The Nepal Communist Party is now a formidable political entity, with absolute hold over the federal government as well as six of the seven provincial govern­ments. It also controls most local level units. And yet it is a divided house. Although it has been a year since the CPN-UML and the CPN (Maoist) formally united, old divi­sions have been hard to bridge. The trust deficit between the leaders from the two former parties remains strong. And even senior leaders in the ex-UML party suspect Co-chair­man and Prime Minister KP Oli of striving to cut them to size ahead of the next general convention.

According to insiders, Oli wants to maintain the status quo to retain his hold. “Of the 45 stand­ing committee members, 13 are hardcore Oli supporters who are either in government or in top par­ty positions. Oli does not want to change this favorable setup,” says a senior NCP leader, requesting anonymity. Other senior leaders like Pushpa Kamal Dahal, Madhav Nepal and Jhalanath Khanal would like to tweak this status quo to their own advantage going into the general convention.

If the divisions within the NCP are largely the product of party unification, those within the Nepali Congress have older origins. After the passing of Girija Prasad Koirala in 2010, no single leader has been able to command the party well. Current Congress President Sher Bahadur Deuba has lost the trust of the par­ty’s rank and file following a humiliating defeat in the 2017 elec­tions under his watch. The 73-year-old Ram Chandra Poudel still har­bors hopes of getting to lead the party, if not the country, by outwit­ting Deuba. Challenging them for party leadership will be the Koirala faction that continues to believe in the “natural right” of a Koirala to lead the NC.

1 Post-1950 turning points 

APEX Series

EVOLVING NEPAL-CHINA RELATIONS

1 Post-1950 turning points (April 5)

2 The 2016 transit and transport treaty (April 19)

3 China’s relations with political parties (May 3)

4 Defense ties (May 17)

5 Nepal and BRI (May 31)

Nepal and China formalized their age-old bilateral ties by establishing diplomatic relations on 1 August 1955. Since then, the relationship has evolved through different stages, without any major hiccups. And although formal bilateral relations were estab­lished only in 1955, there were close contacts between the two peoples much before that.

In the first part of our APEX Series ‘Evolving Nepal-China Relations’, we explore some turning points in bilat­eral relations after the 1950s. “There is an element of consistency in Nepal-China relations ever since dip­lomatic ties were established during King Mahendra’s direct reign. India has invested a lot in every major political change in Nepal, but for some reason it is China that every new Nepali government or regime feels more comfortable dealing with,” says Ramesh Nath Pandey, a former foreign minister.

One year after the establishment of diplomatic relations, Nepal and China signed the Economic Assistance Agreement on 7 Oct 1956 during the reign of Prime Minister Tanka Prasad Acharya, laying the foundation for further economic cooperation. Under the agreement, China pledged Rs 60 million to Nepal. Observers say the visits to China by then PM Acharya in 1959 and by BP Koirala in 1960 were vital in creating an environ­ment of trust between Nepal and its northern neighbor.

Until the 1950s, connectivity between the two countries was rather poor. In this light, China signed an agreement in 1961 to con­struct a 112-km highway linking Kath­mandu to the Nepal-China border in Kodari. This was a vital step towards breaking Nepal’s total dependence on India. For over six decades, this highway served as Nepal’s only via­ble trade link with China.

High-level visits to China

 - Prime Minister Tanka Prasad Acharya (1956)

- Prime Minister Bishweshwar Prasad Koirala (1960)

- King Mahendra (1961)

- Prime Minister Kirti Nidhi Bista (1972, 1978)

- King Birendra (1973, 1982, 1987, 1993, 1996, 2001)

- Prime Minister Girija Prasad Koirala (1992, 1993)

- Prime Minister Manmohan Adhikari (1995)

- Prime Minister Sher Bahadur Deuba (1996)

- King Gyanendra (2002, 2005)

- Prime Minister Pushpa Kamal Dahal (2008, 2017)

- Prime Minister Madhav Kumar Nepal (2009)

- Prime Minister Sushil Koirala in (2014)

- President Ram Baran Yadav in (2010)

- Prime Minister KP Oli in (2016, 2018)

 High-level visits from China

 - Premier Zhou Enlai (1957, 1960)

- Deng Xiaoping (1978, in his capacity as Vice Premier)

- Premier Zhou Ziyang (1981)

- President Li Xiannian (1984)

- Premier Li Peng (1989)

- President Jiang Zemin (1996)

- Premier Zhu Rongji (2001)

- Premier Wen Jiabao (2012) 

Broader interests

Border issues are always a threat to bilateral relations. But Nepal and China resolved their border issue amicably in 1961. Since then, there has been no major border dispute between the two neighbors, which has contributed to peaceful ties. (Although some minor border disputes remain.) In 1962, when India and China fought a war, Nepal decided not to take sides. It took the same stance in 2017 when its two neighbors were locked in a dis­pute over the contested territory of Doklam. On both occasions, China supported Nepal’s position.

When King Birendra proposed that Nepal be declared a ‘zone of peace’ in 1975, China was the first country to support it. After that China initi­ated several projects in Nepal such as the Kathmandu-Pokhara highway, Pokhara-Butwal highway, an agri­cultural tool factory, etc. From the mid-1980s, the Chinese government, under the Economic and Technical Coopera­tion Program, has been giving Nepal grant assis­tance to implement mutually acceptable development projects.

Import of military hardware from China in 1988 is considered one of the most important mile­stones in bilateral rela­tions. Nepal had bought some military hardware, including anti-aircraft guns, from China, which caused outrage in New Delhi and it responded by imposing a blockade on Nepal. India argued that Nepal was not free to import weapons from third countries without its consent. Because of the blockade, Nepal had to import many essential items from China.

When Nepal was a monarchy, China worked closely with the palace to safeguard its security interests in Nepal, mainly related to Tibet. The abolishment of the mon­archy in 2008 marked a turning point in China’s policy on Nepal. After 2008, China started cul­tivating relations with various Nepali politi­cal parties and became more vocal about its security interest. Simi­larly, ahead of the Bei­jing Summer Olym­pics in 2008, Tibetan refugees living in Nepal staged large demonstra­tions, which led China to work actively on its Nepal policy.

New party plays

“The post-conflict political transition in Nepal coincided with large-scale anti-China protests between March and August 2008 by Tibetan refu­gees living in Nepal—the most orga­nized demonstrations in the past 50 years,” writes Nihar R. Nayak, a research fellow at the Institute for Defense Studies and Analyses, in his book Strategic Himalayas. “In 2008 Tibetan separatists in fact tried to cross the border into the TAR to disrupt the journey of the Olympic torch to the Mount Everest and the summer Olympic Games in Beijing. This forced China to redraft its Nepal policy.” After 2008, China began showing active interest in Nepal’s political affairs, mainly in provinces, and the frequency of high-level visits from China to Nepal increased drastically.

