In October 2019, right after meeting Prime Minister Narendra Modi in Mahabalipuram, India, the Chinese President Xi Jinping flew to Nepal and signed more than a dozen agreements on transport, connectivity, investment and infrastructure, including hydropower projects.


Nepal has seen increasing engagement with China over the years, especially since 2008 when Chinese investments in Nepal picked up, superseding Indian investments in 2014. In 2015-16, almost half (42%) of all Foreign Direct Investment (FDI) in Nepal originated from China. Also, Chinese investments have largely concentrated on infrastructure and energy projects, especially since Nepal signed up for the Belt and Road Initiative (BRI) in 2017, and the latest round of Sino-Nepal deals continue to be on the same lines.


However, despite the absence of the novelty factor, India should be concerned.These developments are concerned with connectivity and water resources – areas where India-Nepal engagements are rather poor. They also call upon India, who looks at South Asia as its traditional sphere of influence and whose current government has been harping on its “Neighbourhood First” policy, to revamp and reinforce its involvement in its neighbourhood.


Nepal’s tricky geography and untapped waters


Nepal is a landlocked country, situated in the Himalayas. It is sandwiched between India and China, two great civilizational, political and economic powers of Asia. Naturally, Nepal’s economy and politics are largely influenced by these two powers. Together, India and China account for more than 75% of Nepal’s imports and 60% of Nepal’s exports. Nepal’s foreign policy,while largely based on neutrality and non-alignment, also features balancing its relations with India and China. 


Nepal is bordered by India on three sides (west, south and east) and has been culturally, historically, socially, and for a long time, economically, closer to India than to China.However, in the past few years, especially after the economic blockade of 2015, Nepal’s engagements with China have notably increased.

Being landlocked, Nepal does not have direct access to sea trade routes. Being surrounded by two enormous countries has effectively blocked out geographical connect with other countries or regions. Nepal is blessed with natural beauty, fertile soil and abundantly flowing perennial Himalayan rivers.However, its challenging topography, among other things, has rendered utilisation of its natural resources to the benefit of its economy rather difficult. Hence, Nepal continues to be a low-income country.


From the point of view of water resources, Nepal lies entirely in the Ganga river basin. It is the upper riparian to the basin and all of its major rivers – Mahakali/Sharda,Karnali, Gandaki and Kosi–join the Ganga.Nepal’s rivers contribute 46% of the flow of the Ganga; in the lean season, their contribution can go as high as 75% - crucial for maintaining the flow of the Ganga, whose waters are abstracted extensively for agricultural and other purposes across northern India and western Bangladesh.They also have high, yet untapped, hydropower and navigational potential, which can meet the energy, trade and transport needs of northern India and, in turn, connect Nepal to Indian markets and the sea. However, neither Nepal has been able use its upper riparian status to dominate India, nor India has been able use its economic and political strength to make optimum use of Nepal’s resources.


The poor state of transboundary water cooperation between India and Nepal


Recognising the need to cooperate on shared rivers, India and Nepal have signed bilateral agreements on the Kosi, Gandak and Mahakali rivers. The scope of these agreements is limited to irrigation and hydropower with no provisions to develop transboundary waterways for trade and transport. They also do not address issues of shared groundwater, water quality, ecological conservation, joint socio-economic development of riparian communities, heritage conservation, environmental flows and climate change.


Moreover, delays in implementation of the provisions and projects under the treaties, especially those on the Kosi and Mahakali, has been a major issue, the primary reason for it being the inability of both countries to trust each other and agree on the terms of reference. While the Mahakali river basin has been long deprived of the socio-economic benefits, which the treaty promises, poor water cooperation and faulty infrastructure in the Kosi river basin have exacerbated the flood situation in southern Nepal and Bihar, leading to colossal destruction of human life and property. The nature of the agreements has also caused much resentment among people on both sides of the border, each claiming that the other side has benefited more at their cost.


Making Nepal “land-linked” – China steps up


While India and Nepal have continued to struggle to establish trust and meaningful cooperation, China has extended its hand to Nepal. In his visit to Nepal last month, Chinese President Xi Jinping’s declaration of transforming Nepal from “landlocked to land-linked” has been welcomed enthusiastically across the country. This declaration is backed by a number of connectivity projects including a Sino-Nepali railway link and upgrading the Arniko highway that goes all the way up to the Nepal-China border.


From a geographical point of view, China is not as well placed as India to connect Nepal to global trade routes, especially sea routes, and that too, through rivers (water routes, both sea and river, are more economical and profitable than land routes). The topography is such that it is not as favourably positioned as India to benefit from Nepal’s enormous and untapped hydropower potential. China will also have a long way to go before it gains the cultural and social rapport that India shares with Nepal.


And yet, despite the odds being stacked in India’s favour, it is China that is making headway into Nepal’s energy, trade and infrastructure sectors. It is China that is opening global trade routes to Nepal. Not underestimating the importance of soft power, China has also proposed to pay salaries of Mandarin teachers in Nepali schools in order to promote its language and culture in the country. China has understood Nepal’s two principal needs – access to global trade routes to develop its economy, and access to foreign direct investment to graduate from a low-income country to a low-middle income country by 2030 – and has responded to them by aligning them with its own ambitions and the strength of its resources, and rock solid implementation.


Revamping water relations with Nepal – India must take lead


India’s focus needs to move from maintaining the inherent strengths of its relations with Nepal to augmenting them. By establishing trade and navigational facilities on sharedrivers, India can connect Nepal to its northern markets, Bangladesh as well as the Bay of Bengal. This will not only address Nepal’s connectivity needs, it will also ameliorate India-Nepal relations and go several steps further in integrating the economy of the neighbourhood.


The first step for this would be (re)establishing transboundary water cooperation among the two countries. Currently, transboundary water cooperation between India and Nepal – much like across South Asia – is narrow in scope, riddled with distrust, and poor in implementation. Revamping existing bilateral agreements to address these three drawbacks and include, inter alia, trade, navigation, tourism and joint socio-economic development is the need of the hour. A trilateral agreement involving Bangladesh as well would provide further impetus to trade between the three nations, and especially in the northern, eastern and north-eastern regions of India, which currently lag western and southern India in terms of economic development.


The Modi government, which came to power in 2014, is certainly taking steps in this direction. It fast-tracked the Pancheshwar project in 2014 and in 2018, announced the development of inland waterways for trade and “providing additional access to sea for Nepal.” However, it took almost one-and-a-half years for the Modi government to allow Nepal access to three water routes on the Ganga river “in principle”, just before Xi Jinping’s visit to India last month. Construction on the Pancheshwar dam, meanwhile, continues. Clearly, India needs to do more and better.


Realistically speaking, India cannot beat China in terms of funds, advanced R&D and technology, and project implementation for now. However, its techno-centric and divisive outlook towards rivers misses out greatly on the diplomatic value – or ‘soft power’ – of the rivers it shares with Nepal and other nations of South Asia. Even if one were to take Pakistan out of the picture, India has still missed out on establishing strong, trustful ties with its neighbours through leveraging shared rivers, and the shared economic, historical, environmental and cultural systems that go with them, by a mile.


If the “Neighbourhood First” policy of the current government is to bear fruit, active hydro-diplomacy too must feature among India’s actions. In a scenario dominated by multiple water crises and climate change, building trustful relations among the neighbouring nations on the foundation of water cooperation will go a long way in cementing India’s influence in South Asia. This, in turn, would be key if India is to realise its ambitions of rising as a formidable power in Asia and beyond.


Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the view of Manipal Advanced Research Group.