By Pramod Raj Sedhain
KATHMANDU: Nepal and India share a multifaceted and deeply rooted relationship spanning history, culture, tradition, religion, and economics for centuries.
Nepal-India close bonds symbolizes an open border, unhindered movement of people, marriages and familial ties known as ‘Roti-Beti ka Rishta’.
Both counties enjoy excellent multidimensional bilateral ties since the two countries established diplomatic relations on 17 June 1947.
The India-Nepal Treaty of Peace and Friendship of 1950 formalized the special relationship between the two countries, ensuring reciprocal rights for Indian and Nepali citizens in areas such as residence, property ownership, business, and free movement across borders.
Both neighbors have a strategically important for each others and both countries prioritize fostering strong bilateral ties in their foreign policies.
Their cooperation spans critical areas such as trade, energy, security, and cultural, underscoring their deep and mutually beneficial relationship.
Nepal shares its border with five Indian states—Uttarakhand, Uttar Pradesh, West Bengal, Sikkim, and Bihar—making it a vital hub for cultural and economic exchange between the two nations. Nepal is a priority partner of India under its ‘Neighborhood First’ Policy.
Despite the interconnectedness of the modern world through migration, globalization, and digitalization, one constant remains: neighbors cannot be changed. Their relationship must be valued as essential for national stability, progress, and enduring friendship.
Nepal-India relations are mutually beneficial, encompassing national security, regional stability, and economic progress. Beyond their geographical and cultural proximities, the multifaceted and multidimensional ties between the two countries have significantly influenced their relationship in a positive and constructive manner.
Nepal- India Political Relations
Nepal and India share a political relationship that is informal, unique, deep, and multifaceted. India’s support has been pivotal in shaping Nepal’s democratic movements over the years.
India remains Nepal’s largest defense exporter and a reliable security partner, contributing significantly to Nepal’s military capabilities. Defense cooperation is pivotal in bolster military-to-military cooperation, emphasizing mutual trust, maintaining peace, addressing disputes, and strengthening mutual understanding.
India played a key role in supporting Nepal’s democratic forces against the Rana regime in 1950, backed the pro-democracy movements against the monarchy in 1989-90 and 2006, and facilitated the peace process that ended Nepal’s decade-long armed insurgency.
India served as a safe haven for underground and exiled Nepali political leaders who faced repression during the Rana regime, the Panchayat era, and after the royal coup.
Several Nepali leaders, inspired by their participation in the Indian independence movement and their experiences in exile, were deeply committed to liberating Nepal from the Rana regime’s autocratic rule.
Nepal-India relations go beyond just treaties and agreements, marked by frequent high-level visits and interactions between the leaders of the two countries.
These visits have fostered goodwill, trust, understanding, and cooperation, strengthening the bilateral relationship on a more mature and pragmatic footing.
Since May 2014, Nepal and India have been 17 exchanges at the Head of State or Head of Government level. During this period, the Prime Ministers of Nepal have visited India 10 times, while Indian Prime Minister Narendra Modi has 5 visits to Nepal.
The last visit by Prime Minister Modi to Nepal was to Lumbini on 16 May 2022. The recent visit by a Nepali prime minister was by former PM Pushpa Kamal Dahal ‘Prachanda’ from 31 May to 3 June 2023. Both nations continue to explore new avenues of cooperation to revive and further enhance their relationship.
In November 2016, the President of India paid a State Visit to Nepal, marking the first visit by an Indian President in 18 years. Similarly, in April 2017, the then-President of Nepal, Bidya Devi Bhandari, reciprocated with a State Visit to India.
Nepal and India both committed to strengthening bilateral relations and expanding the scope of collaboration. The most recent high-level visit was by Dr. Arzu Rana Deuba, Nepal’s Minister for Foreign Affairs, who visited India from 18th to 22nd August 2024.
During her visit, she held discussions with Indian Prime Minister Narendra Modi, External Affairs Minister S. Jaishankar, and other senior Indian officials. India’s Foreign Secretary, Vikram Misri, paid an official visit to Nepal from 11th to 12th August 2024. This marked his first visit to Nepal after assuming office.
General Upendra Dwivedi, the Chief of Army Staff of the Indian Army, visited Kathmandu from 20th to 24th November 2024 for a five-day official visit.
