India’s Nepal Challenge, China Factor

Nepal’s Prime Minister KP Sharma Oli visited Beijing from December 2-5, 2024. This marked his first trip to China since assuming office for a fourth term. During his visit, Oli signed several agreements to significantly advance Nepal’s participation in China’s Belt and Road Initiative (BRI). This move has far-reaching strategic implications for Nepal’s relations with India. It raises crucial questions about the evolving geopolitical dynamics in South Asia. This has alarmed New Delhi to take this matter seriously. Our neighbouring countries, including Pakistan, Sri Lanka, Bangladesh, and Myanmar, are moving away from our cultural influence. Foreign powers cannot be ruled out as the potential instigators of destabilisation in these countries aimed at gaining greater leverage in the Subcontinent.

Nepal-China Relations

At the core of Oli’s visit lay the signing of the Belt and Road Initiative (BRI) Cooperation Framework. This framework seeks to facilitate Nepal’s integration into China’s extensive network of infrastructure projects spanning Asia, Europe, and Africa, which was started in 2013. Nepal joined the Belt and Road Initiative (BRI) on May 12, 2017. The Nepali delegation then attended the ‘Belt and Road Forum for International Cooperation’ in Beijing from May 14th to 15th, 2017. However, implementing these projects has been challenging due to political instability and disagreements about financing models. Prime Minister K.P. Oli’s renewed commitment during the visit indicates a more determined effort to achieve the BRI’s objectives in Nepal.

The latest agreement, signed by Nepal’s Foreign Secretary Amrit Bahadur Rai and Liu Sushe, a senior Chinese official from the National Development and Reform Commission (NDRC, ministerial-level department of the State Council), envisions enhanced connectivity through various modes of transportation, including roads, railways, aviation, power grids, and telecommunications. A key focus of the deal is to facilitate Nepal’s transformation from a landlocked nation to a land-linked one. This transformation involves infrastructure projects designed to connect Nepal to China’s rapidly expanding trade networks. These projects resemble the strategic infrastructure of the China-Pakistan Economic Corridor (CPEC), which connects western China to the Arabian Sea via Pakistan. The prospect of similar connectivity between Nepal and China raises significant security concerns for India.

Strategic Implications for India

India’s primary concern regarding the growing Nepal-China relationship is national and regional security. Infrastructure projects under the Belt and Road Initiative (BRI), such as road and rail links, could serve dual purposes—civilian and military. For instance, building transport routes between Nepal and China could, in theory, facilitate the movement of Chinese forces closer to India’s border regions. The potential for military use of infrastructure is a long-standing worry for Indian policymakers, especially given the old border tensions with China.

Another contentious issue is the Pokhara International Airport, constructed with Chinese financial backing by China Exim Bank. This $216 million international airport in Pokhara, Nepal’s second-largest city, is strategically significant for India. While it is likely to be underutilised, India is wary of the potential implications of such an infrastructure that might be repurposed for military use. This reluctance to engage with Chinese-backed projects in Nepal, such as the Pokhara airport, reflects broader apprehensions about China’s growing influence.

Furthermore, Nepal’s growing dependence on Chinese loans for these infrastructure projects—often provided at high interest rates—raises the usual suspicions about debt-trap diplomacy observed in other BRI participant countries, such as Sri Lanka. The possibility of Nepal falling into a similar debt trap increases India’s misgivings about Nepal’s future political and economic alignment.

Internal Political Dynamics in Nepal

Internally, Nepal is grappling with political divisions regarding the pace and scope of its engagement with China. While Prime Minister Oli and his Communist Party of Nepal (Unified Marxist Leninist) (CPN-UML) are enthusiastic proponents of Chinese-backed infrastructure projects, the Nepali Congress, a key coalition partner, remains chary of the financial risks involved, particularly the heavy reliance on Chinese loans.  There is widespread awareness of the precedents created by massive Chinese investments in infrastructure projects such as the Hambantota Port in Sri Lanka.

Oli’s attempts to secure grants from China for infrastructure projects were rejected, with Chinese officials proposing high-interest loans instead. Despite some attempts to reframe the agreement with terms like ‘aid’ and ‘technical assistance’, the financial model proposed by China remains a contentious issue within Nepal. The internal political friction between the ruling party and the opposition regarding the terms of the BRI agreement could hamper the smooth implementation of the projects, complicating Nepal’s foreign policy trajectory.

Implications for India’s Regional Strategy

India’s apprehensions about Nepal’s deepening engagement with China cannot be divorced from the broader geopolitical context in South Asia. Nepal is strategically located between the two regional giants—India and China—and its growing ties with China could shift the balance of power in the subcontinent. For India, Nepal’s participation in the BRI is part of a broader Chinese strategy to enhance its influence in South Asia, which is a critical component of China’s String of Pearls strategy. This strategy aims to establish a network of Chinese-controlled or influenced infrastructure projects across the Indian Ocean region, consisting of ports and strategic land routes.

India must reassess its regional strategy to address the evolving dynamics in Nepal. This could involve intensifying its investments in Nepal’s infrastructure, particularly in energy and connectivity projects, to present a credible alternative to Chinese-backed projects. Additionally, India needs to adjust its diplomatic engagement with Nepal, strengthening its ties with the Nepali people and leadership while highlighting the strategic and economic implications of specific Chinese-backed projects. India’s policy should prioritise economic cooperation and developmental assistance to counterbalance China’s growing pull.

India’s strategy should proceed through a multifaceted engagement with Nepal, encompassing diplomacy, economic cooperation, and cultural outreach since Nepal is a Hindu-majority state. While safeguarding its core security interests, India should adopt a more inclusive and collaborative approach, fostering a relationship with Nepal based on mutual benefits and respectful of Nepal’s sovereignty.

Conclusion

Nepal’s growing involvement with China presents a complex challenge for India. As Kathmandu seeks to diversify its economic ties and reduce its dependency on India, it risks getting entangled in China’s sphere of influence. Although Nepal’s government continues to argue that its relations with China are primarily economic and not military, the strategic risks for India are considerable.

To safeguard its regional influence, India must recalibrate its policies towards Nepal, ensuring that its investments in infrastructure and energy are competitive with Chinese offerings. Balancing the need to respect Nepal’s sovereignty with India’s security imperatives in South Asia won’t be easy. New Delhi must find a way to maintain close ties with that Himalayan neighbour while adapting to the region’s changing political and economic landscape, increasingly reshaped by China’s growing sway.