India–Nepal Relations: Historical, Economic and Strategic Dimensions

India and Nepal share an open border and unhindered movement of people, tied together by ancient civilizational, cultural, and geographic bonds. Bound by a unique bilateral relationship under the 1950 Treaty of Peace and Friendship, both nations maintain close economic, defense, energy, and developmental partnerships. Nepal acts as a buffer state between India and China along the central Himalayan ridge, making it a critical regional partner in India’s ‘Neighbourhood First’ foreign policy framework.

Historical and Constitutional Foundations

The formal architecture of modern bilateral relations rests on foundational treaties and shared cultural lineages that predate modern nation-states.

The 1950 Treaty of Peace and Friendship

• Signed on July 31, 1950, in Kathmandu by the last Rana Prime Minister Mohan Shumsher and Indian Ambassador Chandreshwar Prasad Narain Singh.
• Grants reciprocal treatment to citizens of both countries regarding residence, property ownership, participation in trade, and movement.
• Establishes an open border without visa requirements for Indian and Nepalese national citizens.
• Requires both countries to consult on matters of mutual security and foreign policy coordination.

Treaty of Sugauli (1816)

• Signed between the East India Company and the Kingdom of Nepal after the Anglo-Nepalese War (1814–1816).
• Demarcated the international border of Nepal, using the Kali (Mahakali) River as the western boundary and the Mechi River as the eastern boundary.
• Serves as the primary reference document in contemporary territorial discussions, including the Kalapani region.

Economic and Trade Architecture

India serves as Nepal’s largest trading partner, foreign investor, and primary provider of transit routes for third-country international trade.

Trade Framework and Agreements

• The India-Nepal Treaty of Trade provides duty-free access for Nepalese manufactured goods into the Indian market on a non-reciprocal basis.
• The India-Nepal Treaty of Transit grants Nepal access to Indian ports, such as Kolkata, Haldia, and Visakhapatnam, for third-country merchandise trade.
• Bilateral trade accounts for over 60% of Nepal’s total external merchandise trade volume.
• India supplies total refined petroleum requirements to Nepal through cross-border pipelines.

Major Bilateral Economic Indicators

Connectivity and Infrastructure Infrastructure

Infrastructure development across the border focuses on rail, road, pipeline, and digital integration.

Integrated Check Posts (ICPs) and Land Connectivity

• Operates high-capacity Integrated Check Posts at Raxaul-Birgunj, Jogbani-Biratnagar, Rupaidiha-Nepalgunj, and Sonauli-Bhairahawa to facilitate cross-border trade.
• India has funded and developed broad-gauge railway links including the Jaynagar-Bijalpura-Bardibas line and the Jogbani-Biratnagar line.
• Planned strategic rail connectivity includes the Raxaul-Kathmandu direct cross-border broad-gauge railway line.

Cross-Border Energy Pipelines and Digital Systems

• The Motihari-Amlekhgunj Petroleum Pipeline, inaugurated in 2019, operates as South Asia’s first cross-border petroleum product pipeline.
• Financial integration includes cross-border QR code and digital payment inter-operability connecting India’s Unified Payments Interface (UPI) with Nepal’s National Payments Interface (NPI).

Energy and Hydroelectric Cooperation

Nepal possesses extensive hydroelectric potential across the Himalayan river systems, which aligns with India’s regional power integration strategies.

Major Hydropower Projects and Agreements

• Long-Term Power Trade Agreement sets a target for India to import 10,000 MW of hydroelectricity from Nepal.
• Arun-III Hydroelectric Project (900 MW) is being developed on the Arun River in eastern Nepal by India’s SJVN Limited.
• Lower Arun Hydroelectric Project (669 MW) and West Seti Hydroelectric Project (750 MW) are awarded to Indian public sector units for execution.
• Pancheshwar Multipurpose Project (6,480 MW) is a planned joint project on the Mahakali River under the 1996 Mahakali Treaty.
• Cross-border power grid links operate via high-capacity transmission lines, including the Dhalkebar-Muzaffarpur 400 kV line and planned Gorakhpur-Bhutwal lines.

Defense, Security and Regional Strategic Dynamics

Military cooperation, intelligence sharing, and border management form core elements of the bilateral strategic relationship.

Military Bilateral Ties

• Exercise Surya Kiran is an annual joint military exercise conducted alternately in India and Nepal to focus on counter-terrorism and disaster management.
• Gorkha Regiment of the Indian Army recruits Nepalese nationals under long-standing bilateral agreements.
• The Chiefs of Army Staff of both nations are conferred the honorary rank of General in each other’s armies.

Regional Groupings and Multilateral Frameworks

Key Challenges and Friction Points

Border issues, political changes, and foreign influence periodically create diplomatic adjustments in bilateral relations.

Kalapani-Limpiyadhura-Lipulekh Boundary Dispute

• In 2020, Nepal issued an updated official political map including Kalapani, Limpiyadhura, and Lipulekh in the far-western district of Darchula.
• India maintains that these territories are located within the Pithoragarh district of Uttarakhand.
• The dispute stems from differing interpretations of the source of the Mahakali River under the 1816 Sugauli Treaty.

External Influence and Trade Issues

• Nepal joined China’s Belt and Road Initiative (BRI) in 2017 to diversify trade routes and infrastructure funding.
• Non-tariff barriers, delay in execution of High-Impact Community Development Projects (HICDPs), and revision requests for the 1950 Treaty remain active discussion areas.

Key Facts for Quick Revision

• The open border between India and Nepal stretches approximately 1,850 kilometers across five Indian states: Uttarakhand, Uttar Pradesh, Bihar, West Bengal, and Sikkim.
• Lumbini, the birthplace of Lord Buddha, forms the primary link in the shared Buddhist Circuit connecting sites across India and Nepal.
• The Ramayana Circuit connects Janakpur in Nepal with Ayodhya and other pilgrimage sites in India.
• Operation Maitri was launched by the Indian Armed Forces in April 2015 as a major humanitarian assistance and disaster relief effort following the earthquake in Nepal.
• The Joint Technical Level Boundary Committee was established to settle border demarcation, resolving over 98% of boundary points excluding Kalapani and Susta.
• High-Impact Community Development Projects (HICDPs) are directly funded by India at the local level across Nepal in sectors like health, education, and water supply.
• The Kosi Agreement (1954) and Gandak Agreement (1959) govern water sharing, flood control, and irrigation assets along common transboundary rivers.
• B.P. Koirala India-Nepal Foundation was established in 1991 to foster cultural, educational, and scientific exchanges between the two nations.