During his visit, he was conferred with the honorary rank of General of the Nepali Army. Similarly, General Ashok Raj Sigdel, Chief of the Army Staff (COAS) of the Nepali Army, embarked on a four-day official visit to India from 11th to 14th December 2024 to receive the honorary rank of General of the Indian Army.
These high-level political and military visits reflect an earnest effort to revitalise and strengthen India-Nepal relations.
Nepal-India Defense Ties
Nepal and India share a long-standing, vast, deep and unique defense relationship rooted in history and mutual cooperation.
The Indian Army has been recruiting Nepali citizens as soldiers since the signing of the Tripartite Agreement on November 9, 1947, between the governments of the United Kingdom, India, and Nepal. Today, approximately 32,000 Gorkha soldiers from Nepal serve in the Indian Army, while around 1.25 lakh Indian Army pensioners reside in Nepal.
Nepal plays a critical strategic role in India’s “Himalayan frontiers” policy. Alongside Bhutan, it serves as a northern buffer state, offering protection against potential aggression from China. This underscores the importance of their military cooperation, which extends beyond traditional ties.
During his addressing Nepal Constituent Assembly on August 3, 2014, Indian Prime Minister Narendra Modi Praising the contribution of Gurkha soldiers in India's defence. Modi said India has won no war without the sacrifices by Nepali soldiers.
Modi, stating, “There is no war India has won without the blood of Gurkhas. I respect their contribution.” He also quoted former Indian Army chief Sam Manekshaw, saying, “If a man says he is not afraid of dying, he is either lying or is a Gurkha”.
After India gained independence in 1947, six of the original ten Gurkha regiments from the British Indian Army were retained by the Indian Army.
Additionally, a new regiment, the 11th Gurkha Rifles, was raised. These Gurkha regiments quickly established themselves as a permanent and vital part of the newly independent Indian Army.
The Gurkha regiments of the British Indian Army had earned unparalleled recognition, winning a dozen Victoria Crosses and numerous other top honors during World War I and II. In 1947, following India’s independence, the Gurkha regiments were divided between the British and Indian armies under the terms of the Tripartite Agreement.
Gurkhas from Nepal and India are not only recruited into the dedicated Gurkha battalions but also serve in other elite units, including the Indian Army’s special forces, such as parachute battalions.
The Indian Army currently has seven Gurkha regiments—the 1st, 3rd, 4th, 5th, 8th, 9th, and 11th Gurkha Rifles—comprising around 32,000 Nepali soldiers. Each regiment consists of five to six battalions, with 800 to 1,000 soldiers per battalion, showcasing the indispensable role Gurkhas continue to play in India’s defense forces.
One of the unique aspects of Nepal-India defense ties is the long-standing tradition of conferring honorary general titles upon each other’s army chiefs, a practice that began in 1950 when then-Indian Army Chief General Kodandera Madappa Cariappa visited Nepal.
Nepal’s Surendra Bahadur Shah was the first to be honored with the title in India. This exchange of honorary general titles reflects the close defense relations between the two nations.
To date, 16 Nepal Army Chiefs and 20 Indian Army Chiefs have been bestowed this honor, marking a significant milestone in strengthening bilateral defense ties.
Defense collaboration between India and Nepal continues to evolve, despite differences over India’s implementation of the Agnipath scheme (path of fire) which recruits young soldiers to serve for four years, with only the top-performing quarter continuing in a longer military career. Nepal has disagreed with this approach and continues to uphold the recruitment of Nepali Gurkha soldiers into the Indian Army.
Joint military exercises between Nepal and India held annually, alternating between the two countries.The Indian Army has consistently provided support during crises in Nepal, including being the first to respond after the 2015 earthquake with search, rescue, and relief operations.
During the COVID-19 pandemic, the Indian Army extended various assistance including vaccines to supporting the Nepali Army and aiding citizens through relief materials and medical supplies.
Nepal-India-Bangladesh energy agreement highlighting the increasing regional collaboration in energy trade and connectivity. India is involved in hydropower projects across Nepal’s rivers that will collectively generate 8,000 MW upon completion.
India remains Nepal’s largest defense exporter and a reliable security partner, contributing significantly to Nepal’s military capabilities. Defense cooperation is pivotal in bolster military-to-military cooperation, emphasizing mutual trust, maintaining peace, addressing disputes, and strengthening mutual understanding.
