Why India needs to fine-tune its ties with Nepal

The increasingly loud and belligerent assertion of Beijing's claims in South China has become a matter of strategic concern for many nations for diverse reasons. It comes at a time when nations with diverse interest in the Southeast Asia from the India to Vietnam to Japan and the United States are already concerned about China's growing strategic strength.

Even other nations of the Association of Southeast Asian Nations group, who do not vocalise their concerns over this development for reasons of real politick, are equally uncomfortable though China is fully established as a trading partner among them. The recent US-Australian agreement to station US marines in bases in Australia is directly related to this concern.

For India, it sends clear message of China's sensitivity to India's efforts at upgrading its relations in Southeast Asia. Read in the light of escalating strategic collaboration between China and Pakistan including the involvement of People's Liberation Army troops in the construction of strategic road links in Pakistan occupied Kashmir, and build up of the PLA force levels in Tibet with better strategic access to Indian borders, the possibility of Chinese belligerence shifting to India's Himalayan frontiers has increased.

India appears to have at last woken up to the gravity of the situation with Prime Minister Manmohan Singh and Defence Minister A K Antony publicly stating their concerns on China in the recent months. In response to the changing strategic environment along the northern borders, India is in the process of doubling its force levels in the eastern sector. India has also strengthened its strategic links with Vietnam and Afghanistan. Inevitably, in the coming months Indo-US strategic linkages would also be given more form and substance as indicated in the latest meeting of Dr Singh and US President Barack Obama on the sidelines of East Asia summit at Bali, Indonesia.

China's biggest strength has been its tremendous ability to formulate and execute timely, objective-oriented, action strategies in diplomatic, economic and military fronts for three decades. China's multifaceted military capability has been demonstrated in the recent years in cyber warfare, space missions and anti-satellite warfare, developing and producing fighter aircraft, building aircraft carrier, and building a modern submarine fleet. India's modest strategic response to these developments had been mostly reactive, lacking long-term vision. While its space, missile, naval, air force and electronic warfare capabilities, the process appears to lack dynamism and commitment to produce timely results. Due to lack of goal clarity, even the few successful initiatives have not been translated to strategic advantage.

India also does not appear to be taking full advantage of the tremendous geo-strategic advantage it enjoys by virtue of its location between Central and Southeast Asia. Even in South Asia, only during the last decade or so it has started seriously making efforts to build strategic relations with its neighbours like Bangladesh and Sri Lanka. However, Nepal with which it has a complex relationship seems to be an exception to this for various internal and external considerations in both the countries.

India borders Nepal with India on three sides while its northern frontier lies with Tibet (China). This confers a natural advantage to India, as movement from south to north along Terai plains of Nepal is easier than from Tibet across the Himalayan range and through the northern mountainous regions. So it is not surprising that hundreds of years of interaction between the populations in both Nepal and India have created tremendous religious, ethnic and cultural affinities. The two countries enjoy a special relationship formalised since British colonial days. Although Tibet also enjoys many cultural, ethnic and religious affinities with Nepal, these have been marginalised by China after its occupation of Tibet.

Since the late 90s Nepal had been undergoing tectonic socio-political changes that culminated in the end of monarchy in 2006 and ushering in of multi-party democracy. However, political articulation of democracy continues to be stilted and the country retains the potential for eruption of social conflict once again due to political instability.

The Communist Party of Nepal-Maoist -- now morphed into the Unified Communist Party of Nepal-Maoist -- spearheaded the "peoples' war" against monarchy and has emerged now as a major political factor in the country. Its impressive performance in the 2008 constituent assembly elections demonstrated its popular support. Its founder Pushpa Kumar Dahal, better known as Prachanda, had shown strong pro-Chinese leanings all along. He has also articulated anti-India sentiments more vigorously than some of the leaders of other political parties. After the end of monarchy, CPN-M found it difficult to give up its revolutionary idiom and join mainstream multi-party politics. Its difficulty in resolving the ideological contradictions to suit democratic governance had created factionalism within its leadership. These problems of Maoists had held up the process of drafting a democratic constitution and usher in functional democracy so far.

Given this setting, the recent visit of Nepal's Prime Minister Baburam Bhattarai, who belongs to UCPN-M, to New Delhi is significant in many ways. It came a few days before four leading parties -- the UCPN-M, the Nepali Congress, the Communist Party of Nepal (Unified Marxist Leninist), and the Madhesi Janaadhikar Forum agreed on a seven-point deal on November 1. The deal settled the vexing issue of the future of 19,602 Maoist combatants; it was agreed to integrate a maximum of 6,500 fighters into the Nepal Army, and assist rehabilitation of the rest. They have also agreed to complete the stalled peace process by preparing the draft constitution by end November 2011.

