soon as Sher Bahadur Deuba of the Nepali Congress became Prime Minister on 13 July 2021. Relations between Nepal and India started improving further when former Maoist guerrilla Pushpa Kamal Dahal became Prime Minister on 26 December 2022, after the general elections in Nepal in November 2022. India is developing the 900-MW Arun III project in Nepal through its subsidiary Satluj Jal Vidyut Nigam (SJVN). Alongside this, the SJVN and Nepal Electricity Authority signed an MoU to develop the 679 MW Arun-4 hydropower project in May 2022. Another Indian corporate, the GMR group, has been given a license to construct the 900-MW Upper Karnali project and the SJVN has now been awarded the 450 MW Seti River 6 Project. The NHPC Limited of India was awarded another prestigious 750 MW West Seti Project in August 2022, which earlier was awarded to China’s Three Gorges Corporation. Work on some cross-border transmission lines, including the Dhalkebar-Muzaffarpur transmission line, is also in progress. Expectations are high that some remarkable agreements would be signed on the eve of Prime Minister Pushpa Kamal Dahal’s visit to New Delhi in early May, which could include agreements for the construction of the 136-kilometre-long Raxaul-Kathmandu railway with India’s financial assistance worth US$ 3.15 billion. Its detailed project report (DPR) has already been made by the Indian consultant Konkan Railway Corporation Limited (KRCL). With the completion of this project, the Indian border town Raxaul will be connected to Kathmandu, the capital of Nepal, mostly through hilly terrain. India has already connected its border town Jaynagar with Janakpur, which is now being extended further to Bardibas closer to the foothills of the Himalayas in Nepal.
India might sign an agreement with Nepal for the purchase of Nepal’s surplus electricity for 25 long years, which could end uncertainty in the power supply between the two countries.Moreover, Nepal and India are also expected to sign an agreement for the construction of the 480 MW Phukot-Karnali hydroelectric plant and the 669 MW Lower Arun hydropower Project during Prime Minister Dahal’s visit to India. On the same occasion, India could agree to allow Nepal to export its surplus hydropower to Bangladesh through Indian territory. Besides, India might sign an agreement with Nepal for the purchase of Nepal’s surplus electricity for 25 long years, which could end uncertainty in the power supply between the two countries.
Many Indian companies have taken an interest in developing mega hydropower in Nepal, while China has been facing a setback in working in this country.However, Nepal imported commercial explosives from China for the first time after India refused to supply them to Nepal. Both the Hongshi Shivan Cement Factory (Nawalparasi) and the Senjen Khola Hydropower Project (Rasuwa) in which the Chinese had certain engagements received explosives from China. But Nepal’s requirements for explosives for different projects are not fulfilled through the explosives imported from China. All such projects in Nepal, including the Kathmandu-Nijgadh Fast Track Project, the 140 MW Tanahu Hydropower Company, and Huaxin Cement Narayani Pvt. Ltd., in which the Chinese companies are working are still facing an acute shortage of explosives. It is well realised that China is no alternative to India in the matter of importing explosives as rules and regulations are most cumbersome in importing such materials from China. Nepal needs about 3,500 to 4,000 tonnes of explosives each year to meet its demands for construction projects, but it is unlikely that China would meet this demand at least in the near future. India’s economic diplomacy towards Nepal seems to have worked well in recent years; a win-win situation for both Nepal and India. In the emerging situation, many Indian companies have taken an interest in developing mega hydropower in Nepal, while China has been facing a setback in working in this country. Nepal at the moment produces only about 2,600 MW of power, though it has the potential to harness 50,000 MW of hydropower. Between June and December 2022, Nepal exported power to India worth NPR. 11 billion, which is likely to thrive with added production of hydropower in the years to come. Strong Indo-Nepal cooperation in the hydropower and connectivity sector can not only help Nepal generate revenue and create employment opportunities on a massive scale, but it will also substantially reduce the country’s huge trade deficit with India.
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Hari Bansh Jha is a Visiting Fellow at ORF. Formerly a professor of economics at Nepal's Tribhuvan University, Hari Bansh’s areas of interest include, Nepal-China-India strategic ...Read More +