Nepal-India Energy Cooperation:
Nepal and India have been deepening energy cooperation in recent years, focusing on Nepal’s abundant clean energy resources, namely hydropower. On January 4, 2024, the two governments signed a landmark 25-year power trade agreement during Indian External Affairs Minister S. Jaishankar’s visit to Nepal.
Under this agreement, Nepal will export 10,000 MW of electricity to India within the next decade. Notably, India’s Cabinet had already approved the purchase of this power on September 5, 2023. The agreement is set to auto-renew every 10 years after the initial 25-year term, enabling medium- and long-term power purchase agreements spanning 5-10 years.
Despite legal challenges, the Supreme Court of Nepal upheld the validity of the deal. This agreement highlights the growing synergy between the two nations in the energy sector.
Nepal aims to generate 13,000 MW of electricity by 2030 and 28,500 MW by 2035 to meet both domestic and foreign export demands.
With its domestic electricity needs projected to reach 13,000 MW by 2035, Nepal has targeted exporting 10,000 MW to India over the next decade and 5,000 MW to Bangladesh by 2035.
Achieving these ambitious goals requires significant hydropower development to produce around 28,000 MW within the next 10 years, emphasizing Nepal’s growing role as a regional clean energy hub.
One of the most successful areas of the India-Nepal bilateral cooperation is the power sector. The Joint Vision Statement on Power Sector Cooperation on April 2, 2022, during the visit of Nepal’s Prime Minister to India, outlined a comprehensive roadmap for collaboration.
Key pillars of this cooperation include the joint development of power generation projects in Nepal, the development of cross-border transmission infrastructure, bi-directional power trade, coordinated operation of national grids, and institutional collaboration in sharing the latest operational information, technology, and expertise.
Significant progress is already visible, with Nepal estimated to earn approximately NPR 10-15 crores per day through power exports to India.
Indian investments in Nepal’s hydropower sector have created a significant market and investment opportunities, making Indian involvement pivotal. As a result, Nepal has not actively sought alternatives or third-country participation in its hydropower sector.
In October, 2024, Nepal, India, and Bangladesh signed a historic trilateral agreement to trade 40 MW of electricity from Nepal, marking the first time Nepal was able to export power to a third country. This milestone underscores the evolving regional energy cooperation facilitated through Indian infrastructure.
Nepal and India aim to establish infrastructure capable of supporting the transmission of 12,700 MW of electricity by 2030, with several key projects underway.
Among these is the 400 kV Dhalkebar-Sitamarhi transmission line, which will have a capacity of 2,500 MW and is dedicated to exporting power from the Arun III hydropower project.
This line is expected to become operational by 2025/26. Additionally, the 132 kV Nepalgunj-Nanpara line with a 200 MW capacity is slated for completion by the same year.
Other major 400 kV cross-border transmission projects include New Butwal-Gorakhpur, Inaruwa-Purnea, and Kohalpur-Lucknow, collectively capable of transmitting up to 2,500 MW.
In a significant development for regional energy trade, Nepal, India, and Bangladesh have signed a trilateral agreement to export 40 MW of electricity to Bangladesh. This trade marks the first instance of Nepal being allowed to sell electricity to a third country through Indian transmission infrastructure.
NEA exported approximately 1.76 billion units of electricity worth Rs. 13.04 billion to India from July 16 to December 15, 2024, in the current fiscal year 2024/25.
Nepal-India-Bangladesh energy agreement highlighting the increasing regional collaboration in energy trade and connectivity. India is involved in hydropower projects across Nepal’s rivers that will collectively generate 8,000 MW upon completion.
Several Indian companies are actively participating in Nepal’s hydropower development, underscoring the deepening energy ties between the two nations.
Indian State-owned SJVN Limited is developing the 769 MW Tamor Hydropower Project in the Arun Basin and has also acquired the 679 MW Lower Arun project.
The Arun-4 hydropower project, with a capacity of 490 MW, has been awarded to Sutlej Jal Vidyut Nigam (SJVN), a joint venture with India’s state-owned Sutlej Hydropower Corporation, which is already working on the upstream 900 MW Arun-3 project.
India’s NHPC Limited (National Hydroelectric Power Corporation) has taken on the ambitious 750 MW West Seti hydropower project, further cementing its presence in Nepal’s energy sector.
The 900 MW Upper Karnali Hydroelectric Project, awarded in 2014, and other projects like West Seti and Upper Karnali will contribute an additional 2,000 MW of electricity from western Nepal for export to India. Together, these investments highlight India’s significant role in harnessing Nepal’s hydropower potential.
