Nepal-India Relations: Post the Rise of Modi

30 March, 2022

International Affairs


Nepal and India’s bilateral relations have been traditionally based on age-old connection of common culture, history and religion. Both the countries have been actively engaged with each other in every aspect whether politically, economically or culturally. The two countries established diplomatic relations back in 1947, agreeing to the principles of peaceful coexistence and sovereignty.  Both the countries have a common approach to many regional and international institutions like the United Nations, SAARC, BIMSTEC and BBIN. These mutually beneficial engagements have obviously contributed to a firm foundation for the Nepal-India Relations in the past. Both the countries share an open border, making the transfer of goods and people an easy task. However, in recent years there have been some new trends in the relations. This has been due to the geopolitical conditions that both countries face in a changing world order. India has been varying of China’s growing interest towards its neighbors especially Nepal which has always been a friendly and trustable alliance for India. Nepal has also been doubtful of India’s intention keeping in mind that India is a dominant regional power in South Asia.  Moreover, there have been significant changes in the bilateral relations after the rise of Mr. Narendra Modi as the Prime Minister of India. Many in Nepal, sees the appointment of Mr. Modi as an opportunity for Nepal to revive Hinduism after the abolition of a Hindu Monarchy in 2008. The Prime Minister also retaliated with a similar response by referring to Nepal as “an old and valued friend” on Twitter.



Historically, the foreign relations of Nepal’s with India, during the British rule were governed by the Treaty of Sugauli. Later after Indian independence the Indo-Nepal Treaty of Peace and Friendship established formal relations.


The India-Nepal Treaty of Peace and Friendship is the most important pillar of the bilateral relations between India and Nepal. The Treaty consisting of 10 articles was signed by the last Rana Prime Minister of Nepal and the Indian Ambassador to Nepal in 1950. The treaty stands on the premises that both the countries will maintain everlasting peace and friendship and recognize each other’s sovereignty, territoriality and independence. According to Article 6 and 7 of the Treaty, it was agreed that the nationals of the countries would be treated with the same privilege that they offer their citizens. This enabled the Indian and Nepalese to move freely across the open borders without any passport or visa. They can live, work and own property in either country.


During the 1950s India’s influence on Nepal continued to grow. However, the royal family of Nepal was varying of India’s growing influence and after the 1962, Sino-Indian war the relations between India and Nepal got severely affected[i]. During the 1960s, the situation became more stressful with Nepal questioning the security arrangement and asking India to withdraw the security check posts. India did withdraw its military check posts and liaison group in 1970s[ii]. The tensions were much visible in the mid-1970s when Nepal condemned the annexation of Sikkim by India[iii]. After this, Nepal under the leadership of King Birendra Bir Bikram Shah Dev proposed that Nepal should be recognized as “Zone of Peace” where the military competition would be forbidden. This proposal was immediately supported by Pakistan and China. However, India remained silent on this as this was a sign of distrust for the treaty which was signed in 1950. Despite of such views, the proposal got support of 112 countries in 1990s. Some of the source of dissatisfaction among the Royal family of Nepal was that India was sponsoring the opposing parties of Nepal and allowing them to launch campaigns on their soil.


There was a major dispute between Nepal and India regarding the trade and transit treaty. Nepal refused to accommodate with a single treaty for trade and transit resulting in hardline positions taken by both the countries. With time, India put forth economic sanctions on Nepal[iv]. During the late 1980s, Nepal decoupled its rupee with the Indian Rupee as well as India denied the port facilities in Calcutta. According to some sources the GDP growth of Nepal was reduced to 1.5% which was 9.5% earlier[v]. Another reason for this political squeeze on the part of India was its dissatisfaction with Nepal imposing a permit rule for Indian citizens entering to work in Nepal. During 1988, it also attempted to get close with China by acquiring weaponry from it[vi].


