India/Nepal politics: Quick View - India looks to rebuild ties with Nepal

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Economist Intelligence Unit
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International Relations, Politics, News Analysis, Forecast
Political Geography
India, Nepal


On February 2nd India's minister of external affairs, Sushma Swaraj, completed a two-day visit to Nepal.


Ms Swaraj's visit to Nepal came amid ongoing negotiations for the formation of a new government in that country. An alliance of left parties-comprising the Communist Party of Nepal (Unified Marxist-Leninist), or CPN (UML), and the Communist Party of Nepal (Maoist Centre)-have been entangled in power-sharing talks since their victory in elections held late last year. During her visit, Ms Swaraj met Nepal's president, Bidya Devi Bhandari, the outgoing prime minister, Sher Bahadur Deuba, the leader of the CPN (UML), Khadga Prasad Sharma Oli, and several leaders from regional parties. As expected, no new agreements between the two countries were announced.

Bilateral relations became tense in 2015 when the Nepali government accused India of enacting an unofficial blockade on supplies of essential goods such as fuel, medicines and earthquake relief material to Nepal in support of protesting ethnic Madhesis. This caused Nepal to turn to China for supplies to counter the embargo. In order to regain political influence in Nepal, India's administration will need to rebuild its relationship with the CPN (UML) and Mr Oli, who served as prime minister in 2015-16 and is widely tipped to become the next premier under the yet to be confirmed new government. Mr Oli's nationalist rhetoric and perceived willingness to stand up to India has contributed to the CPN (UML)'s recent electoral success.

We believe that the latest high-level visit by Ms Swaraj is an attempt to begin the process of restoring Indo-Nepali relations to their former cordiality, and to counter China's growing influence in Nepal. Indeed, the Indian government's budget for fiscal year 2018/19 (April-March), released on February 1st, contains a 74% increase in financial aid to Nepal at Rs6.6bn (US$100m). Chinese investments related to road and energy infrastructure projects in Nepal have increased markedly since 2015, and we expect this trend to continue as a new government assumes power in Nepal. Nonetheless, we do not expect Indo-Nepali relations to deteriorate further, as India still accounts for the majority of Nepal's external trade.

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