Energy remains a cornerstone of India-Nepal relations, with cross-border electricity trade gaining significant momentum in recent years through numerous agreements and infrastructure developments. Emerging shifts in
Cooperation in electricity generation focused in mutual benefit for both nations. The signing of the Agreement on Electric Power Trade, Cross-Border Transmission Interconnections, and Grid Connectivity in October 2014 marked a milestone in Nepal-India energy relations.
This agreement, initiated under Prime Minister Modi’s HIT (Highways, I-ways, and Transways) initiative, was a key outcome of his first foreign visit to Nepal. At the time, Nepal was grappling with over 18 hours of daily load shedding.
India’s Conduct of Business Rule (CBR) of February 2021 stipulated that it would only import electricity from neighboring countries with formal energy trade agreements. In November 2021, India granted Nepal permission to sell surplus electricity in line with the Cross Border Trade of Electricity (CBTE) guidelines.
Nepal began exporting 39 MW of electricity to India via the 400 kV Muzaffarpur-Dhalkebar transmission line, a significant step in regional energy integration.
The Nepal Electricity Authority (NEA) has received approval from India to sell 941 MW of electricity generated from 28 projects in the Indian market under competitive market and medium-term power sales agreements.
Nepal initially secured approval in November 2021 to sell 39 MW in India’s Energy Exchange Market through the day-ahead market.
Hinduism and Buddhism have been pivotal in enhancing cultural connectivity, with both countries sharing significant religious sites that form an integral part of their spiritual heritage. Completing a pilgrimage often requires visiting sites in both nations, symbolizing their intertwined cultural and religious history.
This capacity was subsequently expanded to 346 MW in April 2022, further growing to 472 MW, and eventually reaching 941 MW. This progression highlights the increasing trade potential and growing energy cooperation between Nepal and India.
NEA exported approximately 1.76 billion units of electricity worth Rs. 13.04 billion to India from July 16 to December 15, 2024, in the current fiscal year 2024/25.
Export volumes could have been higher if not for disruptions caused by floods and landslides in late September, which damaged the 456 MW Upper Tamakoshi Hydropower Project.
NEA had set a target to export electricity worth Rs. 30 billion for the current fiscal year. However, this goal is impacted due to the damage sustained by hydropower projects and transmission lines from the natural disasters.
India has also committed to developing key hydropower projects in Nepal, including Arun-III, Lower Arun, Upper Karnali, and Pancheshwar.
These storage-based projects aim to generate electricity during non-peak periods and export surplus energy to India and other nations, ensuring mutual energy security and advancing bilateral cooperation.
However, Nepal still needs to significantly enhance its transmission capacity to maximize these opportunities and facilitate robust energy trade.
Nepal has immense potential for renewable energy, particularly in hydropower and solar. Hydropower remains dominant in Nepal’s energy mix, contributing 95% of the total installed capacity.
Studies estimate Nepal’s hydropower potential between 42,000 MW (economic and technical) and 130,000 MW (practical). Current projects under various stages of development include over 107 MW of solar energy, with 82 MW from private developers and 25 MW installed by the Nepal Electricity Authority (NEA).
To achieve Nepal’s Paris Agreement goals of net-zero emissions by 2045 and the 15th periodic plan’s target of 20% renewable energy by 2030, Nepal aims to generate 5,000 MW of renewable energy by 2030.
Indian investments will be vital in accelerating these efforts to strengthen Nepal’s renewable energy sector, ensuring regional energy security and economic growth.
According to the Investment Board Nepal (IBN) report from April 2024, Nepal receives solar radiation capable of producing 3.6 to 6.2 kWh of electricity per square meter, with an average insolation intensity of 4.7 kWh per square meter per day and 300 sunny days annually.
These conditions make solar energy a promising alternative, especially as installation costs continue to decline. However, substantial investments, particularly from Indian companies, are essential to unlock this potential.
Nepal-India Cultural Relations
Cultural relations form one of the key foundations of India-Nepal ties. India and Nepal share a deep-rooted cultural bond that is organic and historically significant.
The people of Nepal and India share deep interdependence due to linguistic, ritualistic, cultural, marital, and other similarities. This connection is further strengthened by the open and harmonious border between the two countries, as well as economic interactions.