This prompted India to reconsider its economic relations with Nepal which were at its worst phase. This could even have security implications for it. Nepal also realized the huge economic loss that it was bearing due to strenuous relation with India. This was also the time when a change in the Nepal’s political system was witnessed. The King was forced to transition to a parliamentary democracy. This phase saw a revival of friendly relations with India as the parties were pro-India. During the 1990s, Nepalese Prime Minister Girija Prasad Koirala visited India and treaties of separate trade and transit was signed along with other economic agreements which benefitted Nepal. During the 2000s, the relations soured a bit during the rule of King Gyanendra, however relations were normalized with the visit of Prachanda in 2008.


During the 2010s the relations became amicable. India and Nepal pushed for a three-tier- mechanism i.e. ministerial, secretary and technical levels, with regards to water resources. There have been perceptions in India regarding the increased Maoism and the influence of China which it alleges has separated Nepal from India.



After the overwhelming votes gathered by the Bhartiya Janata Party in 2014, Mr. Narendra Modi was appointed as the Prime Minister of India. Modi visited Nepal in August 2014 as a part of its “Neighborhood First Policy”. The visit was highly successful and Modi became the first foreign leader to address the constituent assembly of Nepal. Under Narendra Modi, India demanded some amendments in the constitution of Nepal. However, with election of K P Oli there was evidence of growing rift in Nepal-India relations. So, in 2015 India and Nepal relations saw another downfall. India talked about its concerns over the new constitution and carried out an unofficial blockade preventing crucial supplies from entering the country. Oli clearly criticized the move and in response to the blockade signed a trade and transit agreement with China. Thus, playing the “China card”, Oli swiftly tried to end India’s monopoly on essential goods[vii].


Nevertheless, we also witnessed India’s quick response during the destructive earthquake that strucked Nepal. It provided Nepal with relief assistance worth US$ 67 million[viii]. In reality, India and Nepal relations are much higher than the treaties and agreements. Both the countries have frequently organized visits and interactions which has reflected the importance that both accord to each other. However, there have been changes in the relations between India and Nepal after the rise of Modi. In fact, the relations have witnessed a crisis as Modi raised concerns on Nepal’s constitution and the economic blockade came into the picture creating widespread anger among the Nepalese. This act was seen as interference in its sovereignty and resulted in a failed policy of keeping the neighborhood first. In order to facilitate connectivity and strategic influence, India has to revise its relations with its neighbors.


In 2018, India and Nepal signed three new agreements on agriculture, connectivity and railways. Both the countries termed these three agreements as “path breaking”. Inauguration of a petroleum pipeline between Nepal and India was also carried out. However, both the sides kept away from some key bilateral issues. After the second visit of Oli, a joint 12-point statement was issued. Before the visit, there were speculations that Oli would consider a revision of the 1950 Treaty of Peace and Friendship as this agenda formed a big part of what Oli promised during the election campaigns. He demanded for the “resetting and redesigning” of relations with India. There were some clear messages that this visit sent to India-


  1. It upheld the sovereignty of Nepal and indicates that mutual respect is the key to friendly relations. Interfering in the internal politics of each other can have drastic impact of the bilateral relations.

  2. Oli represented the need for a greater economic diplomacy in order to enhance the growth and prosperity of Nepal. Both the countries should focus on the economic and cultural issues rather than more hardline political issues[ix].


Since Deuba came to power there have been no top-level visits between India and Nepal. The ruling party also invited Bhartiya Janata Party’s Foreign Affairs Department chief Vijay Chauthaiwale where he met other top leaders of Nepal[x].



The current ruling part of India has clearly indicated that it is willing to support Nepalese parties who are pro-Hindu. Some Nepali congress leaders also visited India and met External Affairs minister S. Jaishankar as well as Uttar Pradesh Chief Minister Mr. Yogi Aditya Nath. This visit was important as it helped the ruling party of Nepal to build party-to-party relations and also learn from BJP’s organization building. This meeting also provided Nepal an opportunity to raise certain key concerns. Deuba also met Modi on the sidelines of COP26 in Glasgow, where he invited Modi to Nepal.