However, implementing the agreement in full, particularly drafting the constitution, within 30 days appears a tall order. Already, Bhattarai has suggested the extension of the life of Constituent Assembly by six months. Much would depend upon the sincerity and determination of UCPN-M in working with other parties to successfully conclude the task.

There are encouraging indications that increase the chances of success with the UCPN-M playing a more constructive political role. If Bhattarai can successfully implement the agreement, the country could expect a period of stability so essential for the young democracy to take roots. This would be a welcome development for strengthening India-Nepal relations. And India has to work on it hard as in the past it had given the impression of taking its relation with Nepal for granted.

Among South Asian nations, India's relations with Nepal are perhaps the most complex, subjected to periodic crests and troughs. Prime Minister Bhattarai, summed up its current state in an article in The Hindu on the eve of his recent visit to India:

"Nepal and India share a very unique relationship. Nepal is sandwiched between two huge states of India and China. But we are virtually India-locked, as we have an open border on three sides. Most of our socio-economic interactions take place with India. Two-thirds of our annual trade is with India, while only 10 per cent is with China. Given this historic tilt towards India, our bilateral relationship is unique. When you have more interaction, you have more problems and more friction. At times, there are misgivings and misunderstandings on various issues -- some are genuine, while others are born out of scepticism."

The pronouncements of Bhattarai on Nepal-India relations should give India hope that Maoists are perhaps softening their attitude to India. This situation could be rudely changed under political compulsions and when China takes the initiative to further widen the scope and content of its strategic options against India.

Such a possibility is neither remote nor far-fetched in the overall context of China's ambitious expansion of its power and influence in this part of Asia. When the uneasy relationship between two Asian giants degenerates into a confrontation, Nepal will find it extremely difficult to balance its relations with them. In such a situation, weaknesses in Indo-Nepal relations would be open to exploitation by unfriendly elements. This is the reason why Nepal remains the soft underbelly of India's strategic security.

Nepal's unique relationship with India was formalised when Nepal and Britain signed an agreement of friendship in 1923. After India became independent, the traditional close and friendly relations between the two countries with open borders have continued. Independent India avowed its friendly relations with Nepal with the signing of the India-Nepal Treaty of Peace and Friendship in 1950.

Under this treaty citizens of both nations are treated on par in matters like business, jobs, and owning property. Nepal also has bilateral trade and transit treaties with India. These treaties opened up opportunities for Nepalese citizens to travel, study, and do business freely in India. The extension of non-reciprocal duty free access for Nepalese goods to Indian markets has huge potential as Nepal develops further.

India has contributed significantly for Nepal's development over the years. Indian development projects include building schools, libraries, campuses, primary health centres, hospitals, micro hydro projects, bridges, drinking water projects, and gift of school buses and ambulances.

Major Indian projects include the construction of 200-bed Emergency and Trauma Centre in Kathmandu and assistance to BP Koirala Health Institute in Dharan. Major road construction works include building 1450 km of feeder roads in the plains next to India, cross border railway links, and integrated check posts at four border crossing points. These links provide strategic access to Nepal from India. Indian outlay for 411 projects under way in Nepal since 2003 is about Rs 4000 crore. The Mahakali Integrated River Project to generate hydro-electric power to benefit both Nepal and India is yet another on-going project, though it is mired in controversy over power sharing.

Though Nepal largely gained from this arrangement, over dependence upon India has created an anti-India backlash. Under the INTPF, Nepal agreed to depend upon India for security, as well as seek Indian consent to import arms, ammunition and military equipment from other countries. As Nepal gained greater international exposure, these were seen as signs of Indian domination.

As a result Nepal has stopped adhering to such stipulations. Many saw the India-assisted development projects as more beneficial to India than Nepal. On trade and transit issues also there had been the strong differences between the two countries as land-locked Nepal was keen to diversify its trade access to other countries over riding Indian concerns.

As Nepal tried to assert its independent stance on both foreign policy and strategic security issues, inevitably the INTPF has come under criticism particularly since King Bhirendra's rule (1972-2001). As Indian diplomat Rajiv Sikri observed, "Landlocked Nepal's umbilical and all round dependency on India, understandably made anti-Indianism the foundation of Nepali nationalism. Some of the fault for this lies with India. India's perceived priority to projects that served India's security and other needs rather than the development of Nepal aroused animosity and distrust of Nepal in India."

Seen as the 'Big Brother', most of the political parties in Nepal find it convenient to flog India for all major problems of the country and Maoists have always focused on this issue. And this situation is unlikely change in multi-party democracy dominated by Maoists. Though India would not like to give up its advantages under the INTPF, it appears to be reconciled to changes in the form and content of INTPF as inevitable. China does not have the socio-political baggage India carries due to its closely networked relations with Nepal. It had been cultivating Nepal particularly after Nepal signed a boundary settlement agreement and a separate treaty of peace and friendship with China in 1960 even as China was increasingly locked in boundary dispute with India.