Prominent pilgrimage sites such as Pashupatinath, Muktinath, Janakpurdham, and Lumbini in Nepal, alongside Char Dham, Varanasi, Ayodhya, and Bodhgaya in India, play an instrumental role in fostering unity between the two nations.
India’s history of development cooperation with Nepal dates back to the 1950s, with major projects undertaken over the years, including the East-West Highway, the Nepal-Bharat Maitri Emergency and Trauma Centre (₹100 crore), BP Koirala Institute of Health Sciences in Dharan, and the five-story OPD complex at Bir Hospital.
Hinduism and Buddhism have been pivotal in enhancing cultural connectivity, with both countries sharing significant religious sites that form an integral part of their spiritual heritage. Completing a pilgrimage often requires visiting sites in both nations, symbolizing their intertwined cultural and religious history.
The Indian government has invested considerable resources and effort in promoting people-to-people connections in art, culture, academics, and media.
This includes organizing cultural programs, symposia, events, conferences, and seminars in collaboration with various institutions, further solidifying the cultural bond between the two nations.
Bollywood films and Indian TV shows enjoy immense popularity in Nepal. Hindi is widely understood by most Nepali speakers, while many regions in India have Nepali-speaking communities.
The Government of India actively promotes people-to-people connections in various fields, including art, culture, academics, and media.
This is achieved through cultural programs, symposia, and events organized in collaboration with local bodies in Nepal, as well as conferences and seminars in languages such as Hindi and Sanskrit.
In 2023, Nepal joined India in celebrating 75 years of “Azadi Ka Amrit Mahotsav” with a series of events showcasing music, dance, development partnerships, and startup collaborations.
Established in August 2007, the Swami Vivekananda Centre for Indian Culture in Kathmandu continues to exhibit the best of Indian cultural heritage.
Similarly, the Nepal-Bharat Library, founded in 1951 as the first foreign library in Nepal, plays a pivotal role in enhancing cultural ties and facilitating information exchange between the two countries.
To deepen educational and cultural cooperation, the B.P. Koirala India-Nepal Foundation was established in 1991. Its objective is to foster collaboration in education, culture, science, and technical fields, promoting mutual understanding and the sharing of professional expertise.
Additionally, efforts to strengthen media and academic partnerships include familiarization visits to India for Nepali journalists and editors, along with short-term training programs in print and electronic media, archaeology, and other areas of professional development. These initiatives continue to reinforce the unique cultural relationship between India and Nepal.
Nepal-India Development Partnership
The India-Nepal Development Partnership has been steadily expanding for over seven decades. Nepal is one of India’s largest and most prominent development partners.
This long-standing cooperation began in 1951 with the construction of the Gauchar Airport in Kathmandu, now known as Tribhuvan International Airport. The India-Nepal Development Partnership stands as a testament to the enduring bond between the two nations.
India’s development assistance to Nepal spans a wide range of sectors, including infrastructure, education, health, agriculture, and capacity building. This partnership reflects the deep-rooted cultural heritage and people-to-people ties shared by the two nations.
India is Nepal’s largest development donor, focusing primarily on large-scale infrastructure projects through grants that address priority sectors such as health, education, and connectivity.
This global initiative has trained over 200,000 professionals—spanning both civilian and defense sectors—from more than 160 countries. For Nepal alone, over 2,000 professionals, bureaucrats, and defense personnel have participated in this capacity-building program since 2007.
India’s history of development cooperation with Nepal dates back to the 1950s, with major projects undertaken over the years, including the East-West Highway, the Nepal-Bharat Maitri Emergency and Trauma Centre (₹100 crore), BP Koirala Institute of Health Sciences in Dharan, and the five-story OPD complex at Bir Hospital.
In recent years, the partnership has significantly advanced Nepal’s connectivity and access to international markets. Key projects include:
Rail Links: Development of Nepal’s first broad-gauge railway line between Jayanagar and Bijalpura-Bardibas, the Jogbani-Biratnagar rail link, and the ongoing Raxaul-Kathmandu rail line.
Integrated Check Posts (ICPs): Establishment of ICPs in Birgunj (Nepal’s first ICP), Biratnagar, Nepalgunj, and Bhairahawa.
Cross-Border Train Services: Launch of Nepal’s first cross-border passenger train service between Jayanagar and Kurtha during former PM Sher Bahadur Deuba’s visit to India in April 2022, and the first freight train service during Prime Minister Pushpa Kamal Dahal’s visit in June 2023.
