India and Nepal: Security and Economic Dimensions

Padmaja Murthy, Associate Fellow, IDSA


India's External Affairs Minister Jaswant Singh's visit to Nepal (September 1999) has once again brought out the close interdependence and linkage of the security interests between the two countries. Though India is larger than Nepal in many respects viz. population, territory, economic development, this should not in any way mislead one regarding Nepal's importance to India whose vital security perceptions are, to a great extent, linked to Nepal. In fact, ever since modern Nepal was established in the late 18th century1, India's security perceptions in its northern frontier have been linked to Nepal.

Countries adopt various mechanisms to meet their essential security needs, and developing economic relations is one of them. This paper aims to examine the extent to which economic relations have been used as an instrument by India to meet its security interests which are linked to Nepal. In fact, Nepal provides a classic case for understanding the manner in which India has used economic relations as an effective instrument to further security interests. A near perfect pattern emerges whereby convergence on security issues leads to covergence on economic issues also. The reverse is also true, in that divergence in security interests results in divergence on economic issues. Thus, economic relations have been used by India both as an instrument to win over Nepal (regarding security aspects) and when that was not possible, to influence it by withdrawing the economic concessions which were given in the first instance.

The paper is divided into four sections. First, it looks at the security concerns of India which are linked to Nepal; second, the paper examines Indo-Nepal relations in three phases to understand the manner in which economic relations have been used by India to influence Nepal regarding its security interests; third, the major decisions arrived at during the recent visit (September 1999) of India's external affairs minister to Nepal are spelt out. The last section, spelling out the changing security concerns of India, looks ahead and presents the conclusions of the paper.

Security Concerns

Nepal, a landlocked country, located at an altitude varying from 70m to 8,884m is bordered by two countries—India and China. To its south, east and west is India. Indo-Nepalese borders are not separated by any natural barriers and, in fact, there is a free movement of people and goods. To the north, Nepal is bordered by the Tibetan region of China. There are 28 passes on the Sino-Nepal boundary, of which three important routes are open throughout the year.2 Threat perceptions to India do not directly arise from Nepal per se 3. They arise from:

l the possibility that through Nepal's northern borders any power (emphasis on China) upon entering Nepal, can easily access the Indian mainland since Indo-Nepal borders are not separated by any natural barrier and in this sense are open;4

l that a Nepal which is not stable politically and economically would be more vulnerable to such an eventuality, and this would consequently result in the Indian mainland also being exposed;

l that Nepal may adopt policies (internally and externally) which would be detrimental to the security interests of India.

The geo-strategic importance of Nepal as articulated by free India was a continuation of the perceptions of British India which had concluded treaty arrangements with Nepal in this regard.5 The hereditary Rana autocracy ruling Nepal followed a policy of isolation and maintained these arrangements as the continuity of their regime depended on British support.6 However, by the time British withdrew from the subcontinent, the Indian freedom movement influenced some sections in Nepal too, to demand democracy and an end to Rana autocracy. Transition, thus, was to take place not only in India but also in Nepal. The Ranas sought the support of free India in return for being sympathetic to the latter's security concerns.

Contradictions were bound to arise. The key word for India was the need for "stability" in Nepal, so that it would not become vulnerable to outside pressures. Nehru wanted an arrangement in Nepal which would not result in a complete break from the past and which would also result in a forward movement. Those contending for power in Nepal were: the Rana autocrats who for over a hundred years had exercised absolute power; the monarchy which for over a hundred years had not exercised real power; and finally, the democrats, represented by the Nepali Congress, who were not a cohesive group and had serious personality clashes. In these circumstances, India's involvement and attempt to find a solution was bound to satisfy some at the expense of the others because it would be seen as aligning with one party. This would also reduce the chances of manoeuvring in case the need arose to support one party against the other, in India's national interest.

The result was the Delhi Settlement, according to which King Tribhuvan would continue to be the king of Nepal and an interim Cabinet of 14 members would be formed, half of whom would be popular representatives and the rest would be supporters of the Ranas. This, it was hoped, would provide progress without a complete break with the past.7 Success, however, was elusive, first due to the differences between the Ranas and the Nepali Congress, and later, when the Nepali Congress also failed to provide a viable alternative. The attempts continued till 1955, when the Cabinet was dissolved and the direct rule of the crown was promulgated under King Tribhuvan who was keen to establish a democratic government in due course.8

