How Does India-China Tension Benefit Nepal?

Geopolitical tensions between superpowers always cause damage to their smaller neighbors. In the world wars and during the cold war era, the small neighbors of superpowers suffered greatly; often, they were dragged in without any direct interest in the conflicts. The domestic politics of these countries are always influenced by their neighbors. Any attempt to change puppet governments often leads to severe punishments for the people. While there are many adverse effects of this power struggle, there are also some benefits to consider. We can see this in the flow of funds from super powers to strategically located poor countries. For example, the Maldives is receiving a large sum of money from China, Taiwan is receiving considerable aid from the United States, and some countries are benefiting from both sides due to their strategic location. Nepal, the landlocked Himalayan country sandwiched between the heavyweights of India and China, is one such country. The country, home to Mount Everest, is dragged into India-China tensions, and these countries are investing in infrastructure projects, politicians, and even cultural organizations.

Nepal has seen a significant influx of foreign investment in recent years. Most recently, during a two-day investment summit in Kathmandu, which concluded on Monday, representatives from India and China actively announced investments seeking to forge closer ties with Nepal and enhance their countries’ economic presence in South Asia. At the summit, potential investors pledged to inject up to US$68.3 million into the country. It is huge for a politically unstable country. Nepal is currently undergoing a transition from a centralized monarchy to a federal democratic republic under its 2015’s Constitution. Additionally, it aims to shift from reliance on international aid towards becoming a hub for global investments. Nepal Prime Minister Pushpa Kamal Dahal emphasizes that liberal economic policies lay the foundation for a vibrant and investor-friendly business environment. Although India’s and China’s interests were evident in the resulting deals announced.

Delegates from India and China constituted the largest contingent among the 2,400 representatives from various countries attending the summit. While India dispatched around 150 participants, China’s delegation was twice as large. During the summit’s opening on Sunday, Beijing announced the exemption of visa fees for Nepali travelers starting May 1. This initiative coincides with the commencement of commercial flights from two international airports in Nepali cities Pokhara and Lumbini. Previously, the Himalayan route to China was inaccessible to Nepalis due to the government’s support for Tibetans, and the open border between India and Nepal caused concerns for China. However, recent developments suggest cooperation between Nepal and China to establish more routes through these challenging terrains. Progress is evident in air and road links, as well as border checkpoints. Feasibility studies for cross-border railways and transmission lines are also advancing.

The airports, funded by China in the hundreds of millions of dollars, have been completed. In contrast, India has been cautious about opening air routes to Nepal, partly due to concerns over these airports’ connection to Beijing’s Belt and Road Initiative. While additional projects are planned, there are concerns that they may further facilitate China’s access not only to Nepal but also directly to India’s northern regions. Despite Nepal’s naturally open border with India, infrastructure development appears to be more pronounced and effective on the Chinese side. Additionally, China’s funding of hydropower projects raises concerns for India. If India-China tensions escalate, the rivers originating in Nepal could become contentious, as they supply water to populous and fertile plains in India. Recognizing the importance of the situation, India is now actively addressing these issues. Piyush Goyal, India’s Federal Minister for Commerce and Industry, emphasized in a speech at the event via video call: “We will continue to expand our trading and business relationship. I urge Indian investors worldwide to invest in Nepal, seize the opportunity, and contribute to Nepal’s emerging development”.

The impoverished South Asian country, boasting some of the world’s largest mountain peaks, holds potential across various sectors but has unfortunately been overlooked by investors. However, the current India-China tensions are instilling hope. The country’s hydro power generation sector, already one of its biggest exports and poised for further expansion, is expected to benefit from these investments. Presently, Nepal generates 3,200MW of hydropower, with numerous large-scale projects totaling 5,568MW in the pipeline. While India heavily invests in Nepal’s hydropower initiatives, China aims to establish a foothold in the sector. Infrastructure development from both ends will also improve the tourism sector. Hindu and Buddhist pilgrimages to Nepal already promise significant economic benefits for the tourism industry. As railroads are completed, Nepal expects an influx of Chinese tourists too. Hence, the India-China tensions offer hope for Nepal, recognizing that its transition from a low-income to a middle-income nation hinges on support from India and China.