However, China kept away from getting involved in Nepal's internal affairs even during the height of Maoist civil war. Actually, it had supplied arms to King Gyanendra when India had not come forward to do so. However, it has strengthened its relationship taking advantage of the pro-Chinese leanings of Maoists. Its long-term plan appears to be to link Nepal with Tibet's large network of road, rail and air infrastructure. This would give a big boost not only to trade but also neutralise India advantage in having better strategic access to Nepal.

In 2007-08, China began construction of a 770-kilometre railway connecting Lhasa, the Tibetan capital, with the border town of Khasa in Nepal. Nepal had requested the link to be extended to Kathmandu. When China completes the ambitious project, it would significantly improve China's strategic access to India's borders as Chinese are involved in other communication projects underway beyond Kathmandu.

China's involvement in a project to build a road link between Kathmandu and Lumbini, an important Buddhist pilgrimage site located very close to Indian border, is one such effort. The Chinese government-backed Asia Pacific Exchange of Cooperation Foundation is involved in the project. APECF has already agreed to provide $ 3 billion for the Lumbini Development Project.  (It is interesting to note that Prachanda is the Vice Chairman of the LDP.) APECF was also to begin a survey for construction of a direct fast railway link between Kathmandu and Lumbini as part of the LDP. According to Nepalese media, the $1.5 billion first phase of the project includes construction of an international airport and a fast track railway. The project also includes the construction of five star hotels, convention centres, new highways, Buddhist temples and a Buddhist university.

China's trade with Nepal had been growing fast, although it is overwhelmingly weighted in favour of China. In 2010-11 bilateral trade was at Nepal Rs 45.63 billion although Nepal exported goods worth only N Rs 746 million. But as Tibet develops further the two-way trade would flourish further when multiple communication links with Nepal are completed.

Thus as India-China relations get more complex we can expect China's multifaceted involvement in Nepal will also to increase in form and content. And as Chinese land and rail links improve with Nepal, its strategic options against India will also multiply. So India will have to fine-tune its relationship with Nepal to be more responsive to changing dynamics of strategic environment, drawing upon the advantages it enjoys and try to overcome the latent anti-Indian sentiment. This is the reality.

During Nepal's period of political instability from 2006 to 2011, despite occasional glitches India had wielded its influence carefully and positively to ensure the peace process is not derailed. In appreciation of this, Bhattarai on the eve of his recent visit wrote, "India played a positive role in the peace process in Nepal, and during our transition towards democracy. My visit [to India], at this juncture when we are at the last stage of completing the peace process, assumes special significance." This probably reflects the growing realisation in UCPN-M how Indian influence could be useful to achieve win-win results in stabilising democracy.

India has also reciprocated this welcome change in the attitude, during the October visit of Bhattarai with the signing of two agreements with Nepal. The Bilateral Investment Promotion and Protection Agreement was a long awaited one; it would smoothen and encourage the flow of Indian investments in Nepal.

Bhattarai had apparently chosen to ignore the objection of hard line faction of his party in signing the BIPAA as evident from the black flag wielding party cadres who greeted him on his return to Kathmandu. However, many analysts in Nepal consider this development as success of the country's economic diplomacy. The other agreement relates to extension of $250 million Dollar credit line from EXIM bank of India on highly concessional terms (1.75% interest with repayment in 20 years). This will be used to finance infrastructure projects including highway, bridges, railway, irrigation, hydro-power etc. Bhattarai had called this development as historic and a major step towards removing distrust in the bilateral relations between Nepal and India.

More important from Indian security point of view, both countries have agreed to check cross-border crime including smuggling of fake currency into India, which had been a major cause for concern to India.

India has also agreed to facilitate the speedy execution of construction of roads, rail and Integrated Check Posts along the border areas of Nepal and India. Hiccups in trade and transit issues are also scheduled to be discussed at the ministerial level. India has also agreed to the use of Vishakapatnam port to facilitate Nepal's third-country trade. It has also conceded Nepal's demand for importing 200 MW of power from India.

These developments are strategically significant. It would also demonstrate India's abiding interest in ensuring political stability in Nepal and help its neighbour to take the peace process to its logical end. In the current state of India-China relations when both countries are focusing on positive aspects rather than dwell on contentious issues, a stable Nepal should be welcome to China also. However, both countries cannot afford to ignore strategic imperatives in their policy perceptions; this would mean continuation of their efforts to further their influence in Nepal.

The importance of steps now taken by India and Nepal to strengthen their relationship would be taken note of by China. Coming in the wake of two Indian strategic initiatives - signing a strategic partnership agreement with Afghanistan and strengthening strategic security relations with Vietnam -- it sends a strong signal that India is taking significant measures to strengthen its strategic relations with Nepal.

(Col R Hariharan, a retired Military Intelligence specialist on South Asia, is associated with the Chennai Centre for China Studies and the South Asia Analysis Group.)