India's security concerns with Nepal had intensified following China's proclamation on September 10, 1949, that Tibet was part of Chinese territory and that no foreign intervention would be tolerated. On October 7, 1950, the Chinese occupied Eastern Tibet, resulting in Nepal having contiguous borders with China. With danger to Nepal's territorial integrity being detrimental to India's security, stability in Nepal became a top priority for India.9

Building Convergences

To meet India's security concerns (and those of Nepal too), India and Nepal concluded in 1950 the Treaty of Peace and Friendship.10 The treaty, considered the bedrock on which Indo-Nepal relations are built, has clauses addressing both security and economic aspects. The letters exchanged along with the treaty also form an important part of the understanding leading to mutual security. The treaty was to remain in force till either party gave notice of one year. Some of the important clauses of the treaty and the letter spell out that the two countries would inform each other of any misunderstanding with any neighbouring state likely to cause a breach in the friendly relations between the two countries; that the two countries would not employ a foreigner whose activities would be prejudicial to the security of the other; that arms or warlike material which Nepal imports through the territory of India shall be with the assistance and agreement of India. This particular clause could be incorporated not only because Nepal is a landlocked country but more important because it is for all practical purposes India-locked. It is this one factor which reduces Nepal's choices and manoeuvrability in both security and economic aspects.

The economic clauses in the Treaty of Peace and Friendship of 1950 refer to the national treatment which will be given to the nationals of the other regarding participation in industrial and economic development, residence, ownership of property, etc. As a result of this treaty, the people of Nepal are free to take up employment, buy property (like Indians can in Nepal) and even be part of the government services in India except in the limited seats of the Indian Administrative Service (IAS), Indian Police Service (IPS) and Indian Foreign Service (IFS). This clause is important to Nepal because of the low level of economic development in Nepal.

The treaty of 1950 should always be looked at as a whole package and not in parts, as is normally done. The economic and security provisions of the treaty are two sides of the same coin. While officially Nepal has not asked India for a review of the treaty, in other fora, from time to time, criticism on the security clauses is aired to the exclusion of the benefits which accrue to it in the economic sphere. It is due to the uniqueness of these provisions—economic and political—that India terms the bilateral relationship as a special one.

Along with the Treaty of Peace and Friendship was concluded the Treaty of Trade and Commerce.11 It covered the very crucial issue of facilities provided to Nepal for transit regarding trade not only with third countries, but also movement of goods from one place to another within Nepal through the Indian territory. During this period, more than 90 per cent of Nepal's trade was with India. Apart from trade and transit, India assisted Nepal in the construction of airports, canals, water supply, irrigation, roads, etc. Of the total aid of Nepalese Rupees (NR) 9,49,69,000 received by Nepal in 1951-56, India's contribution amounted to NR 7,00,18,000.12

In 1951,the two countries decided to establish border checkposts along Nepal's border with Tibet, manned jointly by the Nepalese Army personnel and Indian wireless operators. This enabled the Government of India to receive intelligence reports regarding military activities in the north.13 In 1952, keeping in view the internal and external threats to Nepal, the modernisation of the disorganised and ill-equipped Nepalese Army was considered necessary. Following Nepal's request, an India Military Mission (IMM) was deputed to Nepal in 1952 to train and modernise the Nepalese Army.14

However, these measures failed to evoke any enthusiasm from Nepal, which resented such direct involvement, particularly after maintaining a policy of isolation for over a hundred years during which it even did not allow the British entry beyond a certain point. Secondly, there were the discontented political elements who were unhappy at India's involvement in the political events and decisions, and all this led to a lot of bitterness. A major reason for the convergences had been the personality of King Tribhuvan. With his death, this link was also broken.

Managing Contradictions

A new phase in the relations began with the death of King Tribhuvan in 1955. Till 1990, when the democratic revolution took place, a singular contradiction running through Indo-Nepal relations was the desire of the monarchy to wield power and the belief in India that only a democratic government would give Nepal stability. This contradiction led Nepal to dilute the spirit behind the treaty of 1950, and build new linkages. Thus, the convergences witnessed in the first phase were gradually withdrawn. Even though after some time India supported the monarchy and the Panchayati regime that Nepal introduced, the suspicions continued.

In this direction, in 1958, the IMM was downgraded and reorganised as the Indian Military Training and Advisory Group (IMTAG). However, with elections being held and the Nepali Congress coming to power, convergences were once again visible not only in the political arena but also in the economic field. In 1960, the Treaty of Trade and Transit was concluded, whose provisions indicated towards a free trade area and also additional facilities for transit.15 However, the dismissal of the democratic government by King Mahendra drew sharp criticism from India;16 this was resented by Nepal, and a threat was perceived from India itself.17 The regime's security was equated with state security. Thus, a divergence was witnessed, which only increased with Nepal developing ties with China18 and Pakistan.