The signing of the Transport and Transit Treaty between Nepal and China in 2016 against the back­drop of India’s undeclared block­ade was another important devel­opment. The treaty, at least in principle, has paved the way for Nepal’s use of Chinese ports and other routes for third-country trade, and ended Indian monopoly on Nepal’s supply system.

Nepal and China signed a Mem­orandum of Understanding on the Belt and Road Initiative (BRI) on 12 May 2017, which marked another milestone in bilateral relations. The major thrust of the MoU is to pro­mote mutually beneficial cooper­ation between Nepal and China in economy, environment, technology and culture. Negotiations are under­way between the two countries to finalize projects under the BRI and their investment modalities.

A joint military exercise between Nepal and China that began in 2017 was another big develop­ment. The military drill named Sagarmatha Friendship was a clear indication of growing ties between Nepal Army and the People’s Liber­ation Army.

In recent years, another major dimension of bilateral relation has been growing Chinese investment in Nepal. China is now the largest source of Foreign Direct Investment in Nepal, topping the list of FDI con­tributing nations in fiscals 2015-16, 2016-17 and 2017-18, with growing pledges from Chinese companies in hydropower, cement, herbal medi­cine, and tourism.

Former foreign minister Pandey says Nepal should have a dynamic China policy considering the changing face and status of China in the global arena. “We in Nepal need to carefully take stock of the situation and benefit from our two rising neighbors. For this we need diplomatic finesse and our embassies abroad need to be awak­ened. We have to rise above partisan politics, which has sadly led to the decay of all our vital state institu­tions,” he says.

Delay in constitution amend­ment, a life sentence to law­maker Resham Chaudhary for his role in the 2015 Tikapur killings, and an 11-point agreement with the secessionist leader CK Raut seem to have brought two Madhes-based parties, the Rastriya Janta Party Nepal (RJPN) and the Federal Social­ist Party Nepal (FSPN), closer.The unification process is in its initial phase. The RJPN has recently formed a talk team led by Rajendra Mahato with four other members, namely Brikesh Lal, Ramesh Yadav, Keshav Jha and Sunil Rohit. The FSPN had already formed a talk team led by Rajendra Shrestha five months ago. Unification may take some time, but leaders of both the parties claim sincere efforts to that end have been made since their electoral alliance in 2017.

A few factors have contributed to bringing them together. Madhesi leaders say they had expected Prime Minister KP Oli to push the consti­tution amendment proposal. With no progress, the RJPN withdrew its support to the government and pres­sure is building on FSPN Chairman Upendra Yadav to speak up about the amendment.

Ram Sahaya Yadav, FSPN Gen­eral Secretary, and other senior party leaders are of the view that if the two-point agreement the party signed with the government is not implemented, there is no point in staying on in the government. As a result, Upendra Yadav is gradually hardening his stance on constitution amendment. He recently said, “The prime minister has assured us that he won’t renege on his promise. But there is a limit to our patience.”

Leaders of both the FSPN and the RJPN aver that only a united party can put enough pressure on Kath­mandu to amend the charter. Says Professor Surendra Labh, a Janak­pur-based political analyst, “Grass­roots cadres see ongoing efforts as inadequate. They feel a need for more concerted pressure on the government to see the amendment through. This thinking seems to have brought the two parties closer.”

 'The prime minister has assured us that he won’t renege on his promise. But there is a limit to our patience'

Upendra Yadav, FSPN Chairman

Chaudhary irritant

The Kailali district court’s deci­sion to hand down a life sentence to RJPN lawmaker Resham Chaudhary has served as another unifier, with both parties considering it a political case that should have never gone to court. Immediately after the Kailali court issued its verdict, the govern­ment reached an 11-point agreement with CK Raut, who was behind bars for championing an independent Madhes. The Madhes-based parties were irked that the government did not consult them and suspect the move was aimed at weakening them.

“The deal with Raut prompted the FSPN and the RJPN to expe­dite unification,” says a Madhes observer. Leaders of the two parties fear Raut could emerge as a strong political force in Madhes and pose a threat to them. Labh says although talks of unifica­tion between the FSPN and the RJPN had begun earlier, the 11-point deal with Raut was an addi­tional spur. Leaders and Madhes watchers also point to the pressure from India. It is an open secret that the southern neighbor has been urg­ing the Madhes-based parties to unite and come up with a strong political force.

Despite all these fac­tors, the question as to whether the two par­ties will actually unite remains open. Their leaders say despite broad convergence of views on various issues, it is not easy to form a single party. The immediate challenge is related to support for the govern­ment. While the RJPN thinks Yadav should quit the government before unification, the FSPN maintains no condi­tion should be imposed for unity talks and government-related issues should be dealt with after unification.

Figuring out the new party’s leadership will be tricky too. The RJPN is for a presidium model, under which six mem­bers take turns as party coordinator. In the third week of April 2017, six of the seven Madhes-based parties under the then Samyukta Loktantrik Madhesi Morcha (SLMM) had formed the Rastriya Janta Party Nepal (RJPN) so as to consolidate their strength. But Upendra Yadav chose not to join it.

Problematic presidium

As the presidium model has already created many problems in the party, it is unlikely to be con­tinued after the unification. At least three RJPN leaders will claim leadership of the unified party. But so will Yadav, given the FSPN’s strength in federal and provincial parliaments. Says political analyst Vijya Kanta Karna, “Party leadership will be difficult to settle. But if it is settled, unification won’t be diffi­cult.” Karna says the ruling Nepal Communist Party (NCP) is also beset by problems because it has two chairmen.

If the presidium model is accepted at the center, it will lead to organi­zational problems at the grassroots.

Yet another challenge, according to Madhes observers, is the intra-party dispute rife in both the RJPN and the FSPN. “There are disputes within the two parties over leader­ship. These disputes could worsen if the parties decide on unification,” says Labh.

The RJPN and the FSPN aren’t much divided on the ideological front. They had the same position during constitution drafting and had jointly launched the Madhes move­ment. They also fought the election together and they have a coalition government in Province 2. As such, the two parties have many common interests, which could provide a solid foundation for unification.

If and when the unification goes ahead, each party’s strength at the federal and provincial levels will obviously count. The RJPN was formed after the unification of six Madhes-based parties, but in the three tiers of elections in 2017, the FSPN secured almost equal seats in the House of Representatives and won more seats than the RJPN in Province 2.

In the HoR, the RJPN has 17 mem­bers—11 directly elected and six from proportional representation—while the FSPN has 16 members—10 directly elected and six from pro­portional representation. In the National Assembly, they have two seats each.