In January 2021, the sixth meeting of Nepal-India Joint Commission (JC) was organized to discuss various bilateral issues. Issues such as COVID-19 vaccines, boundary and border management, connectivity, trade, culture and education were discussed. After the meeting, India provided one million doses of Covishield vaccine to Nepal.



India and Nepal relations are based on certain key concerns. These issues have determined and continue to determine the blueprint of bilateral relations between the two ancient friends. There are three major concerns which are elaborated below:



Foreign Direct Investment has been important for the economic development of Nepal. Investors have made investments in sectors like tourism, hydropower, construction, industries etc. Nepal’s location and ecology have always been a point of attraction for countries like India and China. This has been due to the availability of young and very affordable supply of labour and the diverse climatic conditions which are favourable for investments in different sectors. It is also a great tourist attraction for both the Indian and Chinese travellers.


Recently, there has been a large Chinese investment in Nepal. It has even surpassed the Indian Investment by three times. There was no FDI from India during the period of 1996-2006. So, India’s investments in Nepal haven’t been very significant. Indian investments are also behind the race accounting to 30% of the total FDI in Nepal. Some of the major Indian investments in Nepal include Surya Nepal, Dabur, Hindustan Unilever, State Bank of India, LIC etc. It has also made investments in the hydropower sector. Many Hydropower projects are under work.


FDI in Nepal have been lower as compared to other countries having access to the sea due to the low investment cost. Since Nepal has been sandwiched between India and China, which are among the fastest growing economy in the world, it is beneficial for Nepal to attract investors who are capable to export goods to these two Asian giants.


According to World Bank’s Report, Nepal’s net FDI inflow stands at 0.5% as of 2019[xi]. Efforts should be concentrated towards removal of administrative hassle for the foreign investors as well reducing corruption. Unless there is political stability and less policy uncertainty, investors will not be willing to invest.


For some time, there have been certain lows in India-Nepal relations. For example- Indian notes of higher denominations such as INR 500 and INR 2000. This has certainly caused difficulties to Indians in Nepal.  


Border Dispute

In a speech at election rally at Uttarakhand last year, Modi stated that India has built a road and is planning to expand it via Lipulekh to Manas Khand which is a gateway to reach Man Sarovar, a Hindu pilgrimage in Tibet. Although the sole aim of Modi to claim the disputed region as a part of his initiative was to attract Hindu vote, it created widespread anger in Nepal[xii]. It had also laid down claims of the territory of Lipulekh previously. After the up rise and concerns rose in Nepal, India released a press statement that they would only communicate via the established channels and “most appropriate” avenue for dialogue. In response to this, Nepal’s foreign ministry also released its statement and reaffirmed its claim of three territories- Limpiyadhura, Lipulekh and Kalapani. It demanded that India should stop its construction activities in these territories.


This border dispute dates back to 2015, during the trade and transit agreement made between China and India[xiii]. Nepal protested to this by stating that it was a clear violation of its territorial integrity. The dispute revived again when India released a new political map in 2019[xiv]. In 2020, Nepal too issued a new map including the territories. The government lead by Oli termed it as a “historic moment” for Nepal and even circulated the new map to be published in school books[xv].


The territorial dispute is a major issue of concern between India-Nepal relations. Although the current Prime Minister of Nepal Sher Bahadur Deuba has remained silent on this dispute and is often pressured by the opposition parties led by Oli to speak up and make this as a priority issue.


Both the countries should make efforts to solve the border dispute diplomatically. This is a political issue and cannot be solved merely by secretary level discussions. Mr. Modi clearly refused to accept the final report of the Eminent Person’s group (EPG) which consists of experts from both the countries. In long term, such irritants in the India-Nepal relations can cause anti-Indian nationalism in Nepal which can harm the age-old friendship to a significant extent.



