Opinion World

Who’s Your Economic Sherpa?

Narendra Modi’s visit to Nepal highlighted attempts to resolve differences. However, platitudes alone cannot soothe ruffled feathers.

On May 12, 2018, India’s Prime Minister Narendra Modi wrapped up a two-day visit to Nepal. The visit came two weeks after the keenly watched “informal” summit between India and China at Wuhan, and a day before the state of Karnataka went to the polls. Modi visited three major temple cities in Nepal – Janakpur, Muktinath and Pashupatinath. Two out of the three had been on the Indian Prime Minister’s agenda in 2014 (Lumbini being the substitute for Muktinath then) – but as India’s relations with Nepal nosedived in the next couple of years, the visits were postponed.

Ever since the current government came to power in 2014, India’s ties with its neighbor across the Himalayas have been rocky. India opposed Nepal’s 2015 Constitution on the grounds that it ignored the rights of ethnic minorities, and followed its disapproval by an “unofficial” blockade of cross-border trade. This has driven Nepal closer to China, and dealt a blow to bilateral ties from which both countries have been struggling to recover.

In November 2016, the decision of the ruling Bharatiya Janata Party (BJP) to undertake demonetization staggered Nepal, which depends heavily on Indian currency for its trade and economy. The KP Oli-led government, widely seen now to be pro-Beijing, tried to bridge the gap with a state visit in 2016. Though the official word then was that all bilateral misunderstandings had been “cleared”, the visit was high on optics but low on substance. Oli next visited New Delhi in April 2018, following his re-election as Prime Minister, and this visit brought forth a 12-point joint statement, which was verbose but carefully avoided discussing key issues of contention. Oli came to power in 2018 based on the announcement that he, too, was looking to “reset” ties with India – by revising or scrapping the Peace and Friendship Treaty which has governed bilateral relations since 1950.

With China exerting a quiet-but-definite influence in Nepal’s economy, Oli appears to be looking to balance the two neighbours against each other – the better for Nepal to gain economically. Immediately after Oli’s India visit in April, for instance, Nepal’s Foreign Minister Pradeep Gyawali arrived in Beijing for talks with his Chinese counterpart. China has been open to expanding cooperation in trade, transit and connectivity with Nepal, and Oli has not been averse to taking the opportunity that Beijing is offering. Indeed, in 2016, Nepal signed what it called “historic agreements” with Beijing, including a trade and transit agreement which, at least in principle, would end India’s monopoly over Nepal’s supply system.

In May 2017, in yet another giant stride towards deepening economic ties with China, Nepal signed itself up to be part of the Belt and Road Initiative (BRI) – Chinese President Xi Jinping’s flagship geopolitical project. Oli has been quick to make his stand on the subject clear, stating that Nepal would not dream of aligning with any other country apart from India, but signing up for the BRI was in Nepal’s national interests.

For itself, Beijing has shown itself willing to keep India in the picture. It has been open in asking India to come on board the economic bandwagon in Nepal, working to increase regional connectivity across the Himalayas – a trilateral economic corridor, in other words. In doing so, Beijing demonstrates a confidence in its capacity to attract and keep smaller South Asian countries in alignment with itself. It also demonstrates its responsibility and self-awareness as a global power, by inviting India – with which it shares a deeply complicated relationship – to join hands with it.

This is Modi’s third visit to Nepal in the four years that he has been Prime Minister. The fact that it was his first port of call, right after Wuhan, is even more significant, highlighting India’s awareness of Nepal’s growing strategic importance in South Asia. The optics this time had a distinctly religious and cultural veneer – not a first for Modi, who often skillfully combines religion with diplomacy.

But is it enough to soothe ruffled geopolitical and economic feathers? The announcements from Nepal have been grandiose. India has promised to be Nepal’s “economic Sherpa”. Discussions have proceeded apace regarding the critical Raxaul-Kathmandu rail link. A pilot project on organic farming has been signed, with India awaiting the green light from Nepal. Treaties of transit, trade, power and water are being looked into. To facilitate inland waterway transport, India is said to be readying a trans-shipment point in Kalughat, Bihar. The two Prime Ministers have also signed off on the 900 MW Arun-III hydroelectric project, which has been awarded to India’s Satluj Jal Vidyut Nigam.

But what of strategic bones of contention? Narendra Modi has said – echoing his Nepalese counterpart’s words in April – that misunderstandings often occur between family members, and now all misunderstandings have been cleared. This is, however, easier said than done.

For one, though the Nepal-India Eminent Persons’ Group (EPG) is revisiting all bilateral agreements to submit a comprehensive report  on how exactly to proceed with revising the Peace and Friendship Treaty, unless substantive discussions take place at a higher level, there is unlikely to be any headway in this aspect. Border issues also continue to haunt bilateral ties. Nepal and India agreed four years ago to start talks toward resolving ongoing disputes at Susta and Kalapani. Nothing has happened on this front either. The effects of demonetization on Nepal’s economy constitute yet another sore spot – but this was not discussed in Oli’s April visit. India has also a notorious reputation for not fulfilling its economic promises, with many signed projects yet to take off. None of these issues appear to have been discussed during Modi’s current visit, either. Without tackling these aspects, it is not likely that skillful religious and cultural diplomacy alone can allow for progress in bilateral ties.

The post-Wuhan afterglow certainly has not seemed to dim Modi’s awareness of strategic problems which require his attention, but there is a flaw here. The China-India-Nepal economic corridor was not, according to Foreign Secretary Vijay Gokhale, discussed this time between India and Nepal. Nor was it discussed at Wuhan.

The insinuation here appears to be two-fold — that New Delhi prefers to deal only bilaterally with Kathmandu, and that despite the bonhomie at Wuhan, India would like to set its own terms for regional cooperation in South Asia. Only time can tell whether this is a strategically wise decision – but in the long run, it does not seem to be a move that is in India’s interests. China is an undoubted geopolitical and economic force to reckon, and it has shown a new confidence and charisma in its diplomacy of late. India would do well to take heed and play along accordingly.

About the author

Narayani Basu

Narayani Basu is an independent author and foreign policy analyst, with a special focus on Chinese foreign policy and resource diplomacy in Africa and Antarctica. She is the author of The United States and China: Competing Discourses of Regionalism in East Asia (Cambridge, 2015). Her next book, a biography of VP Menon, will be published by Simon & Schuster India in 2019.