Why India’s ‘Big Brother’ Attitude Towards Nepal May Benefit China

If Modi government wants to achieve ‘Neighbourhood First’ policy & goals, it must treat Nepal as an equal.

Illustrated images of flags of China, India and Nepal, used for representational purposes.

(Photo: Altered by The Quint)

Since it assumed power in 2014, the NDA government led by PM Narendra Modi has attempted to pursue a ‘Neighbourhood First’ foreign policy. While addressing the 69th session of the United Nations General Assembly (UNGA), the PM said: “A nation’s destiny is linked to its neighbourhood. That is why my government has placed the highest priority on advancing friendship and cooperation with its neighbours”.

But it is evident that his policy goals have not translated into reality. In fact many observers say that relations with some of our neighbours – such as Nepal – have deteriorated during this time.

India-Nepal Historical Ties

India and Nepal have historically shared strong ties. Nepal holds special significance in our foreign policy because of shared geographic, historical, cultural and economic ties. The India-Nepal Treaty of Peace and Friendship of 1950 lays down the foundation for this special relationship.

The two countries not only share close bonds through marriages and familial ties, but they also have an open border which allows for unhindered movement of people and goods.

The economic ties extend beyond free trade, and Indian currency has been accepted in Nepal as legal tender.

But these relations have taken a nosedive since 2015, with political and border disputes being the main cause of such deterioration. But India has attempted to remedy the situation since and focus must be given to the recent RBI Amendment.

India’s Diplomatic Efforts: A Step In The Right Direction

India has also introduced an amendment to the Foreign Exchange Management (Export and Import of Currency) Regulations, 2015. The new amendments are directed at removing the absolute embargo on an individual to take or send Indian currency notes beyond the limit of Rs 25,000 to Nepal.

The move is aimed at facilitating trade and tourism between the two countries. Traditionally, India has been the top contributor to trade in Nepal. Behind the numbers on India-Nepal exchange is the fact that an open border and unhindered movement of goods and currency allows for free trade. Secondly, an open border allows for familiarity to develop among people, and has allowed us to gain an edge in matters of economic relations.

The move to remove the limit to currency is certainly a positive one in this regard.

Secondly, with regard to tourism, it has to be kept in mind that this sector is one of the most important for Nepal’s economy. It generates Rs 240.7 billion in revenue and supports more than 1.05 million jobs, and the contribution of the sector to the GDP stands at 7.9 percent. The highest numbers of tourists to Nepal come from India and use Indian legal tender.

Thus, when the RBI had announced its amendment of 2015 along with its decision to demonetise currency, there was a furore in Nepal, particularly from travel traders and entrepreneurs. As Indians would now have to procure dollars or euros for travelling to Nepal, the number of tourists to Nepal reduced and this move had an adverse impact on Nepal’s economy. By removing cash limits for travel to Nepal, the Indian government has allowed for the tourism industry to benefit the country.

An Economic Goal

There might be a third goal at play while introducing this policy. Nepali rupees are pegged with Indian rupees, compelling Nepal to ascertain its economy with the Indian economy. A beneficial situation for Nepal arises when both countries perform well – which deepens Indian influence in Nepal.

The Nepal government has been trying to break away from this pegging system by intensifying its economic engagement with China.

The Communist Alliance has been doing just that. If Nepalese policymakers are effective in removing this currency pegging, Indian items will turn out to be more costly in the Nepalese market as the currency will appreciate over the fixed rate. This will make it significantly simpler for Chinese items to contend with Indian merchandise in the Nepalese market.

By allowing for people to carry cash beyond a certain limit the Indian government has increased interdependence between the countries, making it tougher to break away from this pegged system.

India’s big brother attitude towards Nepal might have benefited the present administration but it may prove disastrous for India in the future, as this policy has pushed our neighbour away into the hands of China.

The Chinese influence is further dangerous as due to the recent border disputes between India and China it becomes extremely important for India to maintain close bonds with its neighbours. The economic policies and deliberations are only a step in the right direction. If the Narendra Modi government has to achieve its Neighbourhood first policy it needs to reassess its diplomatic priorities and treat Nepal as an equal.

(Aniket Singh and Arnav Singh are 3rd year law students at NALSAR, Hyderabad. Arnav tweets @arnav_singh9. This is an opinion piece and the views expressed in this article are that of the writer’s own. The Quint neither endorses nor is responsible for the same.)