Contested claims

In Province 2, the FSPN has formed the government with the RJPN’s support. In the provincial parliament, the FSPN is the larg­est party with 29 seats against the RJPN’s 25. FSPN leaders say their claim to party leadership is there­fore justified.

Upendra Yadav has a strong organizational base at the grass­roots, which is why his party secures a sizable presence even in difficult times. Observers say hard work sets him apart from other Madhesi leaders. Yadav frequently visits Tarai districts and meets the party rank and file. He has also maintained good relations with other political parties and the international community.

The caste factor seems to be equally important. Upendra Yadav is regarded as a towering figure in the Yadav community, which is eco­nomically and educationally strong. Even in the whole of Madhes, Yadav is considered an important leader, second perhaps only to Mahanta Thakur. As such, the FSPN is strong and coherent. The RJPN, by con­trast, is not united either at the cen­ter or at the grassroots, and is rela­tively weaker.

Even if unification between the two parties proves elusive, they are likely to forge an alliance to press for constitution amendment and to minimize the Raut factor in Madhes. During the Madhes movement in 2015 and the elections in 2017, there was already a working alliance.

“During the formation of the Oli-led government, the RJPN and the FSPN made decisions inde­pendently. Whereas Yadav joined the government, the RJPN sup­ported it from the outside. Now, even if they don’t unite, it’d be good for Madhes if they can maintain an alliance,” says Labh.

The government is holding the Nepal Investment Sum­mit with the goal of attract­ing foreign investment. The sum­mit, which begins March 29, is the second of its kind in the past two years. In 2015, the government had organized a donor conference to solicit international support for post-quake reconstruction, but that was not an investment sum­mit. Political leaders, businesspeo­ple and economists who spoke to APEX say there is a tendency of organizing investment summits with fanfare, but successive gov­ernments have not given priority to other vital aspects such as embrac­ing liberal political and social val­ues, ensuring policy consistency, setting up follow-up mechanisms, clearing bureaucratic hurdles, among others.

Says Dipendra Bahadur Chhe­tri, a former Governor of Nepal Rastra Bank (NRB), “We seem to be organizing such summits as a formality. The new government, with a strong support from the parliament, should instead solve various practical problems that are hindering foreign investment.”

The communist govern­ment also faces the challenge of demonstrating full commitment to protecting foreign investment and adopting liberal economic policies. “First, the government should convince international investors that it embraces liberal political and economic values as enshrined in the constitution. Sec­ond, there should be follow-ups on the pledged investment after the summit. Third, there should be policy consistency as frequent changes in foreign investment-re­lated laws create confusion,” says Nabindra Raj Joshi, who as then Minister for Industry was in charge of organizing the Investment Summit in 2017.

At the same time, economists and businesspeople point out the need for an in-depth study on why the flow of foreign investment in Nepal is small. Speaking at a par­liamentary committee a few days ago, Binod Chaudhari, a billionaire lawmaker from the Nepali Con­gress said, “We should formulate laws only after a detailed study that takes into account the views of all stakeholders. Or we will always revolve around the same issue.”

If the flow of FDI doesn’t shoot up, Nepal’s target of graduating to a middle income country by 2030 is unlikely to be met

Big commitments, low flow

Government data show that since 1990, although the pledged foreign investment is high, only a small percentage of it has materi­alized. According to official figures, foreign investment constitutes 0.5 percent of the country’s GDP. In the past 20 years, Nepal only saw Rs 170 billion in foreign direct investment out of the Rs 440 bil­lion endorsed.

In the last investment summit held in 2017, various countries and donor agencies committed $13.51 billion, but not even half the pledge has materialized, according to official records. Investment was pledged in sectors such as agricul­ture, roads, tourism and railways. “After the summit, there was no regular interaction and follow-up with international investors,” says Joshi. According to a survey released by the NRB in June 2018, FDI inflows into Nepal are substan­tially lower than into neighboring countries. In 2016, the share of the total global FDI that entered Nepal and South Asia was 0.01 percent and 3.1 percent respectively.

“Foreign investors from 39 coun­tries have made investment in 252 firms in Nepal. India is the main investor in Nepal in terms of paid up capital. However, West Indies comes ahead of India if we con­sider total stock of FDI by includ­ing reserves and loans,” the NRB report says. The report also reveals that most of the FDI into Nepal comes from tax havens, which means Nepali businesses parked money in those countries through illegal means and brought it back as FDI.

Many hurdles

Now that Nepal has a strong gov­ernment with a five-year mandate, there is favorable political climate for foreign investment, but other factors impede FDI. “Nepal needs to make paying taxes easier by simplifying the process of social security-related payments. This is the reason that the recent labor act has made the process more cum­bersome and contributed to push­ing the country down five places to 110th in a global ranking for the ease of doing business”, says an October 2018 World Bank report.

According to the annual ranking, Nepal made paying taxes more difficult through a 2017 labor act, which introduced a labor gratuity, medical insurance and accident insurance paid for by employers in a way that places a larger adminis­trative burden on companies that already face considerable red tape.

A business licensing system and a proper legal framework have not been created. International inves­tors often complain they face vari­ous obstacles when applying for a license. Multinational companies are facing difficulties in registering their offices in Nepal.

In order to clear the bureaucrat­ic hurdles foreign investors are facing, the government has intro­duced a provision of endorsing an investment proposal within seven days if all necessary documents are submitted. The government is preparing to provide all com­pany registration-related services through a one-door policy. Former NRB Governor Chhetri, howev­er, says such a policy had already been introduced in 1993, but was not implemented. “The problem lies not so much in policy as in its implementation,” he says.

Settlement of court cases is also a concern for foreign investors, who are not confident Nepal’s judi­ciary would settle cases without prejudice if a legal issues arise. They are also concerned about the visa renewal process for foreign workers in Nepal. Land acquisi­tion has also been a considerable challenge. Stability in politics hasn’t translated into stability in bureaucracy as there are frequent changes of secretaries and chiefs of government bodies.

Of late, the activities of the Netra Bikram Chand Biplab-led Nepal Com­munity Party have also spoiled the investment climate. “Such activities have sent mixed messages. The gov­ernment should ensure the country is safe for investment. We now have a strong government and a courageous prime minister, so there’s reason to hope that past trends will change and the country will attract more invest­ment,” says Chhetri.

Nepal’s constitution has liberal provisions on foreign investment. It says, “The policy of the state is to encourage foreign capital and techno­logical investment in areas of import substitution and export promotion.” Although the new government has accorded high priority to economic diplomacy, it is still failing to woo international investors.

Muted expectations

In the summit, the government is all set to showcase specific projects with detailed investment modali­ties. Nepal Investment Board has selected around six dozen projects under seven broad headings: agricul­ture infrastructure, education and health, energy infrastructure, indus­trial infrastructure, tourism infra­structure, transport infrastructure, and urban infrastructure. This could make the investment process smooth­er for foreign companies.

