Recently, a number of countries around the world have engaged themselves in promoting mutual economic cooperation. A case in point is the Trans-Pacific Partnership arrangement among a dozen countries in America and Asia along the Pacific Rim. China has increased its parleys with the East Asian counties in its neighbourhood and with other countries abroad. Recent meetings among leaders from China, Japan and Korea in Seoul; a meeting between the Chinese President Xi and the Taiwanese President Ma in Singapore, and the historic visit of the Chinese President to the UK are a reminder that countries, whether small or large, are engaged in promoting shared prosperity.

Further, China has made a move towards pacifying its relationship with the Philippines, Taiwan, Vietnam, and Japan. China is not only extending its strategic and diplomatic alliance but also expanding corporate interest.  An example, in this reference, is that China has asked its aid- receiving developing countries to buy medicines from Chinese manufacturers as mentioned in The Economic Times.

Unlike China’s growing interest in enhancing economic ties with the rest of the world; India, a giant in the South Asian region, has been constantly rupturing relationship with its neighbours. It is even breaking traditional business ties

with its age-long neighbours like Nepal, whose people,  both those who live in the hills or the plains, share a civilisation, culture and religion with India. India’s ongoing unofficial blockade on Nepal is an example in this regard.

Economic repercussions

It has been almost two months since India imposed an unofficial blockade on Nepal. The perilous aspect of the blockade is school closure, lack of medical supplies, food and fuel, and a near halt of transportation services.  Thus, the country, that had just begun recuperating from severe earthquakes, has been badly hurt by the unrest in the southern plains in conjunction with the unofficial Indian blockade.

Since the onset of the blockade, discussions have taken place about its effect on Nepal’s economy and Indo-Nepal relations. The blockade has incurred huge costs to Nepal’s economy. An earthquake-embattled economy that merely grew by three percent last year, far below the growth rate in India and China, is further set to squeeze this year. So the continuing unrest in the Southern plains and the months-long Indian blockade warrants a grave concern for Nepal’s growth and development. Almost all development projects have been stalled and there is a growing sense of uncertainty in future investment. Even though Nepal is losing both in the short- and long-term because of the blockade, India will also have to bear long-term consequences.

One of the hidden costs that India will have to pay in the medium- and long-term is increased smuggling and informal trade along Indo-Nepal border. Increased smuggling in the bordering areas of Nepal will not only deteriorate the governance practices in the country, but also  further sink the governance rankings of Uttar Pradesh and Bihar, which are relatively underdeveloped Indian states. In addition, indulgence in informal activities will have a long-term negative impact on the entire Indian economy.

Chinese goods

Given Nepal’s geographical situation, India’s continuous blockade implies reorientation of Nepal’s trade with China. Currently, two-thirds of Nepal’s trade occurs with India and the trade between China and Nepal is only 10 percent. China has a competitive edge over India in manufacturing products. Along with the expansion of Sino-Nepal trade, things will fast unfold in such a manner that Chinese goods will prevail along the Indo-Nepal border. Ultimately, this will not only substitute the Indian market in Nepal but Chinese goods will penetrate India’s domestic market too. Research has shown that while locally-produced goods are informally traded from India to Nepal, such trade from Nepal to India takes place on goods produced in China, Japan, Hong Kong and Singapore.

If the blockade prolongs, India’s share in formal trade will also be affected. For example, India exports medicines worth $15 billion annually. Of this, 15 percent is exported to Chinese aid- receiving economies. India is worried that its drug industry will get hurt if these economies switch to importing drugs from  China. Further, if Nepal, which accounts for nearly five percent of the share in India’s drug exports, switches to other countries, India’s drug industry will be hurt by more than a one-fifth.  Though this is just one example, there will be large repercussions of blockade in the scale and scope of Indo-Nepal trade.

Negative sum game

Indian politicians and bureaucrats should understand that strikes and blockades do not just excruciate the people of Pahadi origin in Nepal. It has taken a toll on the job of Madhesis, including a number of Indian nationals, working in the industries of various scales in the Tarai. A case in point is that Indians who remit more than $3 billion a year from Nepal to their home country are also severely affected by the blockade.

Additionally, school closures have hampered human capital accumulation throwing thousands of low-caste and middle-class Madhesis into a vicious cycle of poverty and making the life of innocent citizens even more vulnerable. These developments have negative implications even on Indians who have family ties with the Nepali populace.

One of the important points to note here is that an alienated Nepal is not even in favour of India’s strategic interest, given its long-awaited bid to secure a permanent seat in the UN Security Council. India should understand that though China is its competing partner in Asia, the latter is far ahead in global sphere. Except their individual ambitions to lead the world economy and make a  decisive presence in  matters of global interest, China and India do not share much in common. They fought a war against each other in 1962. Both seem to be waiting for an opportune time to play a dominant role in  matters of global interest. Against this backdrop, a stable and prosperous Nepal works as a firewall for these two competing emerging economies. A weaker and fragmented Nepal in the name of Madhesis and Pahadis will be riskier to India than China due to common culture, religion and family ties.

It is, therefore, not in the best interest of India to meddle in Nepal’s internal politics by imposing a blockade, which is a negative sum game. In the long run, the continuing blockade will misfire at India’s geopolitical and economic dominance in Nepal.  

Bhatta is with the Nepal Rastra Bank. Views expressed in this article are personal