Fast Lane to Kathmandu

IN A ‘TRADITION BREAKING’ incident, Nepal’s Prime Minister KP Sharma Oli embarked on his maiden official visit after assuming power in July. Unlike his predecessors who generally made New Delhi their first stop, Oli visited China. Oli and his 87-member delegation held meetings with Chinese President Xi Jinping as well as Premier Li Qiang. The visit was perceived by some as a strategic ‘pivot’ in Nepal’s foreign policy—an apparent shift from India to China. A total of 12 agreements and Memorandums of Understanding (MoUs) were signed between the two countries—on trade, infrastructure and people-to-people ties. While the joint statement made only a passing reference to the Belt and Road Initiative (BRI), the two sides separately signed a framework cooperation agreement on the connectivity initiative.

Seven years since the signing of the first framework agreement, BRI projects in Nepal have been in a state of limbo. Initially, 35 projects were earmarked for development under BRI but the number was brought down to nine on China’s insistence. Over the years, concerns about the funding modality for the projects and Nepal’s reluctance to sign the implementation plan, in tandem with the frequent change in governments, pushed the projects under BRI to a stalemate. Since the current government came to power in July 2024 it has been under pressure to sign an agreement related to BRI. But the composition of the ruling coalition, which has the Communist Party of Nepal (Unified Marxist-Leninist), or CPN (UML), in partnership with the Nepali Congress (NC) made any progress difficult. It is in this context that the signing of another framework cooperation agreement on BRI is significant.

Before Oli’s departure, the ruling coalition formed a joint taskforce to garner consensus and prepare an agreement on BRI which could be taken up during his visit. In a pre-departure meeting, Oli also stated that Nepal would not sign any loan agreements during the visit and refuted rumours about a possible strain in the coalition because of disagreement over BRI. The new agreement was signed a day after the release of the joint statement. Aimed at accommodating Nepal’s existing reservations, the two sides formed a middle ground regarding the funding for BRI projects. While Nepal wanted the text to include “grant financing cooperation modality”, China was in favour of adding only “assistant financing modality”. The final agreement included “aid assistance financing” in order to address concerns about Chinese loans with high interest rates. The decision regarding whether a project would be eligible for a grant or a concessional loan, with interest rates in line with those of other multilateral institutes, would vary on a project-to-project basis. For Nepal this ambiguity allows flexibility in terms of the kind of funding it would want to avail. As per officials from the prime minister’s office, confusion about which projects fall under BRI, and which do not, will also no longer be an issue as henceforth all Chinese projects will be under BRI cooperation.

The text of the agreement included the following projects under the infrastructure-development programme for joint implementation—the Tokha Chahare tunnel road, Hilsa Simkot Road Project, Kathmandu-Khandbari Road, Kimathanka Bridge, and Integrated Check Post Project, the cross-border railway project from Rasuwagadhi to Kathmandu, the Amargadhi city hall project, the Jilong-Rasuwagadhi-Chilime 220 KV Cross Border Power Transmission Line, Madan Bhandari University of Science and Technology, Kathmandu Scientific Center, China-Nepal Scientific industrial park, sports complex, etc. Most of these projects were already included in the nine originally listed under BRI.

The success of the coalition in reaching a consensus also signifies a major departure from the political brick-batting that generally characterises decision-making in Nepal. The chief adviser to the prime minister explained how the two countries had been discussing the signing of the agreement since 2020 and the final document was presented to China only after both parties had accepted the document. This accommodative approach on both sides, while still quite nascent and susceptible to breakdown, does indicate a consensus-building outlook towards tackling contested issues. China also understood the need to address some Nepali concerns in order to move the BRI boat forward. Last year as well during then Prime Minister Prachanda’s visit to Beijing, the two sides had agreed to sign the implementation plan at an earlier date. This was again reiterated when the then foreign minister visited Beijing in March 2024 after the rejig in the coalition government. But no progress could be made.

The two sides also signed MoUs on trade and economic cooperation, financial and technical assistance, deployment of Chinese-language teachers and on exchange of communication technologies between the two countries. China also assured Nepal of more investment and the two prioritised the promotion of tourism in the coming years. The two sides also agreed on joint inspection of borders and expediting the signing of the boundary management system along with cooperation in law enforcement. Nepal also reaffirmed its ‘staunch’ support for the One China Principle and extended support to China’s efforts towards reunification, while firming up its stance against stopping any ‘separatist’ activities on Nepalese soil, a gradual hardening of its posture.

As Nepal balances its ties with both New Delhi and Beijing, it is imperative for India to adopt a more proactive approach in its dealings with Kathmandu. In the last year the two sides have expanded their cooperation in the energy sector but the longstanding issues regarding the trade deficit and border issues, etc have continued to cast a shadow on the bilateral relationship. While Oli and Prime Minister Narendra Modi met on the sidelines of the UNGA event in September, there has been no comprehensive bilateral engagement between the two sides since the new government’s return to power, apart from the meeting of foreign ministers.

For India, China’s growing influence in Nepal is a cause of concern and raises both security and strategic considerations. While the signing of the framework agreement does not signify an immediate progress in the implementation of the projects, the consensus over funding does provide some clarity. Thus, any progress in Chinese-aided infrastructure development in Nepal consequently raises India’s risk perception owing to its open border with Nepal. Moving forward, it will be interesting to see whether the agreement facilitates the quick signing of project-specific implementation agreements and whether there is consensus over the type of funding.

India-Nepal relationsKP Sharma OliNepal-Chinastrategic concernXi Jinping