The government has tried to improve Nepal’s relations with India and the US, but several episodes in September have raised further questions about Nepal’s foreign policy. These episodes indicate that while Nepal is willing to cross diplomatic norms to please China, the opposite is the case for US and India. At the international fora, Nepal has sought to emphasize multilateralism and revive the SAARC process. Relations with India, however, remain problematic despite continuity of development assistance. In the meantime, Nepal has tried to push forward closer cooperation with China. In the area of trade and investment, the current environment appears to favor China and Russia more than it does the US and India.
A. Nepal at the international fora
Prime Minister K P Oli made several speeches at the UN and related meetings. In his pre-recorded speech to the UN General Assembly, he highlighted current problems in the international order and emphasized the need for multilateralism. He spoke on the theme of “reaffirming our collective commitment to multilateralism,” “rules-based order” and “reform of WTO,” among others. He indirectly criticized the US saying, “it is unfortunate that we witness in some quarters lesser desire to work under the multilateral framework.”
The language Nepal uses in discussing the international order and international issues resembles Chinese foreign policy discourse. While support for multilateralism, rules-based order and the UN system is reasonable and rational, using the langauge and terminology used by China portrays Nepal’s affinity to China in its views about international relations and is critical of the US. The PM however, also supported the Convention on International Terrorism (CCIT), which is being pushed by India.
As the chair of SAARC, Nepal is trying to jumpstart the regional cooperation process that has stalled, primarily due to differences between India and Pakistan. However, greater regional cooperation may not be possible without a willingness to address substantial issues linked to geo-strategic conflict, identities, and terrorism.
A virtual meeting of SAARC Council of Ministers, chaired by Nepal, was held on September 24, where Nepal urged member states to hold the 19th summit as soon as possible. The last SAARC Summit was held in Nepal in 2014, and Nepal said “the formal mechanisms of the SAARC must function properly” and that “the early holding of the 19th Summit has become imperative.” India emphasized its commitment to SAARC and its contribution to combating Covid 19 pandemic. Dr Jaishankar concluded by saying that the “scourge of terrorism, including the forces that nurture, support and encourage and environment of terror and conflict” have impeded the objective of SAARC. Pakistan’s foreign Minister, Shah Mehmood Qureshi said Pakistan is willing to host the next Summit and asked for “obstacles created in its way to be removed for SAARC to function as an effective instrument of regional cooperation.” Pakistan was supposed to host the SAARC meeting in November 2016 but the meet was postponed after India raised issues linked to terrorism, and Bangladesh, Afghanistan and Bhutan followed suit.
B. Nepal and India
Minister for Education Giriraj Mani Pokharel was personally involved in producing a reference textbook intended to educate high school students about Nepal’s border disputes with India, which contains language that spreads negativity about India. According to the Director General of Curriculum Development Center, the book was published with the consent of the prime minister and other concerned ministries. This indicates Nepal’s willingness to take India headlong.
Nepal is setting up more border observation posts along its border with India after disputes over the Lipulekh area. About 15 BOPs have been set up by the Armed Police Force after the dispute. The APF has plans to increase the posts to 500. Home Minister Ram Bahadur Thapa Badal has been assessing the situation in Nepal’s border districts, especially Darchula and said on September 26 that the government will bring special packages for the residents living along the border. While Nepal has the right to protect its borders, the manner in which Nepal is addressing the border disputes with India is creating greater rift between India and Nepal.
Despite these developments, Nepal’s ambassador to India Nilambar Acharya met India’s National Security Advisor Ajit Doval on September 7 as part of efforts to revive dialogue between Nepal and India.
Closure of the border between India and Nepal has disrupted the flow of people, which in turn is creating severe hardships for people dependent on cross-border relations for livelihoods. While the government is embroiled in border disputes and political differences with India, many Nepali people dependent on India for livelihood are troubled by the effects of the COVID-19 pandemic. Many Nepali migrant workers, for example, are now flooding back to India despite the risks.