Nepal soon established close cordial relations with China and later with Pakistan. King Mahendra successfully used the China card to extract concessions from India. From a historical perspective, the use of the China card by Nepal was not completely a new move. Even while dealing with British India, the rulers of Nepal had kept the China card open. As for China, its relations with Nepal assumed importance historically as well in the per cent times in the context of the former's interests in Tibet. Further, with China's differences arising with India, close relations with Nepal were welcome. China gave aid to Nepal as part of its policy. Later, it built the Kathmandu-Kodari read whose construction started in 1963 and was completed in 1965. The road provided a direct strategic connection between China and Nepal via the difficult Tibetan route. If Nepal could not resist an attack through this road, the Indian heartland would be easily accessible through the open Indo-Nepal borders. For India, these developments were a cause of grave concern.

The changing security concerns with Indo-Sino differences and the War 1962, led India to reassess its policy towards Nepal. The 1962, War disproved the long-held belief that the Himalayas were impregnable. In the change of stand, India approved of Nepal's Panchayati system, and in 1965, the arms agreement between the two countries regarding supply of arms was concluded. One of the clauses spelt out that in the event of any shortfalls in the supply of arms and equipment by the Government of India to Nepal, the Governments of the USA and UK would furnish some defence assistance in order to supplement the assistance from India. In this sense, India's role as a supplier of arms to Nepal was emphasised. In other words, it meant restating the link in the mutual security concerns of the two countries. In the economic field, India conceded concessions on transit procedures which Nepal had been asking for.19 Thus, India sought convergence on the security front by strengthening ties in the economic area. These moves, however, were not successful.

Problems again arose in August 1970, when Nepal further diluted mutual security concerns when it asked India to withdraw personnel at the Nepal-Tibet checkposts and the IMTAG. The divergence in security issues coincided with divergences in the economic arena too. Problems arose over the renewal of the Treaty of Trade and Transit, which expired on October 31.20 Later, Nepal accused India of a blockade, which the latter denied.21 India held that the differences were due to Nepal's persistent demand for a land route to trade with Pakistan, and certain policies which caused harm to Indian trade; and the Nepalese demanded two separate treaties on trade and transit, maintaining that while transit was of a permanent nature, trade interests differed from time to time.22 India did not agree to this. A single treaty was finally concluded on August 31, 1971, after a year of serious differences.23

In 1972, King Birendra succeeded to the throne, and in 1975, he propounded the Zone of Peace proposal which was again an attempt to dilute mutual security convergences.24 The Janata Party government attempted to develop a close relationship and it agreed to two separate treaties—one on trade and the other on transit, in 1978. An agreement to control unauthorised trade was also concluded.25 Nepal had always wanted two separate treaties—one on trade and the other on transit, saying that while transit was of permanent importance, trade interests changed from time to time. However, Nepal's attitude towards India did not change.

In 1988, a complete dilution of the spirit of the 1950 Treaty took place, when Nepal bought arms from China which included anti-aircraft guns and medium range SSM besides AK-49 assault rifles, etc that entered Nepal through the Kathmandu-Kodari road.26 Immediately, problems over renewal of the Trade and Transit Treaties arose. There were other problems also and India conveyed to Nepal that it would discuss a single treaty of trade and transit.27 Differences which began over the trade issue, slowly covered the entire gamut of bilateral relations. Trade was carried on a most favoured nation (MFN) basis, and the trade and transit points which numbered 15 and 22 respectively were reduced to two. There was, however, no sign of a solution to the problems, and Indo-Nepal relations touched the nadir.28 During the crisis, Nepal realised the limitations of the Chinese help.

Positive Bilateralism

Thus, problems got resolved only after the ushering in of democracy in April 1990. In a joint communique in June 1990, both the sides touched on important security and economic issues. In April 1990, India welcomed the success of the mass movement for multi-party democracy in Nepal which led to the installation of an interim government headed by Prime Minister Krishna Prasad Bhattarai. In June 1990, Prime Minister Bhattarai's visit to India ended with the signing of a joint communique which restored status quo ante in bilateral relations to April 1, 1987—the period before the emergence of bilateral tensions. During the visit, both sides undertook to fully respect each other's security concerns, not to allow activities in the territory of the one prejudicial to the security of the other, and to have consultations with a view to reaching mutual agreement on such defence related matters which, in the view of either country, could pose a threat to its security. Having done so, they seriously moved to cooperation in the spheres of industrial and human resource development and for harnessing of the common rivers for the benefit of the peoples of the two countries, and for protection and management of the environment. Various possibilities of widening bilateral economic cooperation were also considered. Later, many new agreements were signed.29

The positive bilateral process continued with the visit of the Indian prime minister to Nepal from February 13 to 15, 1991, which was the first such visit in 14 years. In the coming years, such high level visits were to be a normal feature.

