As South Asia experiences a multifaceted regional rebalancing, the Indo-Nepal bilateral relationship keeps developing on the twin principles of economic interdependence, physical connectivity infrastructure, and strategic diplomacy. Trade and energy to border management and transit routes, the latest developments in 2025 represent a renewed vigour of engagement between the two neighbours—united not only geographically, but through history and people-to-people ties.
A deep trade partnership
India continues to be Nepal's biggest trade partner by a wide margin, with more than 64% of Nepal's foreign trade volume. Based on the data of the Embassy of Nepal in New Delhi, bilateral trade reached Rs 1.13 trillion during FY 2022–23. Nepal exported products worth Rs 106.69 billion and imported more than Rs 1.02 trillion from India.
Nepal's major exports to India are refined palm oil, soybean oil, cardamom, carpets, iron and steel, and polyester yarn. Such commodities—some of which are manufactured under inward processing arrangements—have duty-free entry into Indian markets under currently prevailing bilateral agreements, subject to meeting prescribed value-addition norms.
On the import front, Nepal is heavily reliant on Indian petroleum products, vehicles, machinery, medicines, and food grains. The trade deficit is appalling, but Nepal is making efforts to diversify its export basket, with more focus on electricity exports, herbal products, and processed agro-forestry products.
Infrastructure and connectivity as catalysts
Trade facilitation has also been boosted immensely by cross-border infrastructure. Two Integrated Check Posts—ICP Raxaul from the Indian side and ICP Birgunj in Nepal—collectively process more than 50% of total bilateral trade volume, as reported by Nepal's Customs Department.
Additionally, strategic road and rail connectivity continues to be expanded:
Jaynagar–Kurtha railway is in operation, with additional extension to Bardibas underway.
Raxaul–Kathmandu and Jogbani–Biratnagar railway projects are in advanced planning stages.
The Gorakhpur Link Expressway, which opened in June 2025, brings travel time from Lucknow to the Nepal border down to 3.5 hours, benefiting border trade and tourism straightaway.
A historic connectivity project—the Motihari–Amlekhganj petroleum pipeline—has already changed the petroleum product supply chain. In operation since 2019, it exports more than 2 million tons of fuel every year and minimizes transport costs and losses substantially.
Energy: From impirt dependence to regional exporter
One of the most notable developments this year is the coming out of Nepal as a power exporter. Nepal, in June 2025, started exporting 40 MW of power to Bangladesh via India's transmission network—South Asia's first tri-national energy transit project.
This comes after India's endorsement of Nepal's export of more than 450 MW of power, mainly from hydropower projects, to Indian states like Bihar. A 2024 long-term energy deal obliges India to buy a maximum of 10,000 MW of power from Nepal within a decade—an ambitious but possible target considering Nepal's unreleased hydropower potential.
In February 2025, Indian Oil Corporation inked an agreement to export liquefied natural gas (LNG) to Nepal, a first in cross-border energy collaboration. The initial quantum will be small—240 tons a year—but the strategic value is significant.
Diplomacy and strategic engagement
Diplomatic interaction between the two countries has picked up in recent months. India's Foreign Secretary Vikram Misri travelled to Kathmandu in August 2025 for top-level discussions with Prime Minister KP Sharma Oli, setting the stage for a state visit to India in September.
In parallel, home secretary-level talks during July concentrated on border safety, preventing trans-border crime, and coordinating responses to disaster—all high-priority areas for two nations with a penetrable and open 1,770 km shared border.
India has continued to prioritize its "Neighbourhood First" strategy, and Nepal has, in turn, reaffirmed greater cooperation across domains.
Historical foundations contemporary relevance
India–Nepal relations are supported by official treaties—the 1950 Treaty of Peace and Friendship, the Treaty of Trade, and the Treaty of Transit. These have ensured institutional continuity, but both sides realized that they need to update their framework to accommodate changing economic and geopolitical compulsions.
There are occasional political tensions, but the structural foundations are stable. The economic path is one of the increased integration, particularly in the energy and infrastructure sectors. Cultural ties, religious bonds, and the open border access continue to underpin rich people-to-people relationships, especially in border communities.
Conclusion
As the globe leans towards regionalism and economic blocs, India and Nepal are heading towards a more pragmatic and fruitful era of bilateral engagement. Diversification of trade, energy dependence, and high-level diplomacy indicate that 2025 could be a watershed year—one that converts geographic proximity into strategic partnership.
Whether or not potential is actualized will rest on sustained mutual respect, open coordination, and shared vision towards sustainable development.
Jagathkrishna Yadav, journalism student, Dr B.R Ambedkar Open University, Hyderabad
