Originally Published 2020-08-25 10:03:58 Published on Aug 25, 2020
Nepal: Renewed focus on growth with Indian assistance

The eighth meeting of the Nepal-India Oversight Mechanism was recently held through video conference, co-chaired by Foreign Secretary Shanker Das Bairagi and Ambassador of India to Nepal, Vinay Mohan Kwatra. Primarily aimed at reviewing the development projects in Nepal with Indian cooperation, the interaction appeared to be a much-required bilateral reciprocity.

Given the events and developments of the past few months, especially the border row over the Kalapani issue, mutual development discourse had taken a back seat. Additionally, the economic and societal implications of the Covid19 pandemic had made the situation worse. Nonetheless, this conference has indeed opened the gateway to a new chapter in bilateral dynamics with renewed focus on growth -- as must be the prime fulcrum in any relationship between two immediate neighbours.

The first meeting of the oversight mechanism was held in 2016, in order to understand and exterminate the several obstructions and bottlenecks in India funded projects in Nepal. In fact, the decision to create such a platform was taken during the India visit of the then Prime Minister of Nepal, Pushpa Kamal Dahal, keeping in mind the necessity of overseeing and expedite the implementation of projects. Several areas of mutual interest were identified ranging from hydropower, rail and road connectivity, petroleum products pipeline, to multipurpose projects and agriculture.

Evaluating projects

The small Himalayan landlocked country of Nepal has been trying to create an investment friendly market for a very long time for economic development. The Nepal Investment Summit of 2019 tried to mobilize both domestic as well as foreign investment, with special focus on India because of the geographical contiguity and proximity. India has the highest Foreign Direct Investment (FDI) in Nepal, with the total being NPR 87, 912.01 million as of mid-July 2018.

Hydropower is one of the prime sectors in the country, which despite having immense potential, has not been developing at a comprehensive pace and requires potential investment. Nepal has three large river systems – Koshi River System (originating from the top four Himalayan peaks), Gandaki River System and the Karnali River System, helping in its hydropower potential.

These major rivers along with their smaller tributaries help Nepal to hold the capacity of producing 90,000 MW of hydropower. However, it has been observed over time that the country has not always utilised this resource to its full potential and has generated only 847 MW. Consequently, India has been investing in this domain a lot, one of the primary ones being Arun III. The plant will produce 4, 018.87 million units of electricity per year and has an estimated cost of more than $1.6 billion.

It was in February 2020 that the project secured the financial closure after the two governments signed an agreement. It is being developed on a build-own-operate and transfer (BOOT) basis by Satluj Jal Vidyut Nigam (SJVN) Arun III Power Development Company (SAPDC), a joint venture of the Government of India and the Government of Himachal Pradesh. This project is also estimated to generate around 3000 jobs during the process of construction in the two countries, until completion in 2023.

The second category of projects that deserves special mention is road connectivity between the two countries. India has operationalized many such projects in Nepal which include big and small highways, bridges, highways, railways, barrages, etc. The Tribhuvan Rajpath-Kathmandu-Pathlaiya Highway is a very important example.  This was one of the first instances of investment from India, maintained by the Indian Cooperation mission till 1965. Another recent example is the Memorandum of Understanding signed in 2006 for road construction in the Terai region.

In August 2017, India’s Minister for Road Transport, Highways, Shipping and Water Resources, Nitin Gadkari, stated that approximately INR 5,253 crore worth of road projects are being implemented, which would benefit India and Nepal. The projects include a 144 km road from Rupaidiha to Barabanki (INR 1,338 crore), a 184 km road from Sonauli to Gorakhpur (approximately INR 570 crore), the Fobesganj-Jogbani road as well as a road linking Piprakodi to Raxaul (INR 429 crore) and 10 other roads costing around INR 500 crore.

It is noteworthy that these proposed roadways are not international roads between India and Nepal. However, the roads will strengthen the roadways infrastructure near the Indo-Nepal border and enhance the connectivity between the two neighbours.

Chinese investment

China has pledged $ 500 million as financial aid to Nepal in 2019, especially in infrastructure and hydropower- three of the most relevant examples being the West Seti Dam, the Pokhara airport and the Upper Trishuli hydropower plant -- thereby creating a direct competition to the Indian investment framework. Nepal is also part of China’s Belt and Road Initiative (BRI). Nepal has commitment towards nine projects under the BRI framework: the Kathmandu-Kyerung Railway, the Madan Bhandari University, the Galchi-Rasuwagadhi-Kerung 400 KB transmissionlLine, the 762 MW Tamor hydropower project, the 426 MW Fukot-Karnali Picking run-of-the-river hydropower project, upgrading of the Rasuwagadhi Highway, the Tokha-Chahare road, the Kimangthan-Hile road, and a road connecting Dipayal with Tibet.

In fact, just like India, China also gives access to Nepal to its ports (four sea ports and three land ports). This had come at a time when India and Nepal were going through a very strained relationship following the blockade of 2015. This is undoubtedly a political achievement for China that has been having quite a troublesome row with India in the recent past with border clashes at the Galwan Valley.

This situation has surpassed Nepal’s dependence on India. Nepal is now being expected to strike a fine balance between India and China because as it is a small country, often regarded as a strategic buffer in South Asia. Nepal must remember its position as a country that is trying to carve its niche in South Asian geopolitics and that it is best for the country to tread unilaterally with a policy of non-alignment so that it can reap the best benefits of both the neighbours without participating in the bilateral negotiations between India and China.

This commentary originally appeared in South Asia Weekly.
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Sohini Nayak

Sohini Nayak

Sohini Nayak was a Junior Fellow at Observer Research Foundation. Presently she is working on Nepal-India and Bhutan-India bilateral relations along with sub regionalism and ...

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