Later, in 1991, an Indo-Nepal High Level Task Force was up—chaired by the Cabinet secretary or equivalent on both sides and including the foreign secretary, finance secretary and commerce secretary—which prepared a comprehensive programme for bilateral cooperation.30 Further in 1991, as many as five important treaties and agreements were signed. These include a new trade treaty, a new transit treaty, an agreement for cooperation in controlling unauthorised trade, etc.31 An appreciation of each other's security interests also led to close convergence on security interests.

Other significant steps include the state visit of the King of Nepal, His Majesty King Birendra Shah, in May 1993. India's economic cooperation programme with Nepal continued with the commissioning of an industrial estate at Rajbiraj and a telephone exchange at Rangeli in Nepal. Under the new trade regime that came into force in April 1993, access to the Indian market free of customs duty for manufactured articles was improved to include articles containing not less than 50 per cent of Nepalese materials and labour.32

In 1996, India and Nepal renewed the Indo-Nepal Trade Treaty for a period of five years, up to 2001. As a result, articles of Nepalese manufacture could enter the Indian market free of customs duty and quantity restrictions. It was also agreed to accord parity to Nepalese products in the levy of countervailing duty, which would be equal to the treatment provided to Indian products, on the basis of a certificate issued by the Government of Nepal.33

The 1991 Transit Treaty was renewed on January 5, 1999, in Kathmandu. The renewed treaty contains liberalised procedures for the transit of Nepalese goods. Nepal's request for "automatic renewal" for further seven-year periods was accepted by India. It, however, needs to be noted that the protocal and memorandum to the treaty, containing modalities and other arrangements, would be subject to review and modification every seven years or earlier, if warranted. Thus, it is seen that though the treaty is to be automatically renewed, India would always be able to influence the important provisions in the protocol and memorandum to the treaty.

In future, another effective mechanism of cooperation will be through sub-regional cooperation, more specifically, the Bangladesh-Bhutan-India-Nepal Growth Quadrangle (BBIN-GQ). This will follow a project-led approach to cooperation in the core economic areas of multimodal transportation and communications; energy, trade and investment facilitation and promotion; tourism; optimal utilisation of natural resource endowments and environment. These projects are to be supportive of, and complementary to, the national plans of the four concerned countries. They will make best use of neighbourhood synergies and would be such that they can most productively be dealt with on sub-regional basis. Nepal is actively involved in this and will coordinate the overall sub-regional cooperation efforts.34 A positive aspect of this mechanism would be that it will eliminate the anti-India factor generally witnessed in development projects which are of a bilateral nature.

Do all these positive steps imply that mutual trust has been established and there is now a complete absence of mistrust and anti-India sentiments in Nepal? It is observed that as the legacy of mistrust is a long one, bilateral relations do evoke a degree of doubt. Further, in a democratic set-up, with regular elections being held, anti-India sentiments are used by many political parties to garner support. But it has been seen that with the establishment of democracy in Nepal, when in power, political parties do adopt a constructive cooperative approach towards India. Some of the issues which are yet to be resolved include the Mahakali Treaty, the Kalapani issue, the Bhutanese refugees issue (though this is between Nepal and Bhutan, Nepal feels that since it is through India that the refugees enter Nepal, India has a role to play), and the revision of certain provisions of the 1950 Treaty.

It is observed that democracy in Nepal has not meant that there are no bilateral differences, but the basic contradictions have been removed. While earlier India was accused of supporting the democratic elements, this does not happen now. Thus, while earlier the threat to the regime from these democratic elements was equated with a threat to the state, with India being the main factor, the same does not arise now. Anti-India feelings are still present but India is consciously trying to build on a cooperative model, and emphasising on economic relations, more so in the face of new security challenges.

Jaswant Singh's Visit to Nepal

India's External Affairs Minister Jaswant Singh's four-day (September 8-11) visit to Nepal has given a positive thrust and direction to Indo-Nepal relations. It builds on the approach of positive bilateralism which began in the 1990s following the establishment of democracy in Nepal. But its significance arises from the joint approach both countries will take to tackle the new challenges on the security front. The agenda for bilateral cooperation has, since a few years, been broad-based, focussing on the economy and energy. Jaswant Singh's visit enabled the developments in these areas to be reviewed and new thrust areas to be identified.

