Nepal’s fight for independence under giants

Nepali Prime Minister KP Sharma Oli made a four-day visit to China starting 2 December after taking office in July 2024, breaking from the tradition where newly appointed prime ministers typically visited India on their first state visit. This is seen as both a pressure tactic and a demonstration against India, as well as a diplomatic victory for China. Yet, the reality is far more complex.

Nepal’s India focus

Regardless of who serves as Nepal’s prime minister, and no matter their personal feelings toward India, they must prioritise India in their foreign policy because Nepal relies heavily on India in numerous key areas.

One, Nepal’s economy is heavily reliant on India. Due to geographical constraints, about 80% of Nepal’s foreign trade and nearly 100% of its strategic resources like petroleum products, transit through India. At the same time, India also accounts for approximately 65% of Nepal’s total foreign trade.

Two, Nepal is also highly reliant on India for military security. Following the peaceful liberation of Tibet in 1950, Nepal — which borders Tibet and had little knowledge of the newly established People’s Republic of China — signed the Treaty of Peace and Friendship and accompanying letters with India out of geopolitical concerns, seeking security protection. But the price was that Nepal’s security matters had to be addressed with India, and this treaty remains in force.

Three, Nepal is also highly dependent on India socially and culturally. Nearly 90% of Nepal’s 30 million people are Hindus. Both countries share similar languages and scripts, allowing for seamless communication between their peoples. Citizens of both countries can travel and work freely in the other without any documentation; there are currently about three million Nepalis residing in India.

Influence of India

India, considering itself a successor of the British empire, has always seen South Asia as its sphere of influence and “backyard”, not to be interfered with by other external powers. To more effectively influence or even control Nepal, India had previously funded the Nepali Congress — currently the largest party in the country — and supported the Madhesi people in Nepal. The Madhesis reside in Terai bordering India. Madhesh province has been fighting for independence since 1947 but it has always been rejected by successive Nepali governments.

Since gaining independence from British rule in 1947, India has focused on reasserting its leadership in the India-Nepal relationship. However, after India’s annexation of Sikkim in 1973, Nepal, wary of experiencing a similar fate, strengthened its ties with China.

In 1989, India imposed an economic blockade against Nepal over the latter’s import of weapons from China, nearly crippling the Nepali economy. This forced Nepal to sign a new transit treaty with India, re-establishing Indian dominance over their relationship.

Since 2008 when monarchy was abolished and the country became a republic, Nepal has seen 13 different governments. India has always distrusted Nepali governments formed by so-called pro-China parties such as the Maoist Centre, the Communist Party of Nepal (Unified Marxist–Leninist), and other Communist Party of Nepal factions.

In 2015, a serious confrontation arose between India and Nepal over the Madhesis’ representation in Nepal’s new constitution, leading to a 135-day India blockade of Nepal. Nepal ultimately succumbed to Indian pressure, and tensions somewhat eased between July 2021 and December 2022 when the pro-India Nepali Congress party ruled the country. However, the strategic mutual trust between both countries had already been severely damaged. Thus, Nepal has no choice but to maintain a special relationship with India, recognising India’s substantial regional influence.

Tug of war between India and China

Oli, a core leader of the Communist Party of Nepal (Unified Marxist–Leninist), was in office during his second term as prime minister during the 2015 Nepal-India confrontation. Oli sought to transform Nepal from a landlocked country into a land-linked one through leveraging the Belt and Road Initiative (BRI) to reduce its excessive dependence on India.

In March 2016 during Prime Minister Oli’s visit to China, the two countries signed the China-Nepal Transit and Transport Agreement. In 2017, China and Nepal signed a BRI memorandum of understanding (MOU). In September 2018, China and Nepal signed an agreement allowing Nepal access to Chinese ports such as Tianjin, Shenzhen, Lianyungang and Zhanjiang. In October 2019, President Xi Jinping paid a state visit to Nepal and upgraded the China-Nepal relationship to one of strategic partnership.

To stem the growing China-Nepal relationship, the Indian government increased its punitive measures against Nepal. Since 2021, India has refused to purchase electricity from Nepal that involves Chinese investment, and forbade such electricity to transit through India to Bangladesh. India also banned civilian flights to Pokhara Airport from passing through its airspace, causing the airport to suffer financial losses. Starting from 2024, India restricted imports from Nepal of any products containing Chinese components.

Since taking office as prime minister in late July of this year, Oli has repeatedly requested to visit India, but was refused each time. It is evident that Oli’s decision to break diplomatic convention by visiting China first is a second-best option, rather than a top choice.

Nepal’s founding king, Prithvi Narayan Shah, once likened Nepal to a “yam squeezed between two giant boulders”. When China-India relations deteriorate, Nepal faces the dilemma of choosing a side between its only two neighbours. When China-India relations are friendly, Nepal worries about becoming a bargaining chip in the interests of China and India. Amid the intensifying strategic competition between China and the US, the latter has begun paying attention to Nepal, seemingly giving Nepal a third option which Nepal has tried to seize.

US joining the game

In July 2017, Nepal signed a BRI MOU with China, and in September of the same year, Nepal signed a compact with the US Millennium Challenge Corporation (MCC).

In February 2022, during the pro-US and pro-India Nepali Congress party’s governance, Nepal’s parliament passed the MCC Nepal compact and its supplementary agreements. According to the compact, MCC will grant Nepal US$500 million over five years, while Nepal will contribute US$197 million as “matching” funds to construct or improve roads, and establish approximately 300 kilometres of power transmission lines within Nepal.

The intent to counter China with this aid is evident. Since then, successive Nepali governments have stated that they would only accept grants and not loans from China, which caused delays in the progress of nine BRI projects between China and Nepal. Consequently, strategic trust between China and Nepal was damaged.

The China-Nepal BRI framework cooperation agreement which was signed during Oli’s visit to China fudged the use of the terms donations and aid. The US-Nepal State Partnership Program military cooperation project was aborted due to opposition from both India and China.

Nepal, a small, weak country with a backward economy and poor geopolitical conditions, appears to have entered a period of strategic opportunity where it could demand benefits from three major countries simultaneously, amid the intensifying dual background of China-US and China-India strategic competition. But in reality, Nepal has fallen into a strategic dilemma where any diplomatic move could provoke retaliation and punishment from at least one major power.

Only by resolutely enduring the pain of overcoming excessive dependence on India can Nepal manoeuvre among the three major countries, and break free completely from its longstanding diplomatic predicament of walking on thin ice.