Experts suggest tempering expec­tations though. “If the government takes measures to achieve policy clarity and remove procedural hur­dles, we can expect much from the summit. Otherwise, more investment won’t be forthcoming,” says Chandra Mani Adhikari, an economist.

Targeting the investment summit, the government has already made amendments to some laws and a few more are in the cards. The govern­ment has prioritized amending the Special Economic Zone Act and intro­duction of new laws such as Economic Procedures and Fiscal Accountability Act, Public-Private Partnership and Investment Board Act, and Foreign Investment and Technology Transfer Act. Nepal, a Least Developing Coun­try (LDC), has set a target of becoming a middle-income country by 2030. It is virtually impossible to meet the target without huge foreign direct investment, as internal resources are insufficient. If the flow of FDI doesn’t shoot up, Nepal’s target of graduating to a middle income country by 2030 is unlikely to be met.

5 Is India losing influence in Nepal?

 APEX Series

OLI GOVERNMENT AND INDIA

1 Progress on pending issues

2 EPG report

3 India and Madhes

4 New Indian power regulation

5 Is India losing influence in Nepal?

 In this concluding part of the five-part, weekly APEX Series on ‘Oli government and India’, we examine how India continues to lose ground in Nepal following the 2015- 16 blockade. There are various signs of this. Recently, one of the most noted ones was Nepal opting for Chi­nese (instead of Indian) standards in laying its railway tracks. Nepal cited lower cost as a reason. But observers in India were quick to point out how this was yet another instance of New Delhi ‘losing out’ to Beijing in Nepal.

Three main reasons are responsi­ble for New Delhi’s loss of influence over Kathmandu: the blockade of 2015-16, the transit and transport treaty Nepal signed with China in 2016, and the logjams in India-fund­ed development projects in Nepal. Following the blockade, Indian interference in the internal politics of Nepal has been less conspicu­ous, and there are speculations that Indian policy on Nepal has changed. But Narayan Kaji Shrestha, a senior leader of the ruling Nepal Commu­nist Party (NCP) and former foreign minister, says such a conclusion would be premature. “Now, India’s interference in internal matters of Nepal has been reduced but we have to wait to see if there has been a sea change in India’s Nepal policy post-blockade,” he says.

The blockade created a public opinion that Nepal’s trade and tran­sit facilities should be diversified. The signing of the Transit and Trans­port Treaty between Nepal and Chi­na in 2016 ended, at least in prin­ciple, India’s monopoly on Nepal’s supply system. Using Chinese ports will be costlier, but they nonetheless offer alternatives for Nepal.

Not only China, western coun­tries, especially the US, have also renewed their interest in Nepal after the blockade and particularly after the formation of a strong commu­nist government in February 2018. Warning bells are ringing in Delhi which has traditionally been loath to see Nepal slip out of its ‘sphere of influence’.

The slow decline of Indian hegemony

 Observers point to three major reasons: the blockade of 2015-16, the transit and transport treaty between Nepal and China in 2016 and the endless delay in India-funded development projects in Nepal

 On February 25, The Global Times, a Chinese newspaper, published a news story titled ‘Nepal gauges interests in choos­ing China rail norm’. It said, “Con­sidering that a majority of Nepal’s third-country trade currently runs through India, a plan to hitch Nepal’s rail system to Chinese standards will reduce the landlocked nation’s dependence on India. New Delhi has to accept the fact that Nepal is strengthening its economic coop­eration with China, and make the best policy choices for itself.” It also said, “Choosing the Chinese gauge standard is an economic move by Nepal, and it has nothing to do with Kathmandu’s political stand.”

Of course that didn’t prevent Indian diplomats and commentators from presenting it as an example of growing Chinese influence in Nepal and the failure of Indian Prime Min­ister Narendra Modi’s neighbor­hood first policy. Indian government officials also raised objections to Nepal’s use of the Chinese gauge standard.

In an interview with The Print, an online news portal, India’s for­mer National Security Advisor Shiva Shankar Menon reacted to the news story, expressing displeasure with Nepal choosing the Chinese gauge standard. “I do not think our rela­tionship with Nepal is where it should be,” he said.

Three major reasons

All this hints at the worry felt by Indian diplomats, academicians and journalists about Delhi gradually losing its influence in Nepal to Bei­jing. Observers point to three major reasons: the blockade of 2015-16, the transit and transport treaty Nepal signed with China, and the logjams in India-funded development proj­ects in Nepal.

On 30 August 2015, Nepal’s Con­stituent Assembly (CA) endorsed a new constitution and set September 3 as the date to promulgate it. Soon after, India sent its foreign secretary S Jaishankar to Kathmandu as a spe­cial envoy to advise Nepali leaders to either stop or postpone the promul­gation of the constitution and bring Madhes-based parties on board. Jaishankar’s advice was not heeded, and when Nepal promulgated the constitution, India imposed a five-month-long border blockade, which caused a humanitarian crisis in Nepal, a country hit by a major earthquake just a few months ear­lier. India denies it imposed a block­ade and that the supply disruptions were a result of security concerns emanating from protests on the bor­der by Madhes-based parties.

“I do not have evidence to prove that the Indian state was complicit in the blockade. As a scholar, I can speak only on the basis of evidence and facts. Let’s assume India had no hand in the blockade. In that case, India could have supported Nepal. It could have airlifted essentials like food and fuel into Kathmandu. It did not. That hurt bilateral relations,” says Constantino Xavier, a fellow in Foreign Policy Studies at Brookings India, in an interview with APEX.

Following the block­ade, Indian interference in the internal poli­tics of Nepal has been less conspicuous, and there are speculations that Indian policy on Nepal has changed. But Narayan Kaji Shrestha, a senior leader of the ruling Nepal Communist Party (NCP) and former foreign minister, says such a conclusion would be premature. “Now, India’s interference in internal matters of Nepal has been reduced but we have to wait to see if there has been a sea change in India’s Nepal policy post-blockade,” he says.

After the signing of the 12-point understanding between the Seven Party Alliance and the Mao­ists in 2005 in Delhi, the promulgation of the con­stitution was probably the first instance of Nepal making a major political decision without con­sulting India. Another instance was the holding of three tiers of elections in 2017, although India had some reservations. By contrast, India was closely consulted during the integration of the Maoist combatants into the Nepal Army in 2012.

Geja Sharma Wagle, a political analyst and commentator, believes India is losing its traditional influence in Nepal because of a few factors, such as India’s coercive diplo­macy and its interfer­ence in Nepal’s politi­cal affairs. “India has abused the Madhes card time and again. And while India only promises devel­opment projects, China delivers,” says Wagle.