New Security Challenges

Security has always been a vital if not the core aspect of Indo-Nepal relations. However, these concerns have not remained static. With changing times, it is observed that new challenges have arisen. While traditional security concerns mentioned at the outset, arising from the geo-strategic positions remain, presently the security threats arise from the use of Nepalese territory by Pakistan's ISI (Inter-Services Intelligence Directorate) as a springboard to launch anti-India activities. India shares a 1,751-km-long open border with Nepal. The Indian states along this border are Sikkim, West Bengal, Bihar and Uttar Pradesh. The open Indo-Nepal borders (to facilitate free movement of people from both countries) are being used by anti-India elements to access India. India's concerns arise from the fact that eastern Nepal which borders the narrow sensitive Siliguri corridor connecting the entire north-east to the rest of India, is being used by Pakistan's ISI to sponsor insurgency in the north-east and transfer small arms and contraband. In other parts of India too, it is reported that the large quantities of weapons and ammunition seized, including RDX, have been traced to the Nepalese route. Presently, as the Indian external affairs minister stated, the presence of foreign intelligence agencies in Nepal is part of India's security concerns.

On the other hand, Nepal is also facing left-wing Maoist extremists within its territory. Nepal is concerned that these Maoists might develop links with similar groups in India. It is suspected that they have developed links with the Maoist Communist Centre (MCC) in Bihar and the People's War Group (PWG) in Andhra Pradesh. With the twin forces of the ISI and Maoists in its territory, Nepal would be particularly anxious to keep the left-wing extremists and Islamic radicals separated. Presently, the Maoists are poorly armed but their destructive power can grow manifold if they have access to arms and explosives available to the ISI. India has denied reports that the Maoist rebels active in Nepal were functioning from Indian soil.

Thus, both the countries have new security concerns, which are qualitatively different from what confronted them initially, and which are more difficult to respond to in certain aspects. The threat is more diffused in nature; it is not aimed directly at the territorial integrity of either country, but the aim is to cause grave harm. The threat is from non-state actors in both countries developing linkages. This makes it more difficult to combat, unlike the earlier perceptions of threat to the territorial integrity from a particular country.

It is clear that these new security challenges have to be met through joint actions by both the countries and this is exactly what the two countries have decided to do. Both sides have decided to undertake, "integrated border management". This essentially involves infrastructural development in the border areas, including the construction of cross-border roads which connect with Nepal's main highways. This lateral construction of roads will not only encourage cross-border trade, but will have major security implications since it will help in effective monitoring of cross-border terrorism. In fact, in June 1997, the two countries decided to work closely to fight terrorism. Towards this direction, the Joint Working Group on border management has already held meetings. Both countries have also agreed to review their extradition treaty and are also considering concluding an understanding on mutual legal assistance in criminal matters.

Another important issue from the security point of view is the question of demarcation of the Indo-Nepal boundary, including the Kalapani area. The Kalapani enclave lies on the tri-junction of India, Nepal and China. Nepal has stated that this area is located within its territory, which has been disputed by India. India maintains a post of the para-military Indo-Tibetan Border Police (ITBP) there. India holds the view that a committee was set up to examine the issue when Prime Minister I.K. Gujral visited Nepal and that India would wait for the report of the committee.

Economic Issues

Many positive steps have been taken in the economic field. India and Nepal have decided to revive the India-Nepal Joint Commission to focus on economic ties. In a bid to push trade, both countries will also work out an agreement which will facilitate the cross-border movement of motor vehicles in the next four months. An Indo-Nepal Inter-Governmental Committee will meet to promote trade, facilitate transit and control unauthorised trade between the two countries. Creation of export promotion zones at Birgunj, Biratnagar and Nepalgunj is also being envisaged. Earlier (pre-1990s), Indo-Nepal relations were primarily covered by the Indo-Nepal Treaties of Trade and Transit which had to be periodically renewed and would at times cause concern to both sides. Presently, both countries have moved beyond these issues to cooperate in other areas.

Both countries have decided to focus on the development of hydro- power in Nepal. In this direction, it has been decided that a Joint Office (JPO) will be set up to prepare a detailed project report for the 6,000 MW Pancheshwar project by November 1999. It has also been decided that the necessary steps for the preparation of the detailed project report on the 2,000 MW Saptakoshi project will be undertaken. Both countries have also decided to encourage the involvement of the private sector in developing small and medium sized power plants in Nepal since the larger projects will have a gestation period of eight to 10 years. India is giving top priority to energy imports from Nepal which it sees as part of its larger effort to achieve national energy security. This would also help in bringing down the trade deficit which is in India's favour.

