India, Nepal Ink Pact to Step Up Trade Ties

Syllabus: GS2/IR

Context

• India and Nepal have amended the Treaty of Transit to facilitate the movement of rail-based freight between Jogbani in India and Biratnagar in Nepal. 

About

• This liberalisation extends to key transit corridors — Kolkata-Jogbani, Kolkata-Nautanwa (Sunauli), and Visakhapatnam-Nautanwa (Sunauli).
• Aim: To strengthen multimodal trade connectivity between the two countries and Nepal’s trade with third countries.
• These new measures are expected to further consolidate economic and commercial linkages between the two countries and beyond.

Overview of India – Nepal Relations

• Shared Border: The country shares a border with five Indian states – Sikkim, West Bengal, Bihar, Uttar Pradesh and Uttarakhand.
  • Land-locked Nepal relies heavily on India for the transportation of goods and services and access to the sea is through India.
• The India-Nepal Treaty of Peace and Friendship: Signed in 1950, it forms the bedrock of the special relations that exist between India and Nepal. 
  • Nepalese citizens avail facilities and opportunities on par with Indian citizens in accordance with the provisions of the Treaty.  
• Defence Cooperation: India has been assisting the Nepal Army (NA) in its modernisation by supplying equipment and providing training. 
  • Both countries conduct Joint Military Exercise SURYA KIRAN alternately in India and in Nepal.  
  • Since 1950, India and Nepal have been awarding each other’s Army Chief with the honorary rank of General.
  • The Gorkha regiments of the Indian Army are raised partly by recruitment from hill districts of Nepal. 
• Trade and Economic: India remains Nepal’s largest trade partner and Investment where Indian firms account for 33.5 % of total FDI stock in Nepal.
  • Nepal is India’s 17th largest export destination, up from 28th position in 2014. 
  • India constitutes 64.1% of the total trade of Nepal, comprising about $8.85 billion USD (Indian FY 22-23).
    • This includes $8.015 billion USD of exports from India to Nepal and $839.62 million USD of exports from Nepal to India.
• Connectivity and Development Partnership: India is the largest developmental donor of Nepal in the field of priority sectors such as health, education and connectivity.
  • Some of the major projects include Gauchar Airport (presently Tribhuvan Airport), East West Highway, development of cross-border rail links and establishment of Integrated Check Posts. 
• Energy Cooperation: India and Nepal have had a Power Exchange Agreement since 1971 for meeting the power requirements in the border.
  • Joint Vision Statement on Power Sector Cooperation 2022: It includes joint development of power generation projects in Nepal, development of cross-border transmission infrastructure, and coordinated operation of the national grids. 
• Operation Maitri & post-earthquake reconstruction assistance: In the wake of the 2015 earthquake in Nepal, GoI was the first responder and carried out its largest disaster relief operation abroad (Operation Maitri). 
• Cultural Ties: The leaders of the two countries have often noted the age-old ‘roti beti’ relationship, which refers to cross-border marriages between people of the two countries.

Areas of Concerns between India & Nepal

• Treaty of Peace and Friendship of 1950: It was an effort to strengthen and develop ties and to perpetuate peace between the two countries.
  • As time passed, Nepal believed the treaty was asymmetrical and incompatible with the national interest of Nepal.
  • India has consistently stated it is open to reviewing the treaty “in a constructive and forward-looking manner” if Nepal desires it.
• Kalapani dispute: The area is in India’s control but Nepal claims the region because of historical reasons. The area is the largest territorial dispute between Nepal and India.
• Trust Deficit between the Both Countries: Perception in Kathmandu that India interferes in Nepal’s internal political processes.
  • India’s concerns about growing Chinese influence in Nepal’s infrastructure, trade, and political decisions.
  • Occasional political narratives in Nepal portraying India as hegemonic.
• Security Concerns: Both India and Nepal have shared security concerns, including issues related to cross-border terrorism, trafficking, and border security. 
• Perception of Unequal Relationship: Some segments of Nepalese society have expressed concerns about what they perceive as an unequal relationship with India, with allegations of economic dependence and a lack of reciprocity in the bilateral relationship.

Way ahead

• Despite these challenges and disputes, India and Nepal have historically maintained close ties and continue to engage in dialogue and diplomatic efforts to address bilateral issues. 
• Both countries recognize the importance of their relationship and are committed to finding mutually acceptable solutions to their differences while promoting cooperation and friendship for the mutual benefit of their peoples.

Source: TH