Last month, the Nepal Rastra Bank announced that it will not circulate new currency notes before the Dashain celebrations this year. Although the decision has understandably dampened public mood during the festive season, it has probably avoided unnecessary irritation in Nepal’s strained relations with its southern neighbour.

A few months before being ousted from power, the Maoist Prime Minister Pushpa Kamal Dahal’s cabinet had instructed the central bank to publish Nepal’s new political map in its currency notes. It is interesting that the new government, which has decided to sit on the decision, is led by CPN-UML leader KP Sharma Oli, who had led the constitutional amendment to include the disputed Kalapani region (extending to Lipulekh and Limpiyadhura) in Nepal’s new political map.

Much has changed since Oli’s aggressive posturing in 2020, which created tensions between Kathmandu and New Delhi. Nepali Congress, which had protested the decision but remained helpless in stopping the two-third majority communist government from amending the constitution, is now a coalition partner in the Oli government.

It is pointless to discuss why Prime Minister Oli, in his earlier capacity, overzealously exercised brinksmanship, which he is now trying hard to play down. It is also pointless to speculate why the Nepali Congress, despite protesting against Oli’s unilateral move, ultimately gave into the diktat of the two-third majority communist government during the parliament voting. That’s just politics, and parties act in their own interest. What should be of interest at this point is: Why is Comrade Oli going back on his brinksmanship? We need to zoom out and look at the goings-on in the region for an answer.

Détente in the Indo-Pacific

A few months back, in my opinion piece for this daily, I argued that a gradual détente in the Indo-Pacific is inevitable, which will significantly impact South Asia. The competing interests of India and China have polarised the region, with the United States firmly allying with New Delhi and other Asian powers to contain Beijing’s growing footprints in the Indo-Pacific.

With Beijing’s Belt and Road Initiative taking aggressive strides in the last decade, Washington forged the Quad alliance with Japan, India and Australia to keep the Indo-Pacific ‘free and open’.

However, tensions escalated, leading to several border skirmishes between India and China in the last five years. There was also aggressive posturing between the Japanese and Chinese forces in the East China Sea, with the United States also engaging in a diplomatic war of words with Beijing over Taiwan. China also intensified its disputed claims over the South China Sea in the past few years, leading to diplomatic tensions with the Philippines, a key US defense ally.

While the Indo-Pacific was increasingly becoming volatile, Russia declared ‘special military operations’ against Ukraine in February 2022. Two and half years later, it has escalated into a full-blown war, threatening to destabilise the entire continent. To make matters worse, Israel’s attack against Hamas in the Middle East has killed over 50,000 Palestinians, many of them innocent civilians. Tel Aviv is now entering into a dangerous conflict with Hezbollah inside Lebanon. This will increasingly put pressure on the United States, which has been providing military and diplomatic support to Israel.

The Biden administration is so stretched between Ukraine and the Middle East, diplomatically and financially, that it has neither the money nor the muscle to flex in the Indo-Pacific for now. Beyond routine military exercises and Quad meetings, Washington will continue to try to de-escalate tensions in the region. The approaching US elections will also allow Biden and presidential candidate Kamala Harris to zoom out from this region.

This offers an opportunity for both China and India to de-escalate tensions in South Asia and instead focus on economic engagements that looked promising a decade ago. It helps that there have been no skirmishes along the Indo-China ‘Line of Actual Control’ in the last year. The Chinese economy has not fully recovered from the post-Covid impacts, especially the tech and real estate crises. Although the Indian economy is doing much better, it should invest more in strengthening productive sectors rather than unnecessarily bloating defense spending. Even if there isn’t sufficient incentive for the belligerent neighbours to collaborate at this point, taking a strategic time-out seems in the interest of both sides.

Stalemate in South Asia

Despite larger developments in the region, the current geo-political landscape in South Asia is being shaped by domestic churnings within countries like Bangladesh, Nepal, Maldives and Sri Lanka. Both New Delhi and Beijing have, at some point, burnt their hands in trying to micro-manage these countries where each political block is looking to maximise its own domestic interests. Political parties in these countries have smartly played India and China against each other to consolidate their hold over power.

Take, for instance, Oli of Nepal and Mohamed Muizzu of the Maldives. Both had riled up anti-India sentiments to gain power but now seem willing to collaborate closely with New Delhi. However, both leaders will continue to use China to extract further leverage in their negotiations vis-à-vis New Delhi. It is not a coincidence that Nepal’s finance minister expressed his government’s commitment to deepening partnerships with Beijing this week, while his boss Oli met the Indian counterpart on the sidelines of the United Nations General Assembly to mend ties.

With India’s favourite Hasina government dethroned, New Delhi will be measured in its engagements with the interim government in Dhaka, and equally wary about the new government that will eventually come to power. And despite communist Anura Dissanayake winning a landslide victory, Beijing will not find a willing ally like Rajapakshas in Colombo. This effectively puts Beijing and New Delhi’s competition in South Asia at a stalemate for now, where no side is likely to emerge in a pole position.

It is not an ideal situation for the countries in this region, as they could be caught blindsided while trying to walk a diplomatic tightrope. Sri Lanka’s economy is still perilous, while Bangladesh is recuperating from a violent political uprising. Nepal has invested billions in its hydropower sector to sell it to power distributors in India and export further to Bangladesh. These three countries signed a trilateral agreement last week, allowing Nepal to sell 40 megawatts of electricity to Bangladesh. The Maldives is also in a difficult economic situation, and a Sri Lanka-like crisis could jeopardise its domestic political stability. None of these countries can afford to get caught in a geopolitical ping-pong between the two nuclear powers.

The prospects of de-escalation in the Indo-Pacific are real, but South Asia will face the consequences if the present crisis in the South China Sea is not managed. India’s insecurity of being encircled by ‘hostile’ governments in the neighbourhood will only increase if China reignites border tensions. In such a scenario, the political and economic costs of diplomatic miscalculations could be very high for smaller South Asian countries.