To boost infrastructure in western Nepal, construction of a motorable bridge in Dharchula commenced in October 2022. Additionally, the National Police Academy in Nepal is being built with Indian grant assistance.
Petroleum Pipeline: In 2019, India completed South Asia’s first cross-border petroleum pipeline connecting Motihari (India) to Amlekhgunj (Nepal).
This project has brought immense benefits, saving Nepal approximately ₹9 crore monthly and achieving a record supply of 100 million liters of diesel in December 2020 alone.
High-Impact Community Development Projects: Through the High-Impact Community Development Projects (HICDP) program, India works at the grassroots level to improve the quality of life in Nepal.
This includes constructing hospitals, schools, drinking water facilities, and sanitation infrastructure. Since 2003, India has undertaken over 551 projects across Nepal at a total cost of ₹1,249 crores, with a recently increased project cap of ₹20 crores (January 2024).
India has also distributed 1,009 ambulances and 300 school buses to Nepal since 1994, significantly contributing to Nepal’s healthcare and education sectors.
Lines of Credit and Post-Earthquake Reconstruction: Beyond grant assistance, India has extended Lines of Credit (LOCs) worth $1.65 billion for infrastructure development, including roads, transmission lines, and post-earthquake reconstruction. LOCs have been instrumental in financing vital projects to rebuild and modernize Nepal’s infrastructure.
Nepal-India Education Partnership
India’s development partnership with Nepal significantly emphasizes human resource development and education. Each year, the Government of India provides over 1,500 scholarships for Nepali students, supporting studies both in India and Nepal.
These scholarships cover a wide range of disciplines, including medicine, engineering, agriculture, business, nursing, Ayurveda and traditional medicine, music, and dance. Since 2001, more than 38,000 Nepali nationals have directly benefitted from these programs.
Bilateral trade typically takes place in Indian rupees, and Nepal’s central bank maintains a list of 163 items that can be imported from India in dollars using a Letter of Credit. The Indian rupee is fully convertible in Nepal, and the exchange rate is set at NRs. 1.6 per Indian rupee.
For government officials and professionals, Nepal remains a key partner under the Indian Technical and Economic Cooperation (ITEC) program, initiated in 1964.
This global initiative has trained over 200,000 professionals—spanning both civilian and defense sectors—from more than 160 countries. For Nepal alone, over 2,000 professionals, bureaucrats, and defense personnel have participated in this capacity-building program since 2007.
In recent years, the program has supported doctors, judicial professionals, officials from the Office of the Attorney General, and members of the Nepali Police, further solidifying the strong educational collaboration between the two nations.
Nepal-India Economic and commercial Relations
Nepal and India share strong trade and commercial ties, with India being Nepal’s largest trading partner and Indian firms among the top investors. In 2023, Nepal became India’s 18th largest export destination, up from 28th in 2014.
India plays a vital role in Nepal’s third-country trade by providing essential transit facilities. Both public and private sector investments from India have significantly boosted bilateral trade.
However, Nepal faces an increasing trade deficit with India. To regulate trade and transit, Nepal and India have signed key agreements, including the Treaty of Transit, Treaty of Trade, and the Agreement to Control Unauthorized Trade.
Nepal and India have maintained the currency pegged system to make trade easier, smooth cross transaction& stabilize the Nepali Currency. The Nepal Currency and Expansion Act of 1957 eliminated the use of Indian currency in Nepal. Nepali currency was pegged at INR 100 for NPR 160, a system still in place today.
India accounts for nearly two-thirds of Nepal’s merchandise trade, about one-third of trade in services, and almost 100% of petroleum supplies. Additionally, India contributes significantly to inward remittances, including those from pensioners, professionals, and workers employed in India.
India is the largest source of foreign investment in Nepal, accounting for over 33.3% of the total FDI stock, valued at nearly USD 641 million.
Around 150 Indian ventures operate across various sectors in Nepal, including manufacturing, banking, insurance, dry ports, education, telecom, power, and tourism. Indian companies have played a significant role in Nepal’s economic growth by contributing to industrialization, employment, government revenue, and export earnings.
Nepal’s transit trade, including trade with third countries and through Bangladesh, is routed via the ports of Kolkata/Haldia and Vishakhapatnam, with India serving as a crucial trade link.
The launch of the RuPay card in Nepal, the signing of the Letter of Exchange (LoE) for the Rail Services Agreement, the Memorandum of Understanding (MoU) on fertilizer supply from India to Nepal, and progress in power sector cooperation, are set to further boost bilateral trade.
