India Politics 
India-Nepal Relations: Regional, Sub-regional and Bilateral Opportunities

PANKAJ SARAN/ NatStrat | 26/01/2024

Courtesy: NatStrat

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It has been argued that the Indian subcontinent has not been a fertile ground for regional cooperation  due to border disputes, security concerns, economic disparities and frequent political tensions. With only 3.5 percent of the world's land surface area, South Asia hosts one-fourth of earth’s population which makes it the most densely populated region in the world. According to a 2021 World Bank study, intraregional trade in South Asia is 5-6 percent of total trade while the intraregional investments are low at 0.6 percent of the total inward Foreign Direct Investment from other countries.1

The assertion of the subcontinent being poorly connected and integrated however overlooks the disparities in the size and  nature of the economies and absence of both complementarities and economies of scale among them, with the exception that each of the countries of the subcontinent is deeply integrated with the Indian economy rather than with each other. It is for this reason that India is a natural bridge and partner for each country in the subcontinent, and has to drive the process of regional integration.

A lot of progress has been made in this direction in the last few years, but much more could have been made had Pakistan not blocked and derailed the SAARC process that was initiated by Bangladesh in the mid – 1980s. 

It is amply clear that the Indian sub-continent needs economic cooperation in order to uplift its people out of underdevelopment.

Political obduracy and hostility towards India by Pakistan have been one of the main factors responsible for underperformance of SAARC. The other countries in the region have become collateral damage in this process which deprives them of better development and connectivity opportunities. This has prompted Indian policymakers to ‘reimagine’ the idea of the neighbourhood itself in which alternatives to a whole-of-South Asia neighbourhood has been explored.3

As part of these efforts, another regional mechanism, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) and sub-regional arrangement, the Bangladesh, Bhutan, India, Nepal (BBIN) Initiative have taken shape and have a lot of potential. In 2017, India’s Ministry of External Affairs clubbed the BIMSTEC Division with that of the SAARC Division. From India’s point of view, the above initiatives are necessary alternatives to SAARC if any form of regional cooperation is to move ahead. They are also a reflection of India’s larger foreign and economic policy initiatives such as the Neighbourhood First Policy, Act East and Indo-Pacific policies. 

India-Nepal cooperation is a very important element of these initiatives which has the potential to bring fruits of real development to the Himalayan country and also help its efforts to achieve the Sustainable Development Goals. Nepal’s economic connections with India’s northern and north-eastern states are also being given special attention.  


During his first term as Prime Minister, Shri Narendra Modi made serious efforts to reinvigorate SAARC. In a bold move, he invited all SAARC leaders for the swearing-in ceremony of his government in 2014, but soon thereafter a series of terror attacks were launched by Pakistan in India, effectively nullifying the incipient peace process. In 2019, Prime Minister Modi instead invited the BIMSTEC countries to attend his swearing-in ceremony. This marked a major shift in his approach to the region and to regional cooperation. 

The idea of BIMSTEC is woven around the ‘Bay of Bengal’ as a common neighbourhood which could help landlocked countries like Nepal to further increase their maritime trade and also find connectivity to Southeast Asia. The increased and diversified economic connectivity would not only increase Nepal’s exports but also have the potential to strengthen Nepal’s tourism sector by attracting Buddhist pilgrims from Myanmar, Sri Lanka and Southeast Asian countries.4 Hydropower and cross-border river transport are other areas within BIMSTEC that could further strengthen India-Nepal economic ties.

BIMSTEC can emerge as a springboard for Nepal for its engagement in the Indo-Pacific, an idea which is being pursued by South and Southeast Asian countries with varying degrees of enthusiasm. Nepal should not fall behind in this process as the Indo-Pacific is fast emerging as a dynamic engine of growth for the entire region.   


Sub-regional cooperation has a history in South Asia that goes back to the 1990s. In 1996, Nepal had proposed the establishment of the South Asian Growth Quadrangle (SAGQ) that included Bangladesh, Bhutan, Nepal and the north eastern states of India.  Later, the SAARC Summits in Male (1997) and Colombo (1998) endorsed the idea of sub-regional cooperation focusing on trade, transit, water and energy.Domestic and regional priorities in member states have prevented the requisite enthusiasm towards SAGQ which later received a new lease of life in 2014 at the Kathmandu SAARC Summit. Pakistan blocked India’s proposal for the SAARC Motor Vehicles Agreement at this meeting which prompted New Delhi to push for the BBIN Motor Vehicles Agreement that was signed in 2015.

