Is China Eroding India’s Influence in Nepal?

Soon after taking over as the Prime Minister of Nepal earlier this year K.P. Oli predictably made his first two overseas visits to India and China. Balancing Nepal’s relations with its southern neighbor had deteriorated significantly over the preceding years for various reasons despite India having been the prime responder in the reconstruction of Nepal following the catastrophic earthquake of 2015. On the other hand, China’s influence in Nepal has been steadily rising in tune with its recent initiatives to expand influence in South Asia in what was till recently considered India’s strategic backyard.


While PM Oli’s visit to India in April 2018 went off without any hiccups, it was marked by only the signing of three agreements on connectivity and trade and none on charting a way ahead on resolving the fundamental differences that exist between the two  A scan of the differences between the two countries reveal multiple fault lines that need immediate attention.


At the heart of emerging Nepali angst is India’s reluctance to revisit the India-Nepal Friendship Treaty of 1950 that Nepal feels is a relic of the past and compromises its aspirations of emerging as a modern state. An emerging fault line is the recently drafted Constitution of Nepal that India feels has been discriminatory against the Madhesis, who are Nepali citizens of Indian origin who comprise almost --- percent of the total population and live in areas contiguous with the Indian states of Bihar and Uttar Pradesh. There are also a few border issues that need resolution as well as further easing trade and transit facilities for Nepal as it is a land-locked country. The low point in the relationship in recent years was the alleged imposition of a coercive economic blockade by India and stopping fuel supplies after violent anti-India protests erupted in Nepal following the commencement of a Madhesi agitation in 2016. While the Indian government denied any such move and attributed the situation to truckers who refused to enter Nepal  fearing targeting by mobs, it opened possibilities for China’s entry into the country, an opportunity it has exploited since. As Chinese fuel tankers rolled into Nepal and helped alleviate the fuel shortage, these were also accompanied by the commencement of infrastructure projects to help in the post-earthquake reconstruction of the country.


An example of the speed with which Chinese infrastructure has sprung up is reflected in the recent inauguration of a brand-new campus for the Nepal Armed Forces Police. The full-fledged extensive training academy has been built by China Railway 14th Bureau Group Co. Ltd. The construction of the academy, located in Chandragiri municipality of Kathmandu, began on April 16, 2015, just few days ahead of a devastating earthquake and was handed over two years later in June 2017. A slew of other infrastructure projects are being funded by Chinese which include highways, bridges, railway lines, an international airport at Pokhara, dry transmission lines and hydroelectric projects. This close emerging relationship between the two countries was cemented by PM Oli when he signed eight agreements during his recent visit to China that followed his visit to India.


According to a Gateway House report, Nepal runs the risk of being overwhelmed by Chinese investments and falling into a debt trap of the kinds that Sri Lanka and Maldives are experiencing after allowing massive Chinese investments in their respective countries. Another interesting aspect brought out in the report is that the prevailing open border between India and Nepal offers potential for the smuggling-in of cheap Chinese consumer goods as they flood Nepal.


Clearly, India has its task cut out in recalibrating relations with Nepal in the backdrop of massive Chinese FDI in Nepal, which constitutes over 60% of the total investment in Nepal for the six months ending Jan 2018. With a little over 30 %, India lags a distant second and has to emerge with fresh strategies to counter expanding Chinese influence in Nepal.