Nepal’s Economic Diplomacy with India: Trends, Constraints and Strategic Directions

Abstract

Nepal’s relation with India is multidimensional and it is shaped by geographical proximity, open border, culture, religion and people-to-people ties. India has been the largest trade partner of Nepal, major source of Foreign Direct Investment (FDI), major development assistance partner, a large source of tourism and a significant labor destination for seasonal migrant workers. In the 1990s, after Nepal liberalized its economy, Nepal has prioritized economic diplomacy as a central pillar of its foreign policy. For Nepal, a Landlocked Least Developed Country (LLDC), economic diplomacy is important as it acts as a bridge connecting foreign policy and economic interests of the nation through bilateral, regional and multilateral platforms and helps in the sustainable economic development of the country. This study employs a qualitative approach to study the main dimensions of Nepal-India economic relations- trade, aid, investment, tourism and employment and highlights the persistent challenges in these areas.These include structural limitations, inadequate infrastructure, lack of diversification of transit routes, bureaucratic inefficiencies, donor-centric aid priorities, untapped tourism potential and labor issues, while also focusing on the solutions for the effective economic diplomacy between Nepal and India. The results revealed the asymmetric power dynamics, politicization of economic issues, structural vulnerabilities and less proactive role of Nepal in economic diplomacy. This study concludes that Nepal has prioritized political dimensions over economic ones when conducting bilateral engagements with India. Depoliticization of economic issues at the domestic and bilateral level, along with the structural improvements with focus on proactive economic diplomacy will lead to balanced and sustainable economic relations.