Nepali migrant workers are now flooding back to India. According to Kantipur, about 422 thousand Nepalis have already returned to India, mostly from Sudur Paschim province. More than nine lakh Nepalis had returned to Nepal from India after the COVID-19 pandemic. Those without identity cards are forced to travel through less controlled border points. For example, in the last four weeks, some 22,000 Nepali migrant workers with India-issued ration cards have returned to India from Nepalganj, and those without identity cards are travelling through other points like Kailali’s Trinagar.
Nepal-India border will remain sealed until November 14. Border forces of the two countries have initiated joint security patrol in certain districts, including Kapilvastu, to control illegal crossings and criminal activities. The closed border has severely affected businesses and businesses in Birganj want to open the border even if it requires extreme caution.
Despite disputes and differences, India’s development assistance to Nepal continues. There were two major highlights last month, including India’s support to Nepal in its fight against COVID-19 and the grant of two trains. The arrival of trains from India symbolized several elements in Nepal including Nepal’s aspirations for a greater railway network, and the lack of progress in Nepal-China cross-border railways, and Nepal government’s inefficiency in managing railways.
Nepal received 2000 vials of Remdesivir from India. While receiving the medicine, Nepal cast it in terms of the “commitment of SAARC leaders to work together for the fighting of the pandemic,” while the Indian government described it as Indian government’s ongoing assistance to Nepal as a close friend and neighbour. Similarly, India’s India’s Konkan Railway provided two trains to Nepal, but given Nepal’s lack of preparation, the trains are yet to be operational. The railway will operate on a 34-km line between Jayanagar, India and Janakpur, Nepal. The railway line was converted from narrow gauge to wide gauge in 2018 and the route is expected to extend to Bardibas, some 36 kms from Janakpur.
C. Nepal and China
Nepal is slowly pushing forward Nepal’s existing agreements with China. Although bottlenecks remain, there are significant incentives for Nepali actors to pursue closer relationship with China. Nepal’s Ambassador to China Mahendra Pandey said his priority is to implement the agreements between the two countries signed during Xi Jinping’s visit. “Both sides have been working very hard” for the China-Nepal railway project, and “work will accelerated once the pandemic is controlled,” he said.
In recent months, Indian media has been reporting and highlighting issues seeking to amplify differences between Nepal and China. The Indian media, citing intelligence agencies, claimed China was also “fomenting anti-India protests along the Indo-Nepal border.” Nepal Members of parliament in India are concerned about Nepal’s growing ties to China in terms of transit and transportation and how these developments are affecting Nepal’s relationship with India.
The issue has piqued Chinese media and experts. For example, Global Times, in one of its reports said, Indian media is “spreading fake news and rumors to hype China’s threat, or add fuel to nationalism.” One of the examples cited was the report in Indian media that China had encroached Nepal’s territory. ” The Times quoted Song Zhongping, a Chinese military expert and commentator: “It is India that always thinks it dominates Nepal, and by hyping China’s ‘invasion’ of Nepal, India is making itself an excuse to enter into Nepal to control the country.” Chinese media have also raised concerns that western NGOs in Nepal are fueling anti-China voices.
The government issued a press statement clarifying that Nepal has no border dispute with China and that the Chinese construction close to the boundary pillars 11 and 12 in Humla were well within the Chinese territory. However, local continue to claim the disputed land clearly falls inside Nepali territory and the issue can be resolved only after locating the missing boundary pillar.
Chinese media also tried to address these issues through an interview of Nepal’s ambassador to China, Mahendra Pandey. He said we have long standing border disputes with India, stemming from the 1962 war between India and China, but not with China. He said Nepal had requested India for dialogue many times but India did not show interest, until now. Nepal’s Ambassador to China, like many other politicians in Nepal, speaks the language of Chinese diplomacy, eg, terms like unilateralism versus multilateralism, the importance of collectivism, freedom versus preciousness of people’s lives. His interviews to the Global Times raised controversy and experts raised questions about whether he’s supposed to represent Nepal’s interests or speak for Chinese interests. His interview also showed that Nepali diplomats and politicians are not afraid of offending India.
Nepal and China have resumed meeting to discuss operationalisation of transport agreement, protocol and trade facilitation by building infrastructure, including a Nepal-China Cross Border Economic Zone and roads. Border points between Nepal and China had remained closed due to “snowfall” and Covid 19 pandemic and the main transit point, Rasuwagadhi-Gyirong was opened on September 24 after remaining more than eight months (except for a three-week window in between). The border was opened after demands from traders who want to supply goods for the upcoming holidays.
