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Modi's Visit to Nepal: An opportunity lost by Nepal

Paper No. 5767          Dated 15-Aug-2014

By: Hari Bansh Jha

As per the media report, India was prepared to announce a huge economic assistance package for Nepal during the visit of Indian Prime Minister Narendra Modi to Nepal. Nepal also reciprocated and expressed desire to receive Indian assistance, particularly in such development projects as hydropower, Kathmandu-Terai fast-track road, Hulaqi Sadak (postal highway), Mahakali bridge and a cricket academy.

Expectations were quite high that the Indian companies like the GMR Consortium and the Sutlej Jalavidyut Nigam might sign power development agreements with Nepal in hydropower sector, which might enable them to work smoothly in this country. For some time, the GMR is working on the 900 MW Upper Karnali hydro power project and 600 MW Upper Marsyangdi-2 project in Nepal; while the Sutlej Jalavidyut Nigam has been working on 900 MW Arun 3 project.

In addition, Nepal and India wanted to have free energy trade for which they wanted to have agreements for harnessing Nepal's hydropower projects. In the absence of such trade, the two countries failed to tap this sector in the past. So the two countries wanted to go ahead and sign power trade agreement with a view to creating foundation for hydropower development. With this respect, Dhalkebar (Nepal) –Muzzafarpur (India) transmission line is already under construction to facilitate the trade in energy sector. Also, a study for the construction of Bardaghat (Nepal) - Gorakhpur (India) cross-border transmission line is in progress.

Against this backdrop, the power trade agreement between the two countries could have helped Nepal to emerge as a significant power market for India. Foreign financial institutions from India and other countries could also have been attracted to make their investment in hydropower sector in Nepal.

During Prime Minister Modi's visit to Nepal, a 600 MW hydropower project was expected to be signed between Nepal and India. The two countries were also expected to work on details for conducting joint study on Saptakoshi High Dam Project in Koshi River. Expectations were high that the two countries could give a new lease of life to 6000-MW Pancheshwar Multi Purpose Project. It was as far back as in 1996 that the two countries signed Treaty for the implementation of this project, which was ratified by over two-thirds members of Nepalese parliament. They were expected to make equal investment in the project and share power equally in their common interest. The Detailed Project Report of the Pancheshwar Project was expected to be finalized within six months of the signing of the Treaty in 1996, but for the reasons unknown the two sides have not been able to make any headway even after 18 years of the signing of the Treaty. The only development that was made was to establish the project implementation office at Mahendranagar, the headquarters of Kanchanpur district in Nepal.

Other than the above deal in hydropower sector, Nepal and India were expected to sign another accord with a view to increasing Indian scholarships for Nepali students from 3,000 rupees to 5,000 rupees. Many of the Nepalese students who could not afford to receive education due to resource crunch were likely to benefit from the scholarships provided by India to Nepal.

Modi's visit to Nepal was also expected to give the Indian investment projects a new lease of life. Until a few years ago, India was the largest investor in Nepal. But China has left India far behind in investment in this country. Recent data indicate that the Chinese investment in Nepal was three times more than the Indian investment. In 2013-14, as many as 108 Chinese aided projects worth 29.80 billion Nepalese rupees came to Nepal; while during the same period only 10 Indian-aided projects worth 8.22 billion Nepalese rupees made their inroads in this country.

There have been cases in which some of the Indian investment projects in Nepal were targeted by certain elements. Such Indian joint venture projects as Dabur Nepal and the GMR Group working on Upper Karnali and Upper Marshyangdi in the hydropower sector and also Arun 3 hydropower project were targeted. Apart from the Mahakali Treaty and the Bilateral Investment Promotion and Protection Agreement (BIPPA), the Small Development Projects of Government of India was also opposed. For some time, hue and cry was made to ban the movement of Indian number plate vehicles and screening of Indian cinemas and music in Nepal.

Because of opposition to Indian investment in Nepal, the country remained starved of power. It produces merely 600 MW of power so far, though it has potentiality to harness 83 thousand MW of hydropower. Because of the lack of adequate supply of power, each sector of the economy, including agriculture, industry, service and trade have been affected. Load-shedding is rampant. Major parts of the country are in dark. Poverty at home has compelled millions of Nepalese to leave the country in search of jobs abroad; for which the country has been paying a huge price in social and economic sectors.

Despite all those tall expectations, only three projects and that too of only moderate size were signed during Modi's visit to Nepal – the first was on the supply of iodized salt from India to Nepal, the second was on cooperation between NTV and Doordarshan, and the third was the activization of Pancheshwar Multipurpose Project. Projects of vital interests to the two countries such as on hydropower production and power trade failed to be signed. Also, no other project with prospect of having multiplier effect could be signed on this occasion.

Failure of the deal in hydropower and power trade and other such sectors was in fact a failure on the part of Indian diplomacy in Nepal. Why such a hyperbole was created in the media about the economic package from India much before Modi's visit to Nepal? If such a package was announced, it ought to have been materialized. This is certainly a set-back in India's diplomacy in Nepal. Possibly, this set-back might impact India's relations with other neighbouring countries as well.

Because of certain mindset in Nepal, the country lost a big opportunity to receive Indian economic package during Prime Minister Narendra Modi's visit to Nepal. Despite the transfer of power in Nepal from monarchy to republican, there has not been any perceptible change in the mindset of the ruling clicks in the country. They are the people who in one way or the other are afraid of any deal with India.

Now time has come for the Nepalese to expose those elements no matter if they are homegrown or are instigated by outsiders. All efforts should be made to see that Nepal makes proper deal with India in hydropower and other such sectors in order to transform the country into an economic power house in South Asia. Indian investment in Nepal is as welcome as investment here from other countries. The Indian companies should be given red carpet welcome when they agree to work in hydropower projects. Ample opportunities exist for the Nepalese companies to work in hydropower sector together with Indian companies. Once there is power trade agreement between the two countries, India's dependence on Nepal will continue to grow. This will also help Nepal to export power to India on a large scale, which would help correct the imbalance of trade between the two countries and thereby generate ample of opportunities for the development of agricultural, industrial, trade and service sectors in Nepal. Lots of employment opportunities would also be generated. This, indeed, would prove a win-win deal for both Nepal and India.

Dr.  Jha is Professor of Economics and Executive Director of Centre for Economic and Technical Studies in Nepal.