India-Nepal Relations: Historical Background, Relevance of Nepal to India, Challenges in Bilateral Relationship, Way Forward & UPSC PYQs

India and Nepal share a unique bilateral relationship, marked by open borders, people-to-people kinship, shared culture, shared currency and religious linkages.

This topic is important for the UPSC Civil Services Examination under General Studies Paper II (International Relations) and General Studies Paper III (Internal Security and Border Management). It is frequently linked with issues such as India's Neighbourhood First Policy, open-border management, connectivity projects, hydropower cooperation, border disputes, migration, and China's growing strategic influence in South Asia.

India and Nepal: A Unique and Special Relationship

“I remember, 9 years ago, in 2014, I made my first visit to Nepal. At that time I had given a "hit" formula for India-Nepal relations - Highways, I-ways, and Trans-ways. I had said that we will establish such contacts between India-Nepal that our borders do not become barriers between us.” - Narendra Modi

• Geographical and Border Connections: Nepal shares borders with five Indian states: Sikkim, West Bengal, Bihar, Uttar Pradesh, and Uttarakhand. The two countries maintain an open border, which allows people to cross freely without the need for a visa.

• Civilizational Relations: India and Nepal share a deep and special bond, often referred to as ‘Roti-Beti Ka Sambandh,’ meaning relationships rooted in kinship, family, and marriage. 

• Historical Ties:

• India and Nepal share deep-rooted cultural and religious ties, particularly through Hinduism and Buddhism, with Lumbini, Buddha’s birthplace, situated in present-day Nepal.

• The 1950 India-Nepal Treaty of Peace and Friendship serves as the foundation of the unique and close relationship between the two countries.

• It allows Nepal access to Indian weaponry and military support.

• In 2022, the Indian Prime Minister visited Nepal to celebrate Buddha’s birth anniversary.

• Landlocked Country: As a landlocked country, Nepal relies heavily on India for trade, with India being its primary access to the world through ports and transportation routes. Nepal uses India’s Kolkata port for sea access. 

• Nepal is also seen as a buffer state that plays a crucial role in protecting India from potential aggression originating from the northern Himalayan region.

• India Gives National Treatment to Nepal: India and Nepal also have a Treaty of Transit, which confers transit rights through each other’s territory through mutually agreed routes and modalities. Its revised version was signed on 1 June 2023 for a period of 7 years.

Relevance of Nepal to India

The significance of Nepal for India is as follows:

Border Security:

• Proximity to the strategically important Siliguri corridor makes Nepal essential from a strategic point of view as well.

• Internal Security: Due to the open border, it becomes a significant security concern for the bordering states. This situation facilitates the smuggling of drugs, human trafficking, and gold smuggling, posing serious risks. Additionally, the border acts as a refuge (safe haven) for criminals and insurgents, further exacerbating security threats.

• Defence Cooperation: Nepal also acts as a strategic buffer between India and China.

• Gurkha regiment served in the Indian army.

• Surya Kiran Joint Exercise: The 18th edition of the Battalion-Level Joint Military Exercise took place in Saljhandi, Nepal, from 31st December 2024 to 13th January 2025.

• Treaty of Sugauli (1816): This treaty, signed between Nepal and the British East India Company, demarcated the boundary between British India and Nepal. According to the treaty, the Kali River serves as the boundary line between the two countries.

Economic Dimension:

• Bilateral Trade: India remains Nepal's largest trading partner, with bilateral trade reaching approximately US$ 8.35 billion in FY 2023–24.

• India as Nepal’s Largest Trading Partner: India remains Nepal’s largest trading partner, contributing significantly to Nepal’s import and export activities.

• Foreign Direct Investment (FDI): India is the largest investor in Nepal, accounting for 33% of the total FDI.

• Indian Companies in Nepal: India has a significant presence in Nepal’s manufacturing, services, and other economic fields.

• Integrated Check Posts (ICPs)/Land Ports: Integrated Check Posts (ICPs) at key border points, including Raxaul, Jogbani, Sanauli, and Nepalgunj, help streamline cross-border trade and movement.

• These posts aim to facilitate smoother customs and immigration processes for cargo trucks moving between India and Nepal by housing both facilities under one roof.

• Nepal's Hydropower Exports: Hydropower is Nepal's primary export, leveraging the country’s abundant water resources. India is a key partner in harnessing and distributing this energy.

• Arun III Power Project (900 MW): The Arun III Project, a flagship collaboration between India and Nepal, is a significant hydropower initiative. Located on the Arun River in eastern Nepal, this peaking run-of-river project, once completed, will be Nepal’s largest power generation project.

• West Seti Power Project: Initially awarded to a Chinese company, the West Seti Power Project was later acquired by India in 2022.

• Arun IV Power Project (490 MW): Another ongoing power project on which a Memorandum of Understanding (MoU) was signed in 2022.

• Trilateral Power Cooperation: India has signed a trilateral power agreement with Nepal and Bangladesh. This agreement enhances cross-border electricity trade and contributes to regional energy security.

• Transmission Lines: India is also working on double-circuit transmission lines.

Connectivity / Infrastructure:

• India has pushed major infrastructure projects in Nepal. 14 major infrastructure projects in the Terai region. It includes highways, transmission lines, and hydroelectricity projects.

• Motihari-Amlekhgunj Pipeline: Inaugurated in 2019, it is South Asia’s first cross-border petroleum products pipeline from Motihari in India to Amlekhgunj in Nepal.

• Bridge Across Mechi River: Mechi Bridge is the ending point of Asian Highway 02 in Indi,a leading to Nepal, and provides critical connectivity to Nepal.

• Six Railway Projects: Jaynagar (India)-Janakpur (Nepal) to Bardibas in Nepal. 

• At least six railway projects are proposed.