D. Foreign Direct Investment and financial flows
In line with the report of the party’s task force, the two co-chairs of the NCP agreed on September 10 to ratify the MCC Agreement only after amendments. Foreign Minister Pradeep Gyawali said the MCC project is necessary for Nepal and the agreement will be approved even if it needs revisions on certain points. The government and the NCP will be unable to circumvent the recommendations of the party’s task force on MCC. Given the way in which the recommendations are phrased, the government may seek to first “clarify” the provisions—one way is through exchange of letters—rather than amend the agreement itself.
US Department of State’s new report 2020 Investment Climate Statements: Nepal released says “significant barriers to investment remain” given “political instability, widespread corruption, cumbersome bureaucracy, and inconsistent implementation of laws and regulations.” Similarly, a report prepared by Center for Investigative Journalism (CIJ) based on FINCEN (Financial Crimes Enforcement Network) files showed involvement of Nepali entities and individuals in suspicious financial transactions. According to Times of India, the report “shows the involvement of Nepali companies and banks attempting to deceive US sanctions on trade especially on Iran and China.”
Given Nepal’s current investment climate and corruption, businesses from China and Russia are likely to gain more foothold in Nepal compared to those from US and India. These financial incentives, in turn, are more likely to skew Nepal’s foreign policy toward China and Russia in the future. Such tilt will not be reflected in official policies, but the financial interests and incentives will significantly affect the environment and practice for foreign policy. Revelations from the FINCEN Files show that the financial interests in Nepal may well be connected to illicit financial flows, especially in countries that turn a blind eye to financial irregularities.
Nepal’s economic and financial ties with China is growing, and this is likely to add momentum to Nepal-China relations. Chinese FDI pledge has increased this year despite the Covid 19 pandemic. The pledge this year amounted to more than $220 million, while it was $116 million last year. According to Xinhua, investment in hydropower projects has led to the surge. China has remained the largest contributor to FDI since the last five years. Meanwhile, Chinese companies are hopeful of selling electric buses to Nepal government, which has decided to procure 300 electric buses.
E. A new entrant: Russia
Russia has emerged as a new entrant to geo-political competition in Nepal with its vaccine diplomacy. Given its interests and willingness to adopt a “double game” policy vis-a-vis India and China and restore its former status, it is expected to enhance its economic interests in Nepal. Russia has strong ties with Nepal’s private sector and it has good prospects in energy, infrastructure, mining and civil aviation. It is already expanding its influence in India, Sri Lanka, and Pakistan.
Russia’s sovereign wealth fund, Russian Direct Investment Fund (RDIF), announced on September 29 that it had “agreed to supply 25 million doses of its potential COVID-19 vaccines to Nepal via Trinity Pharmaceuticals, a private healthcare firm. Kishore Adhikari, Director of Trinity Pharmaceuticals stated in the RDIF press release: ““We are pleased to announce our cooperation with the Russian Direct Investment Fund. We are looking forward to the results of the final phase of the Sputnik V vaccine trial. As soon as the vaccine is approved by the Government of Nepal, we are ready to immediately provide it to the population of the country.” Following up the reports, The Kathmandu Post, however said Nepal’s government entities were unaware of such a development. In an interview with Naya Patrika, Adhikari said they had signed an agreement with the Russian government with the help of the Russian Embassy and they would fulfill due process before importing the vaccine.
 The NCP central committee meeting held between January 29-February 2, 2020 formed a three member task force comprising of Jhalanath Khanal, Bhim Bahadur Rawal and Pradeep Gyawali” to study the Indo-Pacific Strategy and the Millenium Challenge Compact Agreement and submit a report with recommendations.
 Russia is interested in developing close collaboration with SAARC. See https://russiancouncil.ru/en/news/russia-s-interests-in-south-asia-and-saarc-s-future-will-be-discussed-on-october-2/ as well as http://www.internationalaffairs.org.au/australianoutlook/what-are-russias-interests-in-nepal/