Nepal today is at the frontline of a geopolitical battle. Caught between two ambitious Asian leviathans, India and China, this nation has historically maintained its sovereignty and often struggled to march from a buffer to a civilisation-linking state. Because of its strategic geography, many great powers have sought to interfere in its domestic politics, resulting in perpetual political instability and underdevelopment. Nepali leaders’ understanding of geopolitics is often shifting, and so has the style of their foreign policy orientations.

The Rana regime maintained a special relationship with British India and isolated Nepal from the rest of the world. Following its downfall, prime ministers BP Koirala and his predecessor Tanka P Acharya sought to diversify the nation’s international relations in various directions while treading on the middle path of social democracy. Both preferred strategic autonomy or non-alignment, and this policy was maintained by the Panchayat regime which came after them. The post-Panchayat regime, too, maintained democratic compatibility with India, the Western powers including the United States without undermining its ties with China, Russia, East Asia and the Middle East.

Strategic shift

Now, there is a major strategic shift in global politics affecting Nepal’s march on a tightrope between China, India and the US. The great rejuvenation of China, the return of geopolitics, the crisis in multilateralism and the surge of Covid-19 have caught the world off-guard and compelled Nepal to de-ideologise its relations to run statecraft on the basis of realism, connectivity and positive response to regional and international incentives and initiatives such as Millennium Challenge Corporation (MCC) from the US, Belt and Road Initiative (BRI) and strategic partnership with China, and connectivity offers from India.

Despite strong opposition from India and the US that China's Belt and Road Initiative is debt-trap diplomacy, Nepal and China signed a memorandum of understanding in May 2017 envisaging mutually beneficial cooperation. The selection of BRI projects has been delayed due to bureaucratic inertia, the funding modality and lack of sufficient planning. Nepal has officially decided that it wants to focus on the connectivity and energy components of BRI projects, and it has selected nine projects. All Nepali political parties have agreed to derive the maximum benefit from China’s economic ascent. Nepal is asking for grants, but China says that BRI projects would be loan-based.

In this context, MCC projects are grant-based and offer Nepal a clear strategic choice. In September 2017, the US government’s MCC and Nepal signed a $500 million compact aiming to strengthen Nepal’s energy sector, improve regional energy connectivity and improve transportation to spur growth, private investment and reduce the scale of poverty in the nation.

This compact can substantially contribute to Nepal’s development profile and is expected to open new markets, regional security and the broader global community. The first is the Electricity Transmission Project which includes the construction of approximately 300 km of high voltage power lines, the addition of a second cross-border transmission line to facilitate electricity trade with India and the improvement of power sector governance. The second is the Road Maintenance Project which aims to maintain up to 300 km of roads and incentivise the Nepal government to allocate more resources for periodic maintenance, particularly for key roads that are vital to the flow of goods and people in the country. The third project involves strengthening institutional capacity to withstand the threats of natural disasters while the fourth project involves improving standards for good governance in fighting corruption and supporting the democratic rights of citizens.

In May 2019, visiting Acting Deputy Assistant Secretary of State for South Asia at the US Department of State David J Ranz said the MCC Compact programme was one of the most important initiatives being implemented in Nepal under the US Indo-Pacific Strategy. Foreign Minister Pradeep Gyawali, upon his return from the US, clearly said that Nepal’s relations with the US have been elevated. Now, the US will not see Nepal through Indian eyes, he said. Prime Minister KP Oli has said that MCC grant has no links with the Indo-Pacific Strategy, and pointed out the need to endorse it through Parliament for it does not infringe on the sovereignty of Nepal. The Indo-Pacific Strategy is designed to create an open space for countries of the Asia Pacific region. It does not indicate Nepal joining any military alliance. Many conditions attached to it, such as transparency, rule of law, democratic governance, corruption control and aid effectiveness, fit well with Nepal’s search for prosperity, stability and happiness.

A political paper jointly presented by Nepal Communist Party Co-Chairmen Pushpa Kamal Dahal and Oli states, ‘The US has been developing new strategies in order to maintain its superpower status and global hegemony by means of a military Indo-Pacific Strategy to spread its influence in the areas surrounding the Indian Ocean and encircle and weaken China, a new economic superpower in the making’. It states that Nepal ‘cannot accept any economic or political assistance that comes by way of military strategy, but it is ready to forge partnerships in economic aid and development work with other countries including the US on the basis of mutual benefit’. Beyond doubt, the ambivalent attitude of the government on MCC does not augur well for improving Nepal-US relations in particular and international acceptability in general.

Modernising statecraft

The US multi-sectoral assistance to Nepal and economic, diplomatic and strategic partnership can help it to escape from dept traps and aid dependence, avoid the pitfalls of Sino-Indian hegemony like Lipulekh, contribute to the modernisation of the state and society, and enhance the nation’s independent foreign policy manoeuvres. This is why many times the US government has suggested to Nepali leaders to become patriotic and pursue an independent foreign policy. The nation has to focus on modernising statecraft and prepare crisis responsive leadership imperatives.

Nepal’s foreign policy effectiveness rests on how well it balances the cross-pressure of neighbourhood geopolitics and seeks a larger space such as the non-aligned movement, the US, the EU, the UN, international financial institutions and international regime, maximises leverage, reaps investment benefits, and projects national identity and status.