India has called for the need to go beyond the South Asian Free Trade Agreement (SAFTA) and South Asian Preferential Trade Agreement (SAPTA) so that a South Asian Economic Zone could be established which would provide enormous benefits to the region. India has further stated that it supports the South Asian growth quadrangle (BBIN-GQ) concept initiated by Nepal.

Other Issues

A major highlight of the foreign minister's visit was the inauguration of the B.P. Koirala Institute of Health Sciences at Dharan, and the Neo-Natal and Maternal Intensive Care Units at the Maternity Hospital in Kathmandu. India and Nepal have agreed to set up a Joint Task Force (JTF) to study the problems of flood control and forecasting in Nepal and adjoining areas of India in a comprehensive manner; it is to submit its reports in six months. The two countries also decided to give a new thrust to the development of agriculture in the Terai region which borders Indian states. On the issue of refugees—Nepalese-speaking people—from Bhutan to Nepal, India has stated that it favours direct talks between Thimpu and Kathmandu to resolve the issue.


The above analysis of Indo-Nepal relations in three phases indicates the close linkage between security interests and economic relations. It brings out that economic relations have been a major instrument for India in meeting its security interests linked to Nepal. The importance of the China factor and its limitations have also been brought out. In the first phase, Indo-Nepal relations were dominated by building convergences on matters both economic and political. However, the two countries could not build trust. Nepal, which had followed a policy of isolation for ever a hundred years, found India too involved in its (Nepal's) affairs. The second phase witnessed the gradual withdrawal or dilution of these convergences. A democratic India and an assertive king trying to increase the power of the monarchy in Nepal could not see eye to eye. The regime's security was equated with the nation's security. These issues coincided with problems on the economic front too, primarily with regard to the renewal of the trade and transit treaties in 1970. At times, India realising Nepal's geo-strategic importance, did not want to strain the relations and used positive economic measures to maintain a cordial and working relationship, such as following the 1962 Indo-Sino War. Similarly, in 1977, India agreed to conclude two separate treaties on trade and transit. The break finally came in 1988 when Nepal, overlooking all the sensitivities of India, imported arms from China through the Kathmandu-Kodari road. Thus, when the trade and transit treaties finally had to be renewed in 1988, India called for a single unified treaty. This was the lowest point the relations had ever touched. The relations were finally restored only after democracy was established in Nepal. India and Nepal soon signed two separate trade and transit treaties and agreed to be sensitive to each other's security concerns.

Presently, India and Nepal have moved far ahead from the suspicion of the 1988 years. It is 10 years since then and they both have new security concerns and challenges to meet. For India, the ISI of Pakistan using Nepal as a launching pad for terrorist activities in India, is becoming an issue of grave concern. The open Indo-Nepal borders facilitate free movement of such people once they reach Nepal. The Maoist insurgency in Nepal is another issue of concern.

Thus, some of the important aspects of Indo-Nepal relations are:

l Geography links India and Nepal's security and there is a permanency in this factor.

l India's policy towards Nepal is a package as a whole which includes security and economic provisions. While Nepal may view them as two compartments, for India there is a link. A danger to security interests will simultaneously witness a downturn in the bilateral economic relations. If Nepal wants to change understandings which deal with mutual security, it cannot do so in isolation of the nature of existing economic relations.

l The Treaty of 1950 which forms the basis of Indo-Nepal relations, has clauses addressing both the security and economic aspects that make it a special relationship between the two countries.

l However, with respect to India's relations with Nepal, it is seen that any amount of concessions in the economic areas by themselves will not result in positive beneficial relations between the two. If the ruling regime in Nepal itself feels threatened (and it strongly believes that India supports those who oppose it, as, for example, seen under the monarchy prior to 1990), an environment of mutual trust will not be created. India will have to take note of these and other sensitivities of the government and the people of Nepal while charting its policies.

l The events of the late 1980s have clearly shown to Nepal also, the extent to which it can move away from India and disregard the mutual security interests. Close cordial relations are in Nepal's interest too. In this direction, the limitations of the China card have also been brought out.

l In future, apart from policies which encourage positive bilateralism, one can expect to see an emphasis on sub-regional cooperation.

l Apart form traditional security concerns, a new challenge which India faces comes from the ISI's activities in Nepal and anti-India elements entering India through the open borders.

