Introduction
Nepal, is a tiny landlocked Himalayan country with a population of 28.98 million, sharing borders with two big giants, Tibet, the autonomous region of China in the North, and India on the other three sides. Nepal’s geopolitical positioning is hence a challenging one: an intersection point for two different civilization (Mongoloids and the Aryans), two different religion (Buddhism and Hinduism), and two different political domination (Communist and Democratic), with the former being dominant in China and the latter in India. Since time immemorial Nepal has been enduring these political, cultural and economic pressure from both sides, the question however is, have we been able to serve it to our interest or not. This paper tries to discuss how Nepal’s geopolitical positioning have influenced their development and sovereignty, the challenges it faces, the diplomatic opportunities it has and recommend possible solutions that could further the development pace of Nepal.
Background
Prior to 1950s, Nepal was almost completely secluded from the external world, nonetheless, its geographic position was a key concern for both India and China. Rajan Bhattarai notes that it was due to Nepal’s strategic importance for its defense from China that the British did everything they could to transform Nepal into a friendly buffer state between China and British possessions in India. (Friends for Peace, 2006) Hence, the Treaty of Peace and Friendship signed in the 1950s between India and Nepal strengthened the ties between the two but also largely limited Nepal’s freedom to extend its diplomatic ties with China and other neighboring nations. It included a clause that limited Nepal from buying arms and ammunition from other countries than India and also obliged Nepal to inform India of any friction it had with neighboring countries, while the same was not done so by India. Undoubtedly, Nepal is important for India in terms of security and defense from both Pakistan and China, but because Nepal imports more than 50 percent of its goods from India, it has economic interest as well. Whereas for China, because Nepal has traditionally been a crossing point for Tibetan refugees, it is important for them, to avoid any anti-Chinese activity in Nepal regarding Tibet and to ensure that foreign entities do not collude in this interest. Although historically Nepal has been most closely tied to India politically, economically and culturally, following the rise of Maoists political party in Nepal’s mainstream politics (who view India and the USA as ‘imperialist power’ and are against their interference in Nepal’s politics), Nepal has grown its affinity towards China due to its ideological empathy. (Kumar, R. 2017) Although a small peripheral country, its strategic location has put it in a constant tug of war between China and India, both seeking to increase their regional power.
Key Issues
Nepal is currently at a crucial stage in defining the new path of diplomacy. During the 2015 earthquake, China and India both were quick in sending rescue forces, medical teams, and disaster aid. Tacitly, however, they were also competing for dominance in Nepal through disaster diplomacy. Furthermore, in September 2015, a few months after the earthquake, when Nepal promulgated the new constitution, the Madhesi, an ethnic minority group in southern Nepal with close ties to India revolted saying that it undermined their political unity and representation. Speculations were however made that these Madhesi movements were fueled by India as they served as a source of a vote for Indian Prime Minister Narendra Modi in north-eastern India and that it might affect their domestic politics. Like in 1989, India once again resorted to destabilize Nepal with an unofficial six-month blockade of petroleum oil and consumer goods to Kathmandu. India’s interference in internal affairs of its neighbor like Nepal, Sri Lanka and Maldives, has been criticized by these small nations, but India, like the US (argued by Walt and Mearsheimer, as holding a grand strategy for liberal hegemony), reasons it as being their responsibility to help its neighbor and sustain peace in the South Asian region. This however has worked in favor for China, as Nepal started seeking closer ties with its northern ally to strengthen its own position.
Economy and Politics
The growing affinity between China and Nepal has been troubling India a lot lately. Although India has been traditionally dominating the Nepalese political and economic scene, China has gradually expanded its involvement in Nepal. China outdistanced India in terms of foreign direct investment in Nepal, contributing the US $79.26 million as opposed to the US $36.63 by India. Nepal also reciprocated the favor, by communicating its trust with China, by rejecting disaster aid from Taiwan, post earthquake. Nepal has also signed various agreements with China on transit trade, investments on hydropower projects and solar energy, and connectivity. Furthermore, in 2017 they even organized their first-ever joint military exercise. But in all these activities China has vested interests in influencing Nepali security forces to control Tibetan refugees from anti-China activism and in limiting India from gaining regional dominance.