The China factor

The blockade created a pub­lic opinion in Nepal that its trade and transit facilities should be diversified and its exclusive dependence on India minimized. Such an opinion resulted in a favor­able environment for the Nepal gov­ernment to improve connectivity with countries other than India, mainly China.

The signing of the Transit and Transport Treaty between Nepal and China in 2016, the first ever in Nepal’s history, ended, at least in principle, India’s monopoly on Nepal’s supply system. The proto­col of the agreement is ready, and is expected to pave Nepal’s way for using Chinese ports and roads for trade with third countries. Using Chinese ports will be costlier for Nepal, but in case it faces blockades and difficult times in the future, it can look to China.

The way development projects are handled is another possible reason behind diminishing Indian clout in Nepal. At a time when there are complaints that Indian development projects take too long, China has given an impression that it complete projects on time. Its Belt and Road Initiative (BRI) has also piqued inter­est in Nepal.

According to the Xinhua news agency, “China pledged the high­est foreign direct investment (FDI) to Nepal three years in a row as the Himalayan country received China’s pledge of 427 million US dollars in last fiscal year 2017-18.” It further says, “China topped the chart in committing FDI to Nepal in fiscal years of 2016-17 and 2015-16 too with a commitment of 76 million US dollars and 57 million US dollars respectively.” In the recent years, China has invested heavily in major infrastructure proj­ects, such as the expansion of the Ring Road in Kathmandu and the construction of an international airport in Pokhara.

China has also become more influ­ential in other spheres such as the bureaucracy, security agencies and media. The Nepal Army and China’s People’s Liberation Army (PLA) are increasing cooperation, and the two conducted their first-ever joint mil­itary drill in 2018, raising eyebrows in New Delhi.

 The 1950 treaty is a bone of contention between the two countries and a major political topic in Nepal

Striking a balance

Another significant development in the last couple of years is the formation of the Nepal-India Emi­nent Persons’ Group (EPG), and the discourse surrounding it about Nepal’s desire to change its special relationship with India.

Indian bureaucrats and diplomats apparently fear that implementing the recommendations proposed by the EPG report will further reduce India’s traditional influence in Nepal by bringing about three major changes in Nepal-India rela­tions. First, with more regulatory measures, the dynamics of the open Nepal-India border would change. Second, Nepal would be free to import weapons from third coun­tries without India’s consent. Third, there would be greater clarity on other provisions of the 1950 Peace and Friendship Treaty.

The 1950 treaty is a bone of con­tention between the two countries and a major political topic in Nepal. “Naturally, Nepal wants to diversify its options in order to reduce its dependence on India. At the same time, there still are elements that make Nepal-India relationship more unique and special. Even today, Nepali citizens are allowed to join the Indian civil service and armed forces based on the 1950 treaty,” says Xavier. “Nepal could consider abrogating the treaty. But you have Nepali citizens serving as officers in the Indian air force. The open border is yet another aspect of the special relationship between Nepal and India. Again, it is up to Nepal to decide whether it wants to do away with this.”

Not only China, western coun­tries, especially the United States, have renewed their interest in Nepal after the Indian blockade in 2015-16 and particularly after the formation of a communist government with a two-third parliamentary majority in February 2018. The recent visit of Foreign Minister Pradeep Gyawali to the US, where he discussed with his American counterpart Nepal’s role in the US’s Indo-Pacific Strategy, has been widely considered an example of growing US interest in Nepal.

There is a sort of domestic con­sensus in Nepal that it should strike a balance between its two neigh­bors by putting economic diplo­macy front and center. Says Wagle, “Nepal should strike a diplomatic, strategic and economic balance between emerging global pow­ers like India and China. It should respect their core interests. Neither country is a substitute for the other. Nepal should take maximum advan­tage of its location between two economic giants”.

4 New Indian power regulation

 APEX Series

OLI GOVERNMENT AND INDIA 

 1 Progress on pending issues

2 EPG report

3 India and Madhes

4 New Indian power regulation

5 Is India losing influence in Nepal?

India’s new cross-border power trade guidelines pave the way for Nepal to export electricity to India and other countries. Issued in December, the new guidelines replace earlier provisions from 2016 which allowed India to buy power only from Indian govern­ment-owned companies or those with at least 51 percent Indian investment. The earlier regulations were seen as an attempt to block non-Indian investment in Nepal’s hydropower. With the new guide­lines, hopes are that more foreign investors will be lured.

The guidelines, if implemented, will ensure reliable grid operation and power trade among South Asian countries. As per the guidelines, “Indian entities may import elec­tricity from the generation projects located in neighboring countries directly or through Government or a Government Company or a licensed trader of that country after taking approval of the designated authority.” The guidelines also state, “In case of tripartite agreements, the cross border trade of electricity across India shall be allowed under the overall framework of bilateral agreements signed between Govern­ment of India and the Government of respective neighboring countries of the participating entities.”

The earlier guidelines permitted only those hydro projects with a capacity to generate 50 MW and above to export electricity to the Indian market. This provision has been removed.

" I have personally told Bangladeshi Prime Minister Shekh Hasina that India’s new power regulation is a game-changer in this region."

Choplal Bhusal, Former Nepali Ambassador, Bangladesh

Why the change?

When Narendra Modi became India’s prime minister in May 2014, he took an initiative to bring fresh vibes into Nepal-India relations. Among others, the Power Trade Agreement (PTA) was hailed as an important achievement between the two countries, as it was expected to attract foreign investment into Nepal’s hydropower sector. But the optimism didn’t last long.

“India… issued a cross border trade directive in 2016 that pro­hibited the purchase of electricity produced by non-Indian companies. It didn’t open its market when for­eign investors showed an interest in Nepal’s hydropower. It agreed to build transmission lines, but made Nepal pay the inherent ‘wheeling charge’,” writes Bikas Thapa, a journalist who has been closely following the develop­ments in Nepal’s hydro­power sector for over two decades. In various high-level visits, officials from Nepal and neigh­boring countries like Bangladesh kept asking India to amend the direc­tive, but India didn’t lis­ten. Until recently.

Now, India has changed the directive in line with the interest of Nepal and other neighboring coun­tries. There are some rea­sons behind the change in policy. India has faced international pressure to implement the Paris Agreement and reduce its fossil-fuel emissions. It has as such given greater priority to solar, hydro and wind power. Electricity produced in Nepal would help meet its growing demand for power. As per the revised regulations, India has dropped electricity from its list of strategic assets and categorized it as a commodity.

Another reason behind the policy change is con­tinuous pressure from immediate neighbors like Nepal, Bangladesh and Bhutan. A senior government official in Nepal speaks of India’s new priority on hydro­power. “Earlier, India was more interested in Nepal’s water, now it has realized hydropower is equally important,” says the official.

