Indian FM’s Nepal Visit Unveils Deals Amidst Controversy

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A long-term power trade pact was signed. However, Indian funding for community development projects evokes concern in Nepal.

India’s Minister for External Affairs S. Jaishankar’s visit to Nepal on January 4-5 saw the two sides sign four agreements, including one on long-term power trade. Other agreements envisage cooperation in renewable energy development and implementation of high-impact community development projects. Jaishankar also handed over the fifth tranche of relief aid for earthquake victims in Jarkot in November 2023.

Jaishankar was in Nepal for the seventh meeting of the Nepal-India Joint Commission, the highest bilateral mechanism between the two neighbors. The commission is a forum to review “the entire gamut of bilateral relations.”

The Nepali and Indian delegations, which were led by Foreign Minister Narayan Prakash Saud and Jaishankar, respectively, discussed dozens of issues, including connectivity, infrastructure development, economic partnership, trade, investment, power, water resources, culture, tourism, sports, health, and education. It reflects the breadth and depth of India-Nepal relations.

Jaishankar’s visit focused on cultural and infrastructural connectivity with Nepal. “The objective of my visit is to give momentum to bilateral relations and play a positive role in expanding cultural and religious ties between the two countries,” Jaishankar said. Accordingly, he offered prayers at the Pashupatinath temple, met with Nepali cricketers, and inaugurated the Tribhuvan University Central Library, built with an Indian grant.

The long-term power trade provides for Nepal’s export of 10,000 MW of hydroelectricity to India in the next ten years. It followed earlier progress on power trade made during Prime Minister Pushpa Kamal Dahal’s visit to New Delhi in 2023. It opens various government and private entities to engage in cross-border power trade through short-, medium-, and long-term contracts.

In addition, the two foreign ministers remotely inaugurated three cross-border transmission lines.
Nepal produces 2,800 MW of power as of now. Infrastructure to generate an additional 3,300 MW is under construction. The country aims to generate 28,000 MW of power by 2035 and export almost half the amount. The production and export targets are ambitious. Even the Nepal Electricity Authority director, Kul Man Ghising, concedes that “meeting 50-60 percent of the target” would be a huge achievement. Nepal’s electricity export to India started only in May 2023. It currently exports 450 MW to India.

Nonetheless, the agreement provides a goal to work toward. Hydroelectricity export to India is a low-hanging fruit. Kathmandu needs energy exports to India to narrow the $7 billion trade deficit with New Delhi. Meanwhile, hydroelectricity imports would help India transition away from coal to clean and renewable energy at a time when global petroleum prices have skyrocketed. Significant foreign investment, especially from India, is critical to achieve the goal.

The Indian policy banning the import of power from countries with which it does not have a bilateral agreement, effectively excluding power generated from Chinese investment projects, complicates the matter. It could lead to Indian monopsony in Nepal, with New Delhi dictating the terms of power trade.

Nepal also needs clarity on its goals for the electricity trade. It must debate whether it sees power trade primarily as an economic or strategic good to extract some leverage on India-Nepal relations. If the consensus is on the former, Indian monopsony matters less. In such a case, India can develop hydropower in Nepal for India, with Nepal sharing part of the spoils. If it is the latter, then Nepal needs to be brave to diversify foreign investment in the sector as far as possible so that Kathmandu remains in the driving seat of the power trade.

Nepal should also seek a non-discrimination policy in hydropower with foreign investments, provided the market determines the rate. It will require significant political will and discipline from the Nepali leadership. This is not to suggest that there is a clear dichotomy between the two approaches, yet such clarity will help develop appropriate policy.

During Jaishankar’s visit, Kathmandu and New Delhi also agreed to increase the Indian grant assistance for the implementation of High Impact Community Development Projects (HICDPs) from $376,000 to $1.5 million per project. Nepal allowed India to spend up to $151,000 in 2003, which was increased to $376,000 in 2011 under the Small Development Project.

Such grants have courted controversy in Nepal. Analysts argue that such direct spending by a foreign country outside the formal budget influences Nepali politics and political leaders. Opposition parliamentarians criticized the decision, asserting it would open the door for Indian intervention. Dahal defended the decision, arguing that India could not implement the projects independently. He then doubled down, asking how an increase in grant amounts was anti-nationalist.

Certainly, the agreement has provisions whereby the local and federal governments identify the projects for funding and “request” Indian funds. However, it is imperative to note that the average spending of a local government, called palikas, is $2.6 million. So, any one project would amount to more than half of the palika’s entire budget, on average. It is naïve to assume that such a project would not bring about any influence or expectation, especially among the local leaders or the parliamentarians, if they want such projects in their constituencies. This is especially true because Nepal’s diplomacy lacks discipline and is weak.

Nepal’s diplomatic acumen (or lack thereof) was visible during Jaishankar’s visit. His visit coincided with that of the Chinese Communist Party’s deputy secretary of the Standing Committee of Yunnan province, Shi Yugang. According to a Nepali foreign ministry official, Jaishankar was fuming and even threatened to opt out of the commission meeting. During his meetings, he expressed his displeasure to Saud, Dahal, and Nepali President Ram Chandra Paudel. Dahal denied such claims. Whether true or not, the incident reflected Nepal’s diplomatic naivety.

That said, in the end the commission met after three years of interruption because of the pandemic. Such visits are opportunities for Nepali leaders to engage with the Indian leadership directly and not through interlocutors. Besides, Jaishankar’s visit promoted much-needed discussion on a gamut of issues in India-Nepal relations.

While it may have yet to produce tangible results in all those aspects, Jaishankar did not return to India empty-handed, as he did when he visited Nepal as a special envoy to Modi in 2015.

 

Source: The Diplomat  (Santosh Sharma Poudel)