Can Nepal finally deliver on its India strategy?

Nepal and India's bilateral relationship appears to be entering a recalibrated phase, moving beyond the traditional political upheavals and focusing on tangible economic cooperation. Recent high-level visits, including those by Foreign Minister Shisir Khanal and upcoming plans for Prime Minister Balendra Shah's state visit, signal a renewed diplomatic momentum. Bilateral mechanisms for trade, digital finance, connectivity, and border management have been reactivated, suggesting a shift towards "action-oriented diplomacy."

Foreign Minister Khanal's emphasis on specific areas like hydropower exports, cross-border payment systems (UPI), AI collaboration, and startup ecosystems marks a departure from Nepal's historical approach. While the inherent asymmetric dependence in the relationship persists, Kathmandu's current government seems determined to bypass political friction to achieve concrete economic results. This strategy aims to mitigate the nationalist tensions that often derail ties between the two nations.

Energy cooperation, particularly hydropower, is central to this new strategy. Nepal is poised to become a significant regional power exporter, targeting up to 10,000MW of power exports over the next decade, a substantial increase from current levels. A recent trilateral energy pact involving Bangladesh further highlights Nepal's growing role in the regional power market. This ambition positions Nepal as a potential energy hub, though its economic future remains closely tied to India's domestic demand and infrastructure capacity.

However, the relationship is not without its complexities. While economic ties are strengthening, political friction stemming from unresolved border disputes, including Kalapani, Lipulekh, and Limpiyadhura, continues to surface. These territorial claims, rooted in the 1816 Treaty of Sugauli, have been a persistent source of tension, particularly after the 1962 Sino-Indian War. These historical and territorial issues underscore the delicate balance Nepal must maintain as it seeks to deepen economic ties with its powerful neighbor.