In the past 50 years, India and Nepal seem to have experienced all the shades which a bilateral relationship can witness—friendship, doubt, trust, concealed antagonism, open distrust, helplessness, mutual appreciation, etc. They also know that whether they like it or not, they have no choice but to live together. They have also experienced the costs of suspicions and what it is to have trust in each other. Respecting each other's sensitivities, the two countries are on the threshold of building positive, mutually beneficial relations.



1. Modern Nepal is a late 18th century creation by the people who now rule the country—the Gurkhas. The ancestors of these Gurkhas were Indian immigrants—mostly princes from Rajputana and their numerous followers who fled the country in the 13th and 14th centuries to escape Muslim domination. They slowly influenced and adopted the local habits and married the local womenfolk. With time, they established kingdoms of various sizes—one of these was the Gurkha. In 1742, Prithvi Narayan Shah ascended the throne and began a war of expansion. In 1767, Prithvi Narayan Shah invaded and beseiged the Nepal Valley which was divided into three kingdoms ruled by three squabbling princes of the same family—the Mallas. For details, refer Kanchanmoy Mojumdar, Political Relations Between India and Nepal (New Delhi: Munshiram Manoharlal, 1973).

2. The difficult terrain to the north of Nepal includes the high peaks of the Himalayas, the huge arid Tibetan plateau with an average altitude of 15,000 feet. Further to the north of Tibet lies the Gobi Desert. The three important passes are Tinglibhoto (4,500 metres), Rasuagarhi (1,800 metres) and Kodari (1,900 metres). For details, refer Sangeeta Thapliyal, Mutual Security, The Case of India—Nepal, (New Delhi: Lancers, 1998) p. 14.

3. It is interesting to note that British India perceived a threat from Nepal when the latter was following an expansionist policy (beginning from 1767) under Prithvi Narayan Shah. The British at that time were consolidating their rule in northern India. In order to check the Nepalese, the British fought a war with them in which they were successful. The British, however, saw the bravery of the Gurkhas whom they started recruiting in their army. The result of the war was the conclusion of the Treaty of Segouli, in December 1815, according to which the British took control of the plains and limited the freedom of the Nepalese. The British were fearful that the expansionist policy of the Nepalese towards Tibet would bring the Chinese to the doorstep of British India and they would have a common border with China, resulting in border disputes, which the British did not want to have. Nepal never violated the provisions of this treaty. It was apprehensive of the manner in which the British were trying to take over, one after the other, the princely states of northern India. In this manner, the British ensured the safety of their territories in the northern part of India. For details refer Mojumdar, n. 1.

4. These threat perceptions were not something which had arisen upon India achieving independence. They were in a sense a continuity of the perceptions held by British India. The British, in fact, in the face of the forward policy of the Chinese claiming Nepal (along with other cases of British special interest) had concluded the Treaty of 1923 with Nepal.

5. The result of the forward policy of the Chinese was the conclusion of the Treaty of 1923 between British India and Nepal. The treaty recognised Nepal's independence, both internal and external. The two contracting parties agreed to inform each other of any misunderstanding with the neighbouring states whose territories adjoin their common frontiers. According to the Article 5 of the treaty, the British government agreed that the Nepal government would be free to import arms, ammunition, machinery, war-like material, and stores as may be required or desired for the strength and welfare of Nepal, and that the arrangement would continue so long as the British government is satisfied of the intentions of the Nepal government that there is no immediate danger to India from such importations. It is interesting to note that two clauses on economic aspects were also included in the treaty, dealing with customs duty and transit of goods destined for Nepal from the Indian ports. It is necessary to understand the spirit with which this treaty was concluded. The aim of the British was not to control Nepal, but to ensure that India's security interests are not compromised in the wake of the Chinese claims.

6. In 1856, the Ranas made the king of Nepal declare them as the hereditary prime minister of Nepal with de facto sovereign power. Though close relations developed, it should be emphasised that the British too, realising the value of Nepal, had limited intercourse with it and did not interfere in its internal affairs. Nepal, by supporting the British during the revolt of 1857, further established its sincerity.

7. M.D. Dharmdasani, "Democratic Experiment in Nepal: India's Role and Attitude", in Verinder Grover ed., Encyclopedia of SAARC Nations, Nepal, Vol 5 (New Delhi: Deep & Deep, 1997), p. 102.