Nonetheless, to ensure Indian security and avoid Chinese domination in Nepal, India also has been fighting back. The recently announced Neighborhood First Policy by Indian Prime Minister, Modi is an epitome of this effort. His strategic visit to Nepal in May 2018, focused not only in providing assistance of US $14.85 million but also on strengthening connectivity with Nepal through highways, information ways, transmission lines, railways, waterways, and airways. According to the news report in Xinhuanet, ‘He said the two sides can work on 5Ts — Tradition, Trade, Tourism, Technology and Transport for the development and prosperity of both countries.’ (“India gives top priority to Nepal under Neighborhood First Policy: Modi – Xinhua English.news.cn”, 2018)
Although the strengthening ties with China have been a breath of fresh air in Nepal’s geopolitical climate, it is still the one that comes with myriad challenges. Nepal still accounts for 65.3 percent of the imports from and 53.8 percent of the export to India. In addition to it, Nepal is largely dependent on India for both electricity and various trade ports. This is crucial because even though China has agreed to make land routes and ports in China available to Nepalese traders, trading routes between the two countries are not yet economically viable, distance and terrain wise, and are not sufficiently supported by Nepalese infrastructure. (Sharma, 2018) In addition to it, Nepal is still limited by the Nepal-India ‘Treaty of Peace and Friendship 1950’ which allows Indians privilege to own property, get government contracts and concessions, and participate in trade and commerce in Nepal freely, to the disadvantage of the domestic population. Furthermore, the pegged currency between India and Nepal has also not been reviewed for a long time and has been putting Nepal in a competitive disadvantage.
It is hence a matter of great concern, how Nepal reiterates its political balance between China and India to sustain economic benefit from both parties.
The role of SAARC
Stiglitz rightly talks about inequality of power in international organizations, SAARC is also one such example. It is a regional organization established in 1985 to promote political and economic unity in the South Asian region, which includes Afghanistan, Bangladesh, Bhutan, India, the Maldives, Nepal, Pakistan, and Sri Lanka. The underlying interest, however, is to assume India’s dominance in all these countries. This is evident from India’s disapproval to the talks between Pakistan and Nepal in 2014 proposing China to become a full-fledged member of SAARC and also with the following boycott of SAARC summit, which was to be held in Islamabad, by five member nations led by India in response to terrorist attack in India and blaming Pakistan for not cooperating in combating cross-border terrorism in the South Asian nations. Although a small international organization with merely eight members, it still failed to sustain regional interest over national interest. Like Robert Dahl argues, its is highly unlikely that international organization will root for global or regional interest at the cost of national interest, there is a challenge of democratic process, inequality of power within the member states.
However, in this scenario, while Pakistan denies the allegations made by India, Nepal seeks an opportunity. Recently, in March 2018, Pakistan’s Prime Minister Shahid Khaqan Abbasi visited Nepal to discuss holding the 19th SAARC Summit that was previously canceled and also strengthening bilateral relations. (Xinhuanet.com, 2018) As the current chair, Nepal is working towards increasing its diplomatic importance and trying to remove the misunderstanding between the two nations. But will a strong nation like India submit to the request of small nations is a big question. Nonetheless considering the economic dominance China is gaining in countries like Pakistan, Sri-Lanka, and Nepal, it would be in the best interest for India to sustain its role in SAARC and a great opportunity for Nepal to spur its diplomatic importance.
Nepal’s balancing Act between China and India
China’s foreign policy is clear, it seeks to gain dominance through gradual economic infiltration into countries and so far it has been successful, especially in South East Asia. Currently, China only accounts for 14 percent of Nepal’s import, and despite being a small nation, China does see some strategic interest in expanding its economic and political reach in Nepal. It has been proposing ‘Trilateral cooperation’ between Nepal, India, and China, but even though Nepal could gain through greater infrastructural development and connectivity as a landlocked country, to India it could mean losing its market and increasing vulnerability to its domestic industries.
Following the disturbed relation between Nepal and India during the economic blockade, Nepal has moved quickly to put aside these contentious issues and find a common ground with India on the economic side. Connected by history, Nepal and India also focused on the cultural and religious bond the two countries share. Importantly, through this break-up and patch-up, Nepal learned three important lessons: 1. India is crucial to Nepal’s economic stability, 2. Massive efforts need to be made to lessen dependency on India, and 3. Upholding Nepal’s sovereignty is crucial to maintaining its diplomatic importance. Which is why the current Nepalese government led by K.P. Oli has clearly announced a balanced diplomatic approach to China and India, an inclination to any side would further put Nepal at a loss both economically and politically. Despite the fact that Nepal needs to diversify its trade and transit facilities, the trade and transit agreement between China and Nepal has a lot of potential but like shared earlier its viability in terms of cost and distance is a challenge for Nepal. This also serves as a core reason for Nepal to keep its ties with India strong still.
Maintaining balance is challenging. In regard to much-discussed railway links, following discussions between Nepal and China to expand railway links, India too proposed an expansion of railway link between Nepal and India, which was signed recently. Likewise, despite India’s complaint about the possible threat of China-Nepal railway link expanding near India’s border, Nepal and China have signed a framework agreement on China’s Belt and Road Initiative.
In the past few years, India has been criticized a lot for interfering in Nepal’s domestic politics, this has in a way has encouraged Nepalese populations affinity towards China, whose foreign diplomatic policy focuses on supporting independence and sovereignty.