Bangla beckons

India’s new direc­tive has also paved Nepal’s way to export electricity to power-hun­gry Bangladesh, which currently imports 1,160 MW from India. Bangladesh has plans to import 9,000 MW from Nepal by 2040. Bangladesh’s power demand is pro­jected to double by 2030. The Ban­gladesh Power Development Board (BPDB), soon after India introduced the new directive, said it would greatly help Bangladesh procure electricity from various sources. On 10 August 2018, Nepal and Ban­gladesh signed a Memorandum of Understanding (MoU) to increase energy cooperation. Bangladesh has shown interest in investing in Nepali hydropower projects such as Sunkoshi II (1,110 MW) and Sunkoshi III (536 MW).

Choplal Bhusal, a former Nepali Ambassador to Bangladesh, says India’s new power regulation would help bring Bangladeshi investors. “Some have already shown an inter­est in Nepal. I have personally told Bangladeshi Prime Minister Shekh Hasina that India’s new power reg­ulation is a game-changer in this region,” says Bhusal.

During her visit to India in April 2017, Sheikh Hasina had asked for India’s cooperation in cross-bor­der power trade with Nepal. The Indian side, however, was non-committal. Efforts are now underway to sign an MoU on energy cooperation between Bangladesh, India and Nepal (BIN). The origi­nal plan was to sign an MoU under BBIN (Bhutan, Bangladesh, India and Nepal), a sub-regional group­ing within the South Asian Asso­ciation for Regional Cooperation (SAARC). Citing internal reasons, Bhutan refused to endorse its par­ticipation in BBIN so Nepal, India and Bangladesh are holding con­sultations for a three-party MOU. If an MoU is signed, it would be another milestone in Nepal’s elec­tricity development.

BIMSTEC and SAARC

The new Indian directive can also facilitate power trade among the member states of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Coop­eration (BIMSTEC), whose fourth summit in Kathmandu on August 30-31 expressed a commitment to improve energy trade among its members. Although BIMSTEC, in the 21 years since its establishment, has made virtually no progress in realizing such regional ambitions, efforts are underway to sign an MoU among its member states.

SAARC member states also signed a framework agreement on energy cooperation in 2014 during the 18th SAARC Summit and it is in the process of ratification, opening yet another avenue for energy trade in the region. As member states of both SAARC and BIMSTEC are suffering from an energy deficit, Nepal can reap great benefits from regional electricity grids.

Getting investment

Because of the lack of a mar­ket, there has been little foreign investment in Nepal’s hydropower. This could change. “A sector with apparently boundless potential has thus been crimped. Norwegian company SN Power carried out a survey and other necessary tasks for signing a contract for Tamakoshi III, a peaking-run-of-the-river proj­ect estimated to generate 650 MW energy, but pulled out when India refused to purchase the electricity,” writes Thapa.

Now, the onus lies on the Nepal government to clear various legal hurdles and persuade international investors. Observers say electricity is the only product that Nepal can sell to significantly bridge its huge trade imbalance with India.

China is another country that has shown interest in investing in Nepal. The new Indian guidelines have given us a reason to be hopeful that mega electricity projects would take off in Nepal.

Two political developments—a life sentence for lawmaker Resham Chaudhary and an 11-point agreement with secessionist Madhesi leader CK Raut—have widened the rift between the federal government and the Madhes-based parties. 

According to the leaders of the Madhes-based parties and Madhes experts APEX contacted, Rastriya Janata Party Nepal (RJPN) and Federal Socialist Party Nepal (FSPN) see these government moves as ploys to discredit them in Madhes, while giving undue space to Raut, who does not have a strong organizational and political base there. Currently a part of the federal government, FSPN is not as vocal about it as RJPN. But FSPN Chairman Upendra Yadav, who is also Minister for Health, has said that Raut had effectively ‘surrendered’ before the state.

Sources say Raut’s portrayal as being on a par with the Madhes-based parties in federal and provincial parliaments is unrealistic. “PM Oli is projecting Raut as our rival political force, which is a gross miscalculation. Our major competitor in Madhes is either Nepal Communist Party led by Oli himself or Nepali Congress,” says RJPN Secretary Keshav Jha. “PM Oli cannot weaken us in Madhes and boost his party and Raut instead,” he adds.

RJPN and FSPN leaders as well as Madhes-watchers are of the view that regional parties should have been consulted before the agreement. Madhesi leaders also argue that if the government can seemingly strike an agreement with Raut after asking the judiciary to release him, it could have similarly withdrawn the case against lawmaker Resham Chaudhary. They say while Chaudhary’s case is a political one, Raut’s is treasonous and there can be no comparison between the two.

A long-time Madhes watcher says that the Madhes-based parties are unhappy with the government for not consulting them. “It would have been better if the Madhes-based parties were consulted because they are stakeholders in Madhesi politics. The deal has soured the relationship between the government and the Madhes-based parties, which does not bode well for the stability of Madhes,” he says, requesting anonymity.

Oli’s calculation

The Madhes-based parties had portrayed Oli as being anti-Madhes during and after the constitution-drafting process. But when Oli became prime minister with a two-third majority, they surprisingly supported him. Oli promised to amend the constitution on the basis of necessity. But nobody was under any illusion that he would actually do so, which was perhaps why FSPN led by Upendra Yadav joined the government without the amendment.

RJPN was pressing Oli to amend the constitution. Indeed, both Madhes-based parties were in favor of joining the Oli government. RJPN sought constitution amendment as a face-saver to join the government but Oli did not budge.

Oli had sensed that RJPN would withdraw its support to the government after the Kailali court issued its verdict on Chaudhary. At the same time, negotiations were underway with Raut. “As PM Oli has failed to deliver, he hyped up the Raut case to show that he has scored an important political gain. Now, the PM is into political marketing, claiming that he ended a secessionist movement,” says Bijaya Kanta Karna, a close follower of successive Madhes movements. Similarly, according to observers, signing a deal with Raut signals that Oli wants to expand NCP’s space in Madhes.

“Oli wants to increase his acceptability in Madhes as he knows his nationalist card won’t work again even in the hills in the next election cycle. To emerge as the largest party again, he needs to enhance his image in Madhes,” says Karna. So Oli’s first priority will be to bring Raut into NCP by making him a lawmaker, if not a minister. Even if that does not work, Oli wants to weaken the Madhes-based parties by giving more space and power to Raut. This, in the view of observers, could also weaken Nepali Congress in Madhes, a traditional NC vote bank.

A Madhes watcher says the Madhesbased parties are unhappy with the government for not consulting them

Raut’s reasons

It is unclear whether Raut will honor the 11-point agreement. He has told his cadres that there has been an agreement for a referendum and it should be celebrated as an achievement. Observers cite a couple of reasons which might have compelled Raut to sign the agreement. In 2012, he had returned to Nepal, giving up an attractive job in the US. His had high political ambitions. In the second Constituent Assembly (CA) election in 2013, the Madhes-based parties fared poorly and Raut sensed an opportunity.  

