In his book The India Way, S Jaishankar, the Minister of External Affairs of India, writes, “What defines power and determines national standing is no longer the same. Technology, connectivity and trade are at the heart of new contestations”. The prescient statement is apposite for all countries in this digital 21st century. All three factors—technology, connectivity and trade—are intertwined and serve as enablers for a country's progress. The Prime Minister of Nepal Pushpa Kamal Dahal travelled to India on an official visit from May 31 to June 3. During the visit, a slew of memoranda of understanding (MoUs) was exchanged between the two countries. In addition, six projects covering trade, energy, physical infrastructure, technology and connectivity were launched. However, the swelling role that technology and the digital economy is to have soon will compel the government of Nepal to accentuate and familiarise itself with the fast-paced advancement of technologies.

Digitalisation of IR

Technology penetrates every sector, and diplomacy is enmeshed in it. Four key points highlight the interconnectedness of geopolitics and technology in the Nepali context. First, the Nepal Clearing House Limited and National Payment Corporation of India signed an MoU on cross-border digital payment, which steers bilateral relations towards financial connectivity. The digital integration between Nepal and India will be facilitated by integrating India's Unified Payments Interface (UPI) and Nepal's National Payments Interface (NPI).

Indian currency notes of Rs500 and above are illegal in Nepal, and India is Nepal's primary trading partner. Hence, financial digitalisation deems practical as it will reduce the need to carry cash, help formalise, and ease the payment process between travellers of the two countries. This bilateral visit was paralleled by an MoU signing ceremony between FonePay (F1soft) and LankaPay to enable seamless financial interoperability and payment between the citizens of Nepal and Sri Lanka. These two MoU exchanges showcase the importance of digitalising payment with foreign countries.

Second, Nepal can accrue economic benefits through the ICT sector, using technology as the next frontier to make up for the deficiency of being a landlocked country. Nepal is burdened by thick borders due to weak connectivity (road, rail, energy) and poor physical cross-border infrastructures, although there has been some progress. Furthermore, Nepal is surrounded by two major manufacturing countries, making it difficult for Nepali products to compete with Indian and Chinese products globally. Information and Technology (IT) service export do not have to deal with the hassles like inadequate cross-border infrastructure and delayed clearance time, common challenges encountered at border crossings. Thus, the idea of borderless and weightless trade surfaces with IT services export at the heart of it. In the recent budget session held on May 29 (Fiscal Year 2022-23), the Finance Ministry waived off the minimum threshold for foreign direct investment (FDI) in the IT sector and slated a 50 percent tax relief for business process outsourcing (BPO) companies exporting their services. These adjustments in the budget could boost the IT service export.

Third, cross-border data flows (CBDF) in South Asia have facilitated Bangladesh's ICT exports over the past five years, doubling to $1.4 billion in 2019-20. However, the issue of CBDF has emerged as one of the most crucial factors in international trade negotiations. CBDF not only focuses on trade but is also measured by citizens' protection, human rights, national security and law enforcement. Optics have legitimate concerns regarding regulating CBDF; unregulated data flow can compromise citizens' privacy and national security, hence their push for data localisation. Conversely, regulated and restricted data flow can dampen the economic benefits countries have gained through IT exports. The data flow regime followed by the European Union (EU) is General Data Protection Regulation (GDPR), to protect individual data while simultaneously making it as business-friendly as possible. The other data flow regime is Personal Information Protection Law (PIPL), with stringent data export requirements. There is not much discussion among Nepali lawmakers to weigh the costs and benefits of which school of thought is favourable and safe for Nepal. The paragraph has briefly highlighted only a few aspects of the complexity of CBDF.

Finally, in the era of Industry 4.0 and impending Society 5.0, high internet speed has become a basic necessity for most individuals. A World Bank report mentioned, “While the costs of international bandwidth have decreased over time, landlocked countries still pay exorbitantly high prices for international links with poor resilience.” As a landlocked country, Nepal depends on most of its broadband connection from the sea-bounded India, as most countries access the internet through an intercontinental network of submarine cables. Nepal’s Internet Service Provider (ISP) and mobile network providers purchase their bandwidth from Indian companies like TATA and Airtel.

Nepal also imports from China, which is nominal compared to Nepal's bandwidth dependence on India. Total Internet traffic from India to Nepal is 97 percent. In 2022, there surfaced an issue of Indian companies warning to halt bandwidth from entering Nepal. Given Nepal’s limited options for international bandwidth service providers, it can diversify its options to Bangladeshi companies and revisit arrangements with Indian companies or study the cost of laying Nepal’s optical fibre cable connected to the sea. However, both options would require diplomatic skills from the Nepali side with India as the optical fibre cable goes through India.

On the domestic front, the government has decided to increase tax on fibre cable imports from 10 percent to 15 percent and impose a 15 percent excise duty on SIM cards starting from the new fiscal year. There are possibilities of Nepali ISPs hiking the prices to balance the transaction cost. Nepal has progressed well in terms of ensuring access to basic connectivity. However, access to fixed-line networks and higher-speed connectivity is limited to urban areas, and mobile networks are Nepal's primary means of connectivity. According to the Nepal Telecom Authority, internet penetration is 131 percent of the population. But fixed broadband is accessed by 33 percent of the people, while mobile broadband is accessed by 98.46 percent. In 2020, a Nepali spent 2.6 percent of their gross annual income on the Internet, as per the report produced by the International Telecommunication Union, which is higher than most South Asian countries. Affordable broadband is a prerequisite to connecting with the global economy and gaining new knowledge.

The four points mentioned above overlap technology, trade, connectivity and geoeconomics. Countries like Nepal will have to be future-ready and keep a close eye on this evolving area of the digital economy as developed countries will race to create, own and set narratives in the tech sector. Prime Minister Dahal also travelled to Indore and Ujjain, and he urged Indian entrepreneurs to invest in Nepal’s IT sector when he visited Tata consultancy services and Infosys in Indore. However, in the following official or state bilateral meet, Indian cities known for their technological heft, like Bengaluru, can also be visited to understand the tech industry further. Nepal should be in a hurry to tap into the country's current youth bulge and “demographic window of opportunity” by implementing informed and effective policies to create an enabling environment for younger Nepali citizenry to not only be part of the digital age but also to carry with them the hopes of leading it. Technology has made services more tradeable, which will help Nepal reduce its labour export and increase its service export. This will help address the current problem of youth leaving the country.