To enhance digital financial connectivity, an MoU between NPCIL India and NCHL Nepal for facilitating cross-border digital payments was exchanged on June 1, 2023.
India and Nepal signed a Double Taxation Avoidance Agreement (DTAA) on November 27, 2011. The 41-kilometer Raxaul-Amlekhgunj cross-border petroleum pipeline, South Asia’s first, was launched to transport petroleum products from India to Nepal. An MoU for this project was signed in August 2015.
The India-Nepal Air Services Agreement, signed on February 16, 2010, allocates 30,000 seats per week in each direction, with India being the largest source of tourism to Nepal.
India has provided four lines of credit totaling US$2.6 billion for infrastructure projects in Nepal, financing 36 road projects, six hydropower projects, and others in housing and reconstruction.
Iconic projects include the Solu Corridor, Muzaffarpur-Dhalkebar Transmission Line, and Devighat Hydro Project. Future funding for the Bheri Corridor and other transmission lines has also been secured.
A Letter of Exchange (LoE) signed on July 9, 2021, enables all cargo train operators to utilize the Indian railway network to carry containers bound for or originating from Nepal, whether for bilateral or third-country freight. This new arrangement is expected to enhance efficiency, reduce costs, and benefit Nepali consumers.
The Nepal-India Treaty of Trade (2009), Agreement on Cooperation to Control Unauthorized Trade (2009), Treaty of Transit (1999), and Rail Services Agreement (2004) provide the bilateral framework for trade and transit. Under the Treaty of Trade, Nepali-manufactured goods enjoy duty-free access to the Indian market on a non-reciprocal basis, with a short negative list (including cigarettes, alcohol, and cosmetics).
To qualify for duty-free market access, export items must meet the criteria of a 30% domestic value addition and a change in the four-digit HS classification during processing in Nepal.
Bilateral trade typically takes place in Indian rupees, and Nepal’s central bank maintains a list of 163 items that can be imported from India in dollars using a Letter of Credit. The Indian rupee is fully convertible in Nepal, and the exchange rate is set at NRs. 1.6 per Indian rupee.
The Indian cooperation started in 1952 with the construction of an air-strip at Gaucharan. Since then, India has been continue economic assistance to Nepal.
India has supported various key projects in Nepal, including the B.P. Koirala Institute of Health Sciences in Dharan, the Emergency and Trauma Centre at Bir Hospital in Kathmandu, and the Manmohan Memorial Polytechnic in Biratnagar, all of which have been completed and are operational under Indian assistance.
Additionally, integrated check-posts (ICPs) have been proposed at four points along the Indo-Nepal border: (i) Raxaul-Birganj (completed and operational since April 2018), (ii) Sunauli-Bhairahawa, (iii) Jogbani-Biratnagar, and (iv) Nepalganj Road-Nepalgunj. Construction of the ICP in Biratnagar is ongoing, while procedures for the ones in Bhairahawa and Nepalgunj are underway. Construction of Terai roads under Phase I has already started.
The 2009 Agreement for Cooperation between India and Nepal to Control Unauthorized Trade provides a legal framework for curbing illegal trade.
The Nepal-India Treaty of Transit (1992), renewed every seven years, ensures port access to Nepal at Kolkata/Haldia and Visakhapatnam and specifies designated transit routes to the Nepal-India border. For bilateral trade, 27 entry/exit points are set along the border.
An MoU for the development of railway infrastructure at five points along the Nepal-India border was signed in 2010. Construction is underway for the Jayanagar-Janakpur-Bardibas-Bijalpura and Jogbani-Biratnagar sectors, while preliminary work has started on the remaining three links.
Additionally, an MoU was signed on 16 February 2010 in New Delhi for the establishment of the Nepal Bharat Maitri Polytechnic in Hetauda, Makawanpur District, Nepal, and the project is currently being implemented.
The Rail Services Agreement, 2004, initially limited to the transit point between Kolkata/Haldia port and Raxaul/Birgunj, was expanded in 2016 to include Vishakhapatnam Port.
A Letter of Exchange (LoE) signed on July 9, 2021, enables all cargo train operators to utilize the Indian railway network to carry containers bound for or originating from Nepal, whether for bilateral or third-country freight. This new arrangement is expected to enhance efficiency, reduce costs, and benefit Nepali consumers.
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