In economic terms, Bangladesh is a success story in the region while Nepal, Bhutan and India’s north eastern states constitute a cultural sub-region with many similarities, including in food and cultural habits.6 Their geographical proximity makes a strong case for economic integration between them. One emerging area in this regard is the establishment of a hydroelectricity grid. Bangladesh is now investing in the hydropower sector of Nepal and Bhutan with an aim to import electricity via India. It has finalised a power purchase agreement (PPA) with Nepal to import 500 MW of electricity from the proposed 900 MW run-of-the-river hydroelectric power plant – Upper Karnali Hydropower Project – which is supposed to be developed by India's GMR Group.7

India is planning to expand the BBIN electricity grid to include Southeast Asian countries that could emerge as a unified market. For Nepal, BBIN could also facilitate multi-modal transport opportunities via road, rail and inland waterways. This would not only reduce costs but also the carbon emissions.8

BBIN is attracting attention from the European Union as well. The first EU-India Global Gateway conference was held in June 2023 in Meghalaya in order to explore opportunities for connectivity and investments in India’s north eastern states and the immediate sub-Himalayan neighbourhood that includes Nepal and Bhutan. There are, however, certain problems that need attention such as inadequate border crossing infrastructure, paper-based procedures, restrictive regulations and policies and inefficient cargo handling logistics. Due to these issues, India’s unrealised potential for trade with BBIN countries is 50 percent while the same figure for Nepal stands at 76 percent.9 Organisationally, most of the BBIN meetings take place at the senior officer level. Summit level meetings and formal organisation structures with a well-defined charter would elevate BBIN’s profile in the region and would also ensure speedy implementation of projects.10 Bhutan has however yet to arrive at a domestic consensus on its role in the BBIN.

Nepal’s Connectivity with Indian States

In addition to the relationship between Delhi and Kathmandu, Nepal’s economic, cultural and social links with the Indian States of Uttarakhand, Uttar Pradesh, Bihar, West Bengal and Sikkim are extremely important. UP and Bihar share a long border with Nepal while Raxaul and Jogbani are among the most important transit routes between India and Nepal. These Indian states not only share similar ecosystems and agro-climatic conditions with Nepal but also have common and close historical and religious traditions and practices in terms of Hinduism and Buddhism.11 They also play an important role in the Buddhist circuit.

The first broad gauge passenger rail service between Bihar and Nepal started in 2022 which has been successfully running. In 2019, India and Nepal started the first cross-border oil pipeline in South Asia with a 69-km-long petroleum pipeline between Motihari in Bihar and Amlekhgunj in Nepal's Bara district.

Historical and socio-cultural ties between Nepal and north eastern states of India hold a lot of potential for sub-regional cooperation between the two countries. Economic complementarities between the two regions also indicate that such cooperation would be successful.12


With the failure of SAARC, there is ample scope for alternate regional and sub-regional cooperation. India and Nepal cooperation would be very important to ensure success of initiatives like BIMSTEC and BBIN. Bordering Indian States have a deep historical and religious connection with Nepal. These states can and have been at the centre of India’s connectivity and economic plans for Nepal. Connectivity does not stop at these states. Indian sea ports along its peninsula coastline and transit opportunities can connect Nepal to the Indian Ocean and other sub-regions of West, Central and South-East Asia. There is a need to address challenges through improving border infrastructure, use of digitalisation and technology, cutting red tape and public-private partnerships. These measures would help Nepal in achieving its Sustainable Development Goals.

Kathmandu is already part of India’s ‘Neighbourhood First Policy’ and an important stakeholder in India’s Act East and Indo-Pacific policies. 

But much more importantly, it is the progress in the India- Nepal bilateral relationship that holds the key for a prosperous, secure  and stable sub-continent. The connections run deep and are dictated by history, culture, people to people linkages and geography. India is a natural partner of choice for Nepal. The well-being of both countries is interdependent and it is incumbent on all sections of society, especially the intelligentsia and opinion makers, to preserve and promote this vital relationship, rather than leave it only to the two governments.

(This article was first published by NatStrat, India). 

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