But in the succeeding years, he struggled to expand his space, even as the mainstream Madhesi parties recouped some of the ground they had lost in 2013. Now, the provincial government (in Province 2) is led by the Madhes-based parties. Raut was upbeat when security forces started to project his group as a major security threat. But he struggled to build his party, making him very frustrated in recent months, according to Madhes observers.

The government then arrested him, and he probably started feeling that he could be behind bars all his life. Meanwhile, his family started putting pressure on him to renounce extremism. Oli was offering him space and a respectable position if he joined peaceful politics. “In the past he was successful in attracting radical youths with his secessionist agenda, but now he has given up that agenda. As peaceful politics is already the forte of Madhesi parties, NC and NCP, it won’t be easy for Raut in Madhes,” says Karna.

Who’s backing Raut?

After Raut returned to Nepal in 2012 and launched the secessionist movement, there was a certain curiosity: who is backing him? Some pointed to foreign forces, but that was never established. A Madhesi observer says if Raut was backed by foreign forces, ‘he was unlikely to surrender’ before the government. Another senior Madhesi leader requesting anonymity says Raut had at one point sought India’s support. Instead, Indian security forces wanted to rein in his activities in Madhes.

“Raut was a card of some unseen forces who worked against the Madhes-based parties. Now, this has been exposed and Raut’s 11-point agreement with the government does not affect our politics in Madhes,” says Jitendra Sonal, a parliamentary party leader of RJPN from Province 2.

Leaders and Madhes experts say Raut cannot return to his earlier campaign, which would violate his agreement with the government, but there are multiple options before him. Raut could register his own party and work to build up his organization, targeting the elections after four years. And he could peacefully raise the issue of a referendum in Madhes. He could also join NCP if he gets an attractive position. Another, albeit less likely, possibility is that he would gradually distance himself from politics and return to his profession. “He could choose any of these options,” says Manis Suman, General Secretary of RJPN. 

What of RJPN and FSPN?

RJPN and FSPN have limited options. Observers say as there is no environment in Madhes for another popular movement, the only option left for them is to ‘wait and see’.

RJPN’s first priority, according to its leaders, is to maintain intra-party unity and strengthen organizational structures. They say they are not worried because RJPN controls the government in Province 2, as well as most of its local level bodies, which will come in handy in the next election cycle. As RJPN has already withdrawn its support to the government, the party would focus on enhancing its position in Madhes. In FSPN’s case, the party is likely to wait a while. “We have already started our struggle from the parliament and we are planning a street protest. We are holding discussions with all political forces that stand for the politics of identiy,” says Jha.  

At the local level, conflict between the cadres of RJPN and those of CK Raut could escalate. Raut’s supporters accuse the Madhes-based parties of failing to adequately raise important Madhesi issues and focusing solely on power and money. On the other hand, leaders of the Madhes-based parties used to accuse Raut of trying to split the country. Now, they accuse him of surrendering to KP Oli.

RJPN will continue to press the Oli government to amend the constitution. Though it seems unlikely, there have been talks about unity between RJPN and FSPN. Some leaders do not rule out the possibility of Oli reaching out to the Madhes-based parties either.  

A FSPN leader, who also requested anonymity, says the party will not immediately quit the government. “We will definitely quit when public frustration with the government boils over, but we are in no hurry. This government still has four years,” he said.

3 India and Madhes

 APEX Series

OLI GOVERNMENT AND INDIA

 1 Progress on pending issues

2 EPG report

3 India and Madhes

4 New Indian power regulation

5 Is India losing

 India imposed a nearly five-month-long border blockade following the promulgation of the new Nepali constitution on 20 September 2015. India was unhappy that it was not consulted and that Kathmandu was ignoring the demands of Madhes-based parties.

Three years on, two Madhes-based parties, namely Rastriya Janata Party-Nepal (RJP-N) and Federal Socialist Party-Nepal (FSP-N), are demanding another amendment to the constitution. But India is no longer backing the agenda of the Madhes-based parties, at least not publicly. Observers point at a few reasons behind India’s silence. One, its focus now is on minimizing China’s influence in Nepal by taking Kathmandu into confidence.

Two, there is no unity among the Madhes-based parties and the absence of a towering figure capable of triggering and leading a popular movement in Madhes. During the local elections in 2017, there was a clear split among Madhes-based parties. Their differences remain; whereas FSPN Chairman Upendra Yadav is part of the Oli govern­ment, RJPN leaders are not. Three, there are insufficient numbers in parliament to pass a constitution amendment bill and the likelihood of another popular movement in Madhes is low.

However, Amresh Singh, a Nepali Congress lawmaker, has a different take. He says India imposed the blockade because of its concern over Nepal’s status as a Hindu state, not over the Madhesi issue.

“The Indians overreacted. The Madhes movement was going on at the time, so they jumped on the bandwagon. But after a few weeks, they realized that the ruling hill elites were displeased, so they lift­ed the blockade and started deal­ing with the Nepal government,” he says.

In a recent interview with APEX, Constantino Xavier, a fellow in For­eign Policy Studies at Brookings India and an experienced Nepal hand, had argued that the salience of the Madhes issue in Nepal-India relations has gone down. “You see general statements about inclusive­ness and diversity, but there are no prescriptive statements India used in 2015/2016 about what Nepal should be doing in terms of its con­stitutional and political arrange­ments,” he said.

But says a senior Nepali leader who worked on constitution-draft­ing, “After a rapprochement with Kathmandu, India dropped the Mad­hes agenda. But if differences with Kathmandu resurface, Delhi will not hesitate to bring up the agenda to put pressure on Kathmandu.”

 Is Madhes just a card for India?

  When Nepal promulgated a new constitution on 20 September 2015, India imposed a blockade to put pressure on Kathmandu to fulfill the demands of Madhes-based parties. Follow­ing the pressure, some of those demands were addressed through an amendment to the constitution.

Three years after the blockade, two Madhes-based parties, namely Rastriya Janata Party-Nepal (RJP-N) and Federal Socialist Party-Nepal (FSP-N), are demanding another amendment to the constitution. But India is no longer backing their agenda, at least not publicly. There was a time when Nepal had to pres­ent a written roadmap on how it was going to address the demands of the Madhes-based parties, but that’s no longer the case today.

Observers point at a few rea­sons behind India’s silence on the demands of the Madhes-based par­ties. First, its focus now is on mini­mizing China’s influence in Nepal by taking Kathmandu into confidence. Mainly after the formation of a strong government led by the Nepal Communist Party (NCP) Chairman KP Sharma Oli, India invested its time and energy persuading Oli to check China’s influence.

