Nepal’s plan to become a middle-income country by 2030 is a pleasant but improbable prospect considering the current level of economic activities and inflow of foreign investment. Without a massive influx of foreign investment and development of large-scale hydropower and other infrastructure projects, Nepalis cannot hope to be on a par with consumers from other middle-income countries. Inviting private investment from China and India is a daunting task as they see Nepal as a market with less profit with high risks. The immediate task for the government is to help investors mitigate risks resulting from ultra-nationalistic groups and political instability. Nepal should also form an economic and strategic dialogue committee with representatives from all three countries with the special purpose of assisting investors.

China’s One Belt, One Road (OBOR) project to connect the Eurasian region by land and sea is a chance to enlarge the size of Asia’s contribution to the world economy. The Asian Infrastructure Investment Bank (AIIB), a China-led multilateral bank, is dedicated to complementing the projects surrounding the OBOR initiative. Nepal is a founding member of the bank, but it will have to work to find ways to make optimal utilisation of this initiative. Nepal has submitted proposals for five infrastructure projects to the AIIB for possible financing. Moreover, the Asian Development Bank (ADB) and the World Bank have approved $1 billion to develop the hydropower sector.

Elephant and the dragon

Against this backdrop, Nepal-China relations have become even more fragile not because they have entered into any kind of conflict but because of their proximity. This closeness has caused paranoia in New Delhi, leading China to be more cautious about moving at a fast pace. Nepal-China ties cannot be built and strengthened in an absolute vacuum given that Nepal has always been submissive to India culturally, socially and politically. This submission is a result of its complete economic dependence on the southern neighbour. In order to untangle such a complicated relationship, Nepal should work on the economic front to make Nepal-India relations economically interdependent. Chinese investment can be a complementary force to make this happen in the next one or two decades. This is where Nepal should draw lessons from China. Deng Xiaoping used to frequently cite an admonition from the Warring States period, “Hide your ambitions and build your capability.”

Having said that, India is a democratic country and it has a strong civil society and an opposition, which was vocal during the four-month-long economic blockade of Nepal. However, India’s official ‘Nepal policy’ may not change dramatically. We have seen the attitude of the Indian establishment of maintaining controlled anarchy in Nepal using various means and forces and sometimes even sympathetic investment in radical groups. Conspiracy theorists go even further and argue that the not-so-genuine groups making unrealistic demands get support from various Indian sources. Whatever that might be, the leadership should focus on managing genuine Indian security interests and feeding its regional hegemonic ‘ego’ until Nepal becomes economically sophisticated enough to host Indian migrant workers in the Tarai.

India’s relationship with China is driven mostly by paranoid security hawks’ thinking from New Delhi rather than from the perspective of trade, investment and cooperation. But China does not consider India a competitor in terms of economic and military power anymore. The only fear for China from India is the latter’s ideological proximity with the West and its soft power such as the media and civil society. Which is why there is no strong foundation for China-India cooperation in many areas. In this context, Nepal should be able to bring the southern and northern neighbours together in a common dialogue forum. “Nepal can’t be prosperous only by being close to India, it has to please India to prosper. Nepal has to win India’s heart; but do establish strong trade and investment ties with China.” This is what I hear from people who have been managing India-Nepal relations. Meanwhile, what China and India have in common in their dealings with Nepal is that both test the waters and work to get their interests served.

Striking a balance

Nepal has failed to work diplomatically with China and India. A very recent example of this is the Lipu Lake Pass episode. There was a great hue and cry from Nepal’s civil society and political parties when China and India issued a joint communiqué during Indian Prime Minister Narendra Modi’s visit to China in 2014, but the Nepal government failed to hold discussions with China and India regarding the issue of Lipu Lake and explain clearly to the Nepali people what exactly is the case. The public outrage was used for political manoeuvring by some so-called nationalist political forces, but they didn’t take any official initiatives to resolve the issue. This shows the level of diplomatic efficiency of Nepal and the political maturity of the Nepali leadership beyond nationalistic rhetoric for public consumption.

There are numerous issues to be resolved trilaterally, so it will be wise to form a dialogue forum with representatives from China, India and Nepal. There is already an Eminent Persons Group (EPG) from Nepal and India, and it should work to include China too. If the EPG feels nervous about having China on board, the government should get people with an open mind and who are driven by constructive idealism to take it forward. 

Poudel is an economist associated with ThinkIN China, Asia