If invitation to the Saarc heads of government marked the beginning of his 'neigbours first' policy, there have been some encouraging new developments to the good neighbour symbolism. The Indian budget unveiled last week allocates IRs 8,336 crore to foreign aid. The largest chunk goes to Saarc neigbhours—Bhutan, Afghanistan, Bangladesh, Nepal, Sri Lanka and the Maldives—who get a total of Rs 6,967, or more than 80 percent, of the foreign aid.

Indian officials, in New Delhi and in Kathmandu, insist the Modi swearing-in is clearly more than a photo shoot.

Unsurprisingly, Indian Minister for External Affairs Sushma Swaraj made Bangladesh her first outing. On July 25, she arrives in Kathmandu on her second foreign tour. New Delhi seems keen to ensure that these outings are more than a 'social visit'. And because high economic growth is at the heart of Modi's national agenda, it can be safely inferred that economic diplomacy and realpolitik will guide his engagement with neighbours. Arun Jaitley's new budget objective puts the growth rate at 7-8 percent.

Under Modi, New Delhi will most certainly look to mend bilateral ties with its immediate neighbours, which had come under strain during the tenure of the UPA government. And while doing so, he will have the luxury not to worry a lot about appeasing various constituencies, given his comfortable parliamentary majority.

In Sri Lanka, he is no longer under pressure, as Manmohan Singh was from the Tamil Nadu government, to vote against Mahinda Rajapaksa at the United Nations Human Rights Council, a move that many believe pushed Sri Lanka closer to Beijing. President Rajapaksa was among the first heads of government to confirm participation for the Modi swearing-in.

The UPA government cut fuel subsidies to Bhutan when it perceived that Thimphu seemed keen to deepen diplomatic ties with Beijing; there was talk of Thimphu hosting the Chinese Embassy. Many believe the Indian move was instrumental in the defeat of the previous government in the parliamentary elections in April. Under the UPA government, the Maldives terminated a 25-year contract with Indian firm GMR (which incidentally is also developing Upper Karnali in Nepal) for building and operating the Male airport.

Nepal-India partnership

So Modi is likely to prefer the idea of mutual partnerships and will be suspicious of such terminologies as "gift" when it comes to defining the new era of Nepal-India partnership projects. Trade, commerce and investments will be the hallmark of new relations. A Nepali minister who met new BJP President Amit Shah in his recent 'private' visit to New Delhi describes Modi's foreign policy outlook as "pragmatic, with mutual economic benefits at the heart of his approach."

Plans are afoot to finalise the project development agreements (PDAs) for Upper Karnali and Arun III by the end of July, though the power trade agreement (PTA) between the two countries is still some distance away.

A five-member PDA negotiating team—with joint secretaries from the Ministries of Energy, Finance, Law and Justice, and the PMO, alongside the CEO of the Investment Board, Nepal (IBN)—is working on a war footing to give final touches to the PDAs before Sushma Swaraj's arrival.

The team was formed by the Baburam Bhattarai government and though a section of the CPN-UML views this as a Maoist initiative, there has never been such broad support to fast-forwarding Nepal's investment needs for hydropower development.

The 13-member IBN Board, chaired by the PM, is perhaps the best place to observe nuances. Finance Minister Ram Saran Mahat, along with all NC Cabinet ministers, strongly support the PDA initiatives while UML Cabinet members—Minister of Energy Radha Gyawali, Minister of Industries Karna Bahadur Thapa and Minster of Tourism and Civil Aviation Bhim Acharya—have often sent mixed signals.

Other than the ministers, governor of the central bank and Nepal Planning Commission vice-chair are other ex officio members of the Board, which also has four private sector representatives. The Energy Minister and Tourism Minister are invitee members, who are asked to be present depending on the subjects at hand.  

Outside the government, UCPN (Maoist) leaders Bhattarai and Prachanda have also strongly backed efforts to bring in foreign investment, just as Rastriya Prajatantra Party leaders.

Potential spoiler

Among the political actors, Mohan Baidya's party, the CPN-Maoist, is the only potential spoiler. Last week, the party carried out pamphleteering in Kathmandu where it said that the Upper Karnali project was "against the national interest."

The finalisation of the PDAs will be a big step forward. And should Nepal and India agree on at least initialling it, it will be the first time a PDA agreement of an ambitious hydropower project will have been agreed upon and will set the template for similar projects in the future. As much as giving the concerned infrastructure projects a much-needed push, the PDAs will put in place an institutional framework for harnessing Nepal's vast hydropower. If Bhutan can do it, why can't we?

Both Nepal and India, however, should approach the contentious PTA, which is signed between the two governments, with caution. A good PTA is set to encourage large investments in Nepal's cash-strapped hydropower sector with assurance of Indian markets long term. Though very few, including senior government officials, have had access to the closely guarded document, there are already murmurs of dissatisfaction about its reported content. That without Indian consent no major hydropower project can be developed in Nepal; that the document is open-dated, meaning it will remain in effect until abrogated, much like the Nepal-India Friendship Treaty; that the Indian government is piling pressure on the Energy Minister Radha Gyawali, a KP Oli loyalist, for an early signing.

Though increasing numbers of Nepalis now realise the urgency to harness Nepal's hydropower and that water nationalism has only pushed our hydropower development back by at least two decades, it would be far wiser to put potentially contentious issues for public debate, rather than keep them hush-hush. We must take lessons from the Tanakpur fiasco when Delhi and Prime Minister Girija Koirala, in 1991, secretly agreed to permit the use of Nepali land for developing a barrage for the Tanakpur project in India. Everyone, including Koirala, ended up paying a huge political price for the bilateral deal. (see 'Price of water,' June 29, Page 6).

Though Indian sensitivities about divulging the details of the PTA at this stage is understandable, history affirms the need to take major stakeholders (most certainly the political parties) into confidence on issues related to the sharing of water resources. After all, no major hydropower projects can go ahead without broad political support. It will need careful planning, foresight and sensitivity on the part of both New Deli and Kathmandu to translate the goodwill generated by Modi's neighborliness into tangible economic benefits.