Sometime after the blockade, foreign policy observers believe, it dawned on India that if it antago­nizes Kathmandu, China will make further inroads into Nepal. After that, India started playing down the Madhes agenda in an attempt to appease Kathmandu so as to reduce Chinese influence in Nepal.

Despite some rhetoric to the con­trary, Oli is not ready to amend the constitution. India does not want to make the Madhes issue a cause of friction with the Oli government. “India can neither give up the agenda of the Madhes-based parties nor speak strongly in favor of them,” says a Nepali diplomat who has been actively engaged in Nepal-India deal­ings in recent times, requesting ano­nymity, as he cannot speak publicly given his official position.

Come as one

The second reason behind India’s silence is the lack of unity among the Madhes-based parties and the absence of a towering figure capable of triggering and leading a popular movement in Madhes. During the local elections in 2017, there was a clear split among Madhes-based parties. Their differences remain; whereas FSPN Chairman Upendra Yadav is part of the Oli government, RJPN leaders are not. “India, for a long time, has been telling the Madhes-based parties to unite but since that’s not happening, India itself seems confused about their demands,” says the diplomat.

The third reason is insufficient numbers in parliament to pass a constitution amendment bill and the low likelihood of another popu­lar movement in Madhes. The NCP has a two-thirds major­ity in the parliament but Prime Minister Oli is not ready to amend the constitution—at least for now. Although his party Co-chair Pushpa Kamal Dahal appears to have a soft spot for the demands of the Madhes-based par­ties, he is not in a posi­tion to make important decisions by himself.

Yet another reason is that after the blockade, which fueled anti-Indian sentiments in Nepal, there were strong views within India’s ruling Bharatiya Janata Party (BJP) that India should not view Nepal through a Madhes prism. Some BJP leaders strongly advised Foreign Minister Sushma Swaraj that India’s policy on Nepal take into con­sideration various factors and not just the Madhes. They were of the view that if India backs the Madhes-based parties, and thus helps derail the local polls, its com­mitment to democracy would be questioned.

However, Amresh Singh, a Nepali Congress lawmaker, has a differ­ent take. He says India imposed the blockade because of its concern over Nepal’s status as a Hindu state, not over the Madhesi issue. “The Indians overreacted. The Madhes movement was going on at the time, so they jumped on the bandwagon. But after a few weeks, they realized that the ruling hill elites were displeased, so they lifted the blockade and started dealing with the Nepal government and the ruling elites,” he says.

India imposed the blockade because of its concern over Nepal’s status as a Hindu state, not over the Madhesi issue

Amresh Singh, Nepali Congress lawmaker

Dropping Madhes

“The then Indian Ambassador to Nepal Ranjit Rae was tasked with appeasing the ruling elites. This pol­icy was initiated by the RSS [Rash­triya Swayamsevak Sangh]. By way of justification, India blamed the leaders of the Madhes-based parties, saying they were divided, corrupt and visionless.”

A senior leader who worked on constitution-drafting says, “After a rapprochement with Kath­mandu, India dropped the Madhes agenda. But if differences with Kath­mandu resurface, New Delhi will not hesitate to bring up the agenda to put pressure on Kathmandu,” says the leader.

There is a consensus across the political spectrum in Nepal that valid demands of the Madhes-based parties should be addressed to stem the rise of extremist forces in Madhes. To understand how India gradually changed its position on Madhes, it is necessary to analyze the Indian position and policy over the last decade.

India had played a mediating role during the Madhes movement in 2008. The then Indian Ambassador to Nepal Shiva Shankar Mukherjee had helped strike an agreement between then Prime Minister Girija Prasad Koirala and the Mad­hes-based parties. India’s role at that time was interpreted as that of an external guarantor. During the con­stitution-drafting period from 2009 to 2015, India was continuously backing the demands of the Mad­hes-based parties. Immediately after the constitution was promulgated in September 2015, India imposed a blockade on Nepal as a punishment for not addressing those demands. During the blockade, which lasted almost five months, India’s position was loud and clear: amend the con­stitution to address the demands of the Madhes-based parties.

After the blockade, the issue of constitution amendment featured prominently in every Nepali prime minister’s visit to Delhi. Due to dif­ferences over this topic, no joint press statement was issued during KP Oli’s visit to India in 2016. Oli insisted that India should welcome Nepal’s constitution and the issue of Madhes-based parties should not be incorporated in the joint statement. India disagreed.

Sparing Dahal’s blushes

India started softening its position after Pushpa Kamal Dahal, in alli­ance with the Nepali Congress, came to power in 2016. During Dahal’s visit to Delhi, the Madhes-based parties’ issue was presented in a general way in that it was the Nepal government’s duty to bring all sec­tions of society on board. This was in contrast to the past tradition of India issuing a prescriptive state­ment urging Nepal to specifically address the demands of the Mad­hes-based parties.

But even until the local elections in 2017, India was still pressing Dahal to go for polls only after addressing the demands of the Madhes-based parties. However, Dahal succeeded in convincing India that the demands cannot be addressed as they lacked enough parliamentary support. A week before the announcement of the local polls, Dahal sent his dep­uty Narayan Kaji Shrestha to Delhi with a message that the date of the first phase of the polls would be announced. Shrestha made a case in front of Indian leaders and offi­cials that there was no other option. Still India wasn’t fully convinced. Later when Sher Bahadur Deuba visited Delhi as a prime minister, he expressed a commitment to amend the constitution, which drew criti­cism in Nepal.

At the same time, the Mad­hes-based parties were also divided on whether to contest the local polls. (They did ultimately.) Indian Ambassador Manjeev Singh Puri reportedly urged the Madhes-based parties to drop their agenda of a con­stitution amendment and contest the elections. If India had insisted on amending the statute by addressing the Madhes-based parties’ demands, the local elections would not have been possible. In that case, Dahal would have had to step down, pav­ing Oli’s path to power—an outcome India wanted to avoid. The Mad­hes-based parties, however, felt betrayed by India when it did not back their agenda just before the local elections.

After the formation of the Oli-led government last year, the Indian side has refrained from talking about amending the constitution or fulfill­ing the Madhesi parties’ demands. The Madhes-based parties, however, are still asking for an amendment.

In a recent interview with APEX, Constantino Xavier, a fellow in For­eign Policy Studies at Brookings India and an experienced Nepal hand, had argued that the salience of the Madhes issue in Nepal-India relations has gone down. “You see general statements about inclusive­ness and diversity, but there are no prescriptive statements India used in 2015/2016 about what Nepal should be doing in terms of its con­stitutional and political arrange­ments,” he said.

Xavier had continued: “I think there is now a focus on delivering development assistance, imple­menting connectivity projects and diversifying outreach in Nepal beyond the usual groups of people who are friendly to India”.