Nepal has embraced the Belt and Road Initiative (BRI, China’s ambitious infrastructure and connectivity project, with great enthusiasm. Other than Pakistan, Nepal was the only country in India’s neighbourhood to send a high-level delegation to the Belt and Road Forum (BRF organised in Beijing recently. The burgeoning Sino-Nepal relationship has raised many eyebrows in India.
Two recent events have added to India’s discomfort. First, Nepal signed a protocol arrangement for trade and transit treaty with China. The agreement would allow Nepal to use at least seven Chinese ports for third country trade. Until now, Nepal could use only Indian ports. Second, BRI officially has a programme for Nepal now, similar to China-pakistan Economic Corridor (CEPC.
The joint communique issued during the Forum includes “the Nepal-China Trans-himalayan Multi-dimensional Connectivity Network, including Nepal-china cross-border railway” as one of 35 new Bri-affiliated programmes. While it didn’t specify the number or nature of projects, Nepal has proposed nine projects that it wants to develop under the BRI banner. One of them is a rail link connecting the country’s capital to the Chinese border.
In the short run, these agreements with China have mere symbolic, rather than economic, value. Given the distance from China’s coasts, inhospitable terrain and high costs of rail-freight transportation, trading through Chinese ports is physically and economically not viable. Nepal only has a single all-weather road leading to the Chinese border, and that too remains defunct since the 2015 earthquake. A Chinese rail link is coming to Kathmandu but that is at least a decade away.
Nevertheless, these recent developments are likely to have far-reaching implications for Nepal’s relationship with its northern neighbour. However, for India, the strategic benefit of focusing on its ties with Nepal outweighs the cost incurring from the latter’s relations with China. Hence, India is better off strengthening its own ties with Nepal. There are three things in particular that India should look at. First, India should demonstrate that it can deliver on its promises as well as China does, if not better. India’s large projects in Nepal are often delayed, and this needs to change if it wants to makeover its image as a reliable development partner.
Second, India should have its own version of the “community of shared destiny” — a concept used by China in its external relations. Neighbours like Nepal expect the economic rise of India to benefit them as well. For example, a truck carrying a load from Kolkata Port takes anywhere between two and seven days to cross the border, adding significant costs to the Nepali trader.
Nepal faces a massive trade deficit with India, giving the country a hard time managing macroeconomic stability. Nepali agriculture exports often face non-tariff entry barriers. Linkages to Indian production value chain is non-existent. Border infrastructure direly needs an upgrade. India’s approach to dealing with Nepal is not helpful either; for example, the 2015 trade blockade. Besides, India has not exchanged the Indian currency held by Nepali citizens following the demonetisation in 2016. India should give neighbours reasons to celebrate its rise as an economic powerhouse.
Third, India should amend its current approach of viewing a country’s leadership as pro-India or pro-China. Nepali people are in genuine quest for prosperity, and foreign investment is a path to get there. Welcoming investment under BRI is therefore not a zero-sum game pitting China against India. Moreover, Nepal is a flourishing democracy, and its leaders still hold the people’s mandate. That is why connectivity with China is an issue of bipartisan consensus in Nepal. Even if the opposition comes to power, it cannot entirely sway away from the current policy of pursuing better relations with China.
A better oon for India is to forgo “either you are with us or not” approach and work with the Nepal government to expedite its own connectivity projects. Given its geographic proximity, India can get more impact out of its investments at a fraction of the costs incurred by China.
Bishal Chalise is senior programme officer at Niti Foundation, a public policy think-tank based in Kathmandu