From a structural realism’s perspective, China’s approach is on point. Waltz argues that the states use political means for economic gains and economic means for political gains, and China has been wisely expediting its economic means by trying to economically tie almost 70 countries through Belt and Road Initiative. Secondly, their diplomacy is strongly tied by force in the South Asian region, their military force are developing equally. Thirdly, unlike the US, China has been making wise use of its resources, not spending it on disrupting the internal politics of neighboring countries, but rather undertakes a passive aggressive economic approach in bringing countries under their armor. Schweller’s argument also seems to coincide with China’s approach to India-Nepal relationship. Because China’s interest actually lies in expanding its economic ties with India, it is unlikely that they would want to disrupt Nepal-India relationship, evident in their efforts to pursue Trilateral Cooperation. They definitely want to maintain the current status-quo while simultaneously expanding its economic ties with both Nepal and India. Hence, Nepal currently stands at a very opportune moment, with the majority government that is fairly stable, and strengthening diplomatic relations on both sides.
Recommendation
To cash on the current scenario, Nepal needs to consider various important aspects from both political and economic standpoint. No matter how much India and China claim that the proposed agreements are in favor of Nepal, it is unlikely that their interest would be small. Nepal must identify any possible loopholes and focus on strengthening its stance on the agreements. Nepal’s trade deficit with India hit a record high last fiscal year at Rs. 491 Billion, largely accounted by imports for iron and steel, petroleum products, automobiles, machineries, and cereals, etc. Despite being an agricultural nation, it still imports large volume of agro-based products from India. Hence, it is crucial to take on Rodrick’s perspective, if the country plans to open up more to the two big giants. Like he suggests, Nepal must block full integration with China and India, and pursue as he calls, a ‘thin’ version of globalization.
Improve Nepal’s governance: Nepal has had an unstable government for past few decades, hence strengthening the state and the government should be the utmost priority of Nepal if they are to forge sustainable strong agreements with giants like China and India. Even though the agreements on railway links and other infrastructural developments have been signed, it is dependent on Nepal’s governance, if those agreements will be effectively actualized or not. Furthermore, as Rodrick suggests, the domestic government must put into place proper policies to regulate and manage such big investments. For example, various hydro projects with China has been signed, but the government must analyze how the benefits will be shared, upon completion. Nepal has had a fair share of experience, where Nepal felt cheated on Koshi and Gandak agreement with India, as the agreement limited Nepal’s authority to open Koshi River barrages leading to enormous floods in Nepal, while safeguarding the Southern Indian flood-prone areas. Such mistakes must be avoided, political leaders must not be allowed to sign agreements just to serve their personal interest to gain commission or to gain votes, it should be serving the core interest of the nation.
Strong state protection: While Nepal advances talk about economic integration with China and India, it crucial that the government devises strong state protectionist policies to prevent India and China from exploiting Nepal’s natural resources and to avoid limiting Nepal and a mere periphery based country. Liberalizing trade with China and India also runs a risk for Nepal of sabotaging its already small domestic economy and deindustrialize. The current policies, do little to protect domestic economies, providing 5 percent subsidy on only industrial products and exempting India of any tax on live animals, fish or other primary products. Nepal must introduce policies that would protect its export-oriented industries like handicraft, carpet and garment industries from fierce Chinese and Indian competition, and to incentivize manufacturing, agricultural and small cottage industries in Nepal. It must expedite plans, policies and establishment of Export Processing Zones, which would relieve export-oriented industries in these zones from certain tax and duties. In addition to it, Nepal must put increased effort in amending the Treaty of Peace and Friendship 1950 with India, which has provided Indians economic advantage over Nepal.
Government financial controls: China and Nepal are also considering the possibility of a free trade agreement. But like we have studied, without proper financial controls, it can drain economies like Nepal, as was in the case of Greece. Thus, in line with Rodrick’s recommendation, Nepal must strengthen its financial institutions and implementing bodies’ capacity to regulate stringent financial controls to avoid hyperinflation and destruction of export-oriented domestic industries. Efforts should be made to keep interest rates at minimum and provide conducive environment for foreign and domestic investments. In addition to it, Nepal should hold the strong position that such an FTA agreement would benefit Nepal through transfer of technological skills and capacity as well as strengthening connectivity and Chinese infrastructural investment in Nepal.
Conclusion
As shared earlier, Nepal is at a brink of diplomacy with China and India, favoring one or the other would be considered a diplomatic blunder. While the potentials are high between Nepal-China trade relations, realistically it cannot serve the interest right away, which is why maintaining economic and political neutrality with India is important. But has the political, geographical and economic pressure from China and India, led Nepal to lose its authority? No, in fact, Nepal’s geopolitical importance is rising and with it, so is Nepal’s authority in determining its interest. Amidst this, Nepal also has a major responsibility to control the globalization process to their advantage. For Nepal, the current international and national development scenario is favorably positioned both politically and economically, to become a bridging influence between India and China, and maximize benefits from controlled globalization. This is not to say that Nepal is indispensable to India-China friendship, but if Nepal can maneuver themselves as being a neutral ally to both politically, it has the opportunity to reap great economic and development benefits from both sides. The key, however, is in putting forth Nepal’s national interest ahead of everything else. References
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