8. Ibid., pp. 97-117

9. Articulating India's concerns, Nehru said in Parliament on December 6, 1950, "Our interest in the internal conditions of Nepal becomes still more acute and personal, if I may say so, because of the developments across our borders, because of the developments in China and Tibet, to be frank. And regardless of our feelings about Nepal, we are interested in our own country's security, in our country's borders. Now so far as the Himalayas are concerned, they lie on the other side of Nepal, mostly, not on this side. Therefore, the principal barrier to India lies on the other side of Nepal and we are not going to tolerate any person coming over that barrier. Therefore, much as we appreciate the independence of Nepal, we cannot risk our own security by anything going wrong in Nepal which permits either that barrier to be crossed or otherwise weaken our frontiers" For details, Ibid.

10. For the text of the treaty, refer Appendices, p. 684, in Grover ed., n. 7.

11. Document no. 360 in Avtar Singh Bhasin ed., Nepal's Relations with India and China, Documents 1947-1992, Vol 2, (Delhi: SIBA EXIM, 1994) p. 733

12. Brojendra Nath Banerjee, India's Aid to its Neighbouring Countries (New Delhi: Select Books, 1982) pp. 506-658

13. B.C. Upreti, "India's Security Stakes in the Himalayas and Indo-Nepal Relations", in Grover ed., n. 7, pp. 380-395

14. Ibid.

15. n. 11, for the text of the Treaty of Trade and Transit, September 11, 1960, pp 739-752

16. Nehru did not hide his disapproval of such a move and said, "This is a complete reversal of the democratic process and it is not clear to me that there can be going back to the democratic process in the foreseeable future".

17. For Nepal's reactions, refer S. D. Muni, "Search for Security", in n. 7

18. Rama Kant, "Nepal's China Policy", China Report, vol.30, no. 2, 1994, pp. 161-173

19. n. 11, pp. 753-754 and p. 770

20. Ibid., p. 820.

21. Ibid., p. 856.

22. According to Nepal, talks broke down because India did not want to give more transit facilities to Nepal. During 1970, 90 per cent of Nepal's trade was with India. India emphasised that due to the transit only, Nepal's external trade (with countries other than India) had increased from $2million in 1962-63 to $20 million in 1968-69. This shows that Nepal's total itself had increased.

23. Ibid., p. 870.

24. Some of the provisions of the Zone of Peace proposal state that Nepal would not interfere in the internal affairs of other states; that it will not permit any activity which is hostile to other states and similarly other states supporting the proposal should not permit such activities; that Nepal will honour the obligations of all the existing treaties as long as they are valid; that Nepal will not enter into any military alliance nor will it allow the establishment of any foreign base on its soil, and similarly others supporting the proposal also will not allow those directed against Nepal.

25. For the text of the treaties and the agreement, n. 11, pp. 928-958.

26. Around 400-500 Chinese trucks are said to have carried arms of both defensive and offensive capability, including anti-aircraft guns and medium range SSM besides AK 49 assault rifles, medium boots, etc worth $20 million. The arms reached Nepal through the Chinese-built Kathmandu-Kodari road. The arms deal also included the training by the Chinese People's Liberation Army to use, maintain and repair the equipment given to Nepal. For details, refer n. 1. S. D. Muni adds that Nepal argued justifying the purchase.

27. Refer n. 11, p. 981 for details of the letter written by Ambassador Arvind Deo, to the commerce secretary of Nepal, on February 28, 1989. It is interesting to note that by this time, India's share in Nepal's trade had come down to 30 percent. Nepal felt that a single treaty on trade and transit would be like going back in time by eleven years and had expressed great anguish over these developments. It spelt out that if it had to be one treaty, then it would be the treaty of transit.

28. For details of India's views on the manner in which Indo-Nepal relations had eroded, refer to the statement in Parliament by External Affairs Minister Narsimha Rao on April 26, 1989, n. 11, p. 998.

29. Report, 1990-91, Ministry of External Affairs, Government of India, pp. 1-3.

30. Report, 1991-92, Ministry of External Affairs, Government of India, pp. 1-2.

31. These treaties were signed in December 1991, when the newly elected prime minister of Nepal visited India. The other important decisions include a Memorandum of Understanding for cooperation in agriculture meant to promote rural development and rural employment in Nepal and another Memorandum of Understanding for the establishment of the B. P. Koirala India Nepal Foundation. Many measures regarding cooperation in water resources and the economy were also taken. An especially favourable access regime has also been provided for the products of approved Indo-Nepal joint ventures.

32. Report, 1993-94, Ministry of External Affairs, Government of India, p. 1.

33. Report, 1996-97, Ministry of External Affairs, Government of India, pp. 1-7.

34. For details, refer Annual Report, 1998-99, Ministry of External Affairs, Government of India, p. 19.