In a stunning political shift in Nepal, the Rastriya Swatantra Party (RSP), established just four years ago by the TV reporter-turned-politician Rabi Lamichhane, has exceeded all expectations and secured a landslide victory in the parliamentary election. The party’s success was bolstered by strong backing and endorsement from the rapper-turned-politician and former Kathmandu Mayor Balendra Shah, who was touted as its prime-ministerial candidate.

Nepal has long maintained a delicate equilibrium between its immediate neighbours and international partners to advance its national interests. Within a new political context, the RSP is tasked with leveraging Nepal’s geopolitical standing to catalyse socio-economic growth and reinforce the nation’s reputation as a dependable and consistent regional actor.

While the Peace and Friendship treaty of 1950 remains the foundation of the bilateral relationship between Nepal and India, the breadth of cooperation between the two countries transcends formal diplomatic frameworks and extends far beyond the often-invoked narratives of ‘Roti-Beti’ ties. Deeply rooted historical, social, religious and cultural connections and strong people-to-people ties have long been the bedrock of the solid relationship between Nepal and India. The Nepal-India relations have, over time, evolved into a multidimensional partnership encompassing various areas such as energy, connectivity, infrastructure, health, education, agriculture, trade, tourism and culture.

As foreseen in the RSP’s election manifesto, it has prioritised development diplomacy and pledged to adopt a balanced and dynamic diplomacy. This vision stresses transforming Nepal from a traditional buffer state to a vibrant bridge between India and China through tripartite economic cooperation, connectivity projects and economic partnerships. One can assume a paradigm transformation in Nepal’s foreign policy in the coming years with a sharper focus on economic goals and socio-economic partnership, especially in its relations with India. Future engagements must be rooted in pragmatism and mutual interest, marking a necessary shift away from ideological posturing and unnecessary rhetoric.

The Nepal-India relations are fundamentally symbiotic, deeply rooted in geographical proximity and economic realities. India accounts for more than 60 percent of Nepal’s total trade. Nepal is one of the profitable markets for Indian exports. Nepal’s import profile from India is diverse, spanning from essential commodities such as petroleum and gold to industrial inputs like machinery and steel. Conversely, Nepal’s exports—including electricity, agricultural goods, and a growing IT services sector—demonstrate an evolving and diversified trade portfolio.

Nepal’s imports from India continue to rise exponentially while exports remain sluggish, widening the trade deficit each year. Many factors interplay for such dismal economic performance—weak industrial base, structural constraints, non-tariff barriers, regulatory gaps, the challenges of an open border and the competitive advantage of Indian labour and markets, among others. The RSP faces a critical task of strengthening export competitiveness, pursuing pragmatic negotiations and tightening regulatory oversight to curb informal and illegal trades, for a productive, win-win trade relation.

Beyond trade, the incoming government must sustain momentum across a broader development partnership, while sustaining close ties with India. It needs to actively foster cooperation in areas such as energy, connectivity, infrastructure development, tourism growth, and meaningful people-to-people contacts. The major priority will be translating the party’s commitments on hydropower development and exports into tangible outcomes. The landmark long-term agreement to export over 10,000 MW of electricity to India over the next decade offers opportunities to harness economic gains.

With coherent policies, improved infrastructure and credible project execution, Nepal can position itself as a reliable supplier of clean energy, not only to India but potentially to Bangladesh and other regional markets. Such progress would enable Nepal to secure a stable export market while benefiting from Indian support in connectivity and infrastructure. For India, Nepal represents a dependable source of renewable energy to meet its growing energy demands. Considering the energy volatility emanating from the situation in the Gulf region, both countries can benefit immensely from deeper cooperation in this area.

Investment remains another key pillar of mutual benefit. India remains the leading source of foreign direct investment. This inflow surely significantly bolsters the Nepali economy by generating employment, revenue, market expansion, greater awareness, technology transfers and skill development. Simultaneously, Indian investors leverage Nepal’s proximity and market access, often exporting goods back to India or to international markets via Indian ports and logistics networks. However, persistent concerns continue to shape Indian investors’ plans. In this context, the incoming government must prioritise a stable policy regime, ensure investor protection and strengthen implementation mechanisms to create a predictable and business-friendly environment capable of attracting greater Indian investments.

Connectivity is also considered a vital driver of Nepal-India relations. India has supported the development of cross-border transmission lines, ensuring a steady flow of energy and facilitating bilateral energy trade. Energy connectivity has also deepened with the operationalisation of petroleum lines from Motihari to Amlekhgunj and its extension towards Chitwan. Further, cross-border rail links connecting Raxaul-Birgunj, Jayanagar-Janakpur-Bardibas and Jogbani-Biratagar, alongside plans for further expansion towards Kathmandu, reflect the physical connectivity efforts.

Digital cooperation has also made notable progress, and after the signing of the MoU on UPI integration, it will surely lead to seamless cross-border digital payments. The new government must ensure effective implementation and keep the momentum on track.

Nepal must also reinvigorate its bilateral consultation mechanisms with India, where more than 40 institutional mechanisms have been established, yet only a fraction remains productive. Diplomatic engagements with India will demand thorough preparation, technical and context expertise, and clearly defined national priorities to be effective. The incoming government must seriously and heavily invest in areas of capacity enhancement, in-depth knowledge and strategic planning.

In the security front, Nepal and India have developed a robust framework of cooperation through bilateral mechanisms, the establishment of joint committees, regular joint exercises and occasional multilateral engagements. The recently signed ‘Mutual Legal Assistance Agreement in Criminal Matters’ marks a major milestone by enabling closer collaboration in criminal investigations, evidence sharing, prosecutions, and transnational crimes like terrorism, human trafficking and fake currencies.

With a strong and stable government, the new leadership can emulate India’s development trajectory, such as digital public infrastructure, high-speed physical infrastructure, economic formalisation, balanced manufacturing-service sector growth and strong state capacity. A developed and prosperous Nepal anchored by a strong leadership is what Nepali people have always aspired for, and has equal significance for its neighbouring countries, particularly India. India’s own example demonstrates how a strong and stable government can drive transformation in domestic governance, economic progress and international image and with positive spillover effects across the wider region.