While both India and China have their interests in Nepal, its important for Nepal to continue balancing its policies in such a manner that it serves twin interests of stability and development for his own country. For Nepal, mutual trust is the key to good bilateral relations with both India and Nepal. It seeks to bring investment in the country from both its neighbors for a rapid economic development.


Apart from investment and economic cooperation from both the countries, one of the greatest concerns is the COVID-19 which has certainly resulted in Nepal seeking vaccines from India. China who is rapidly increasing its footprint in South Asia also agreed on delivering the Sino pharm vaccine to Nepal[xvi].



Thus, interdependence between India and Nepal is the key to improved bilateral relations. More than India, Nepal is dependent on it. There is an urgent need to revitalize the cultural relations with India. This would not only attract Indian investments in Nepal but also increase the economic activities between them. This is a great way to engage India and create a conducive environment for interdependence. This aspect provides a great leeway to India as compared to China when it comes to develop cordial relations with Nepal.



India-Nepal Relations after the rise of Modi have witnessed several ups and downs. The onus of improving the relations between any countries lies on the leaders of political parties. The leaders have to act wisely and objectively in order to improve bilateral relations. Although every relation is bound and analyzed by the historical ties, but when most of the baggage is negative the leaders need to free themselves of the old mindset. Nepal has always been an ally of India since the British times, but it has its own foreign policy which is based on sovereignty, contrasting with the Bhutanese model which India though would fulfill the expectations of the Nepalese[xvii]. Nepal demands a more refined bilateral relation with India. The inability to fulfill the aspirations of Nepal has certainly pushed it to enhance its relations with China who certainly considers Nepal as an important ally for its own strategic objectives. This indicates that though India-Nepal relations have been mainly governed by people-to-people ties but there is also a need to boost the government-to-government ties.


In order to achieve a high level of cordiality, both the countries should sensitively understand each other’s concerns. Both the countries should adopt an approach where they should not resort to extreme means of manifesting dissatisfaction. For Example, the economic blockade on part of India and the disputed map revealed by Nepal which claimed some territories of India. There is a need for both the countries to understand the importance of each other’s support not only to maintain regional stability but also to promote each other’s interest globally.




[i] Savada, Andrea Matles, ed. (1991), “Foreign Policy: India”, Nepal: A country study, GPO for the Library Congress.

[ii] Singh, Raj Kumar (2009). Global Dimensions of Indo-Nepal Political Relations: Post Independence. ISBN 9788121210256

[iii] Ibid.

[iv] Savada, Andrea Matles, ed. (1991), “Foreign Policy: India”, Nepal: A country study, GPO for the Library Congress.

[v] Blanchard, Jean-Marc F, Norrin M. (18 July 2013). Economic Statecraft and Foreign Policy. ISBN 978-1136225819.

[vi] “Nepal’s Economy is Gasping as India, a Huge Neighbour, Squeezes it Hard”. The New York times. 11 April 1989

[vii] Ranjit Rae, (9 October 2021), Resetting Nepal-India ties, The Kathmandu Post.

[viii] Pramod Jaiswal, (16 August 2017). India-Nepal Relations: Mixed Fortunes, Institute of Peace and Conflict Studies.

[ix] Kamal Dev Bhattarai, 5 November 2021, Nepal’s New PM Deuba Seeks Better Ties with India, The Diplomat.


[xi] Hari Bansh Jha, (30 October 2020), Nepal’s FDI challenges, ORF.

[xii] Santosh Sharma Poudel, (9 February 2022), India-Nepal Territorial Dispute Flares up Again, The Diplomat.

[xiii] Ibid.

[xiv] Ibid.

[xv] Kallol Bhattacherjee, (20 May, 2020), Nepal’s new political map claims India’s territories, The Hindu

[xvi] “Nepal resumes vaccination campaign with China’s Sinopharm, (8 June 2021), WION.

[xvii] Ranjit Rae, (9 October 2021), Resetting Nepal-India ties, The Kathmandu Post.