• Both governments have signed MoUs to develop an electric railway line connecting Kathmandu in Nepal with Raxaul in India.

• Motor Vehicle Agreement (MVA) under the BBIN initiative to provide seamless connectivity.

China Factor:

• Trans-Himalayan Railway Project: One of the most ambitious proposals made by China is the Trans-Himalayan Railway Project, which would connect Kathmandu to Lhasa, the capital of Tibet.

• Increased Chinese Investment: China has become a major source of FDI investor in Nepal in recent years.

• Pokhara International Airport: Some of the notable projects funded by China include the Pokhara International Airport.

• Possible Debt Trap: The project is often described as a "white elephant", meaning it has turned out to be more costly and underperforming than initially expected.

• BRI: Nepal’s decision to join China’s Belt and Road Initiative (BRI) has brought the country into closer economic, diplomatic, and strategic ties with China.

• Strategic Leverage: Nepal has increasingly used its growing ties with China as a strategic "card" against India. By aligning with China, Nepal seeks to gain leverage in its relationship with India, ensuring it has more diplomatic options and alternatives.

Cultural Links:

• Civilisation Links: India and Nepal share profound cultural, religious, and historical ties, deeply rooted in Hinduism and Buddhism, which are integral to both civilisations.

• Hinduism: Nepal is considered the birthplace of Goddess Sita, while India is the birthplace of Lord Rama, forging a deep cultural and religious link between the two nations.

• Buddhism in Nepal is the birthplace of Gautam Buddha in Lumbini, while he attained enlightenment in Bodh Gaya in Bihar.

• Sister City Projects: Several Sister City Projects have been established to strengthen ties between the two countries, including:

• Kathmandu-Varanasi (Pashupatinath Temple-Kashi Vishwanath Temple)

• Ayodhya-Janakpur

• Lumbini-Bodh Gaya

• India is also a key technological, developmental and security partner of Nepal.

• Language, Cinema, and Music: Cultural ties between the people of India and Nepal are evident in shared language, cinema, and music. These connections further enrich bilateral relations.

• People-to-People Connections: Strong people-to-people links continue to be the backbone of India-Nepal relations, fostering friendship and mutual understanding.

Humanitarian Assistance:

• Situated in a fragile ecological zone prone to earthquakes and floods, Nepal frequently faces severe natural disasters. As a result, it remains the largest recipient of India’s humanitarian aid and disaster relief support.

Multilateral Cooperations:

• India and Nepal actively participate in several multilateral forums together, including BBIN (Bangladesh, Bhutan, India, and Nepal), BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), and SAARC (South Asian Association for Regional Cooperation), among others.

Issues/Challenges in India-Nepal Relations

The recent issues in India-Nepal Relations are:

Recent Border Disputes:

• Kalapani: It is a valley that is administered by India as part of the Pithoragarh district of Uttarakhand. It is situated on the Kailash Mansarovar route.

• Limpiyadhura: It forms the international boundary between Nepal and China and is considered the origin of the Kali (Mahakali / Sharda) river, which demarcates the border between the two countries.

• Susta Dispute: Susta is a 145-sq-km area that had fallen on the Indian side (West Champaran district) after the River Gandak (or Narayani) changed course.

• New Map: In 2020, Nepal spearheaded efforts to garner parliamentary consensus for Nepal’s new map, which officially incorporated the 372 sq km area in Uttarakhand and pledged to bring it back.

• The Treaty of 1950 dispute:

• This treaty is the bedrock of Indo-Nepali ties, but Nepal claims itise against its interests.

• Features:

• mutual peace and friendship

• Open borders and free trade.

• National treatment and the same privileges to citizens(ownership of property, trade, etc.)

• Security and cooperation to ensure mutual security.

• Economic collaboration for transport, communication, and infrastructure.

• Challenges:

• Perceived imbalance, as Nepal believes this treaty is against their national interest.

• Nepal now wants to have an independent foreign policy due to the Chinese presence.

• Better relations between China and Nepal are pushing for reforms in the treaty.

• River disputes:

• The Mahakali treaty on the Mahakali river is the point of concern due to its slow implementation, because of which water sharing, dam management, and downstream benefits are not enjoyed by Nepal.

• Koshi barrage and the Gandak river agreement are another concern due toa  lack of agreement.

• Nepal always accuses India of misusing the barrage system and causing floods in Nepal.

• Both the nations are not able to resolve environmental degradation and loss of livelihood.

• How to resolve?

• Revisiting and renegotiating older treaties.

• Establishing a permanent joint water commission to resolve water disputes (the joint committee of 1996 should be given more power).

• Flood cooperation.

• Current issues:

• Madhesi Issue:

• Madhesis are predominantly businessmen living on the plains of Nepal. They are feeling discriminated against by the Nepali government. 

• India has tried to resolve the issue of Madhesis, and in 2015, there was an economic blockade at Nepal’s border, which further strained the relationship.

• Chinese footprints (China-Nepal transport agreement),  trust deficit, and political instability make Nepal a swing state.

• Economic disparities: India is unable to match the aspirations.

Other Disputes

The other disputes in India-Nepal Relations are as follows

• 2015 Economic Blockade: In 2015, a significant rift developed between India and Nepal when Nepal accused India of imposing an undeclared blockade. This dented India's image in Nepal.

• As a landlocked nation, Nepal relies entirely on India for its petroleum supplies

• Trust and Delivery Deficit: Such instances have significantly strained trust between India and Nepal. This trust deficit has led to tensions and has complicated the bilateral relationship.

• The delivery deficit from India’s side has led to disillusionment in Nepal

• Himalayan Quad: The emergence of the Himalayan Quad, a regional cooperation group involving China, Nepal, Pakistan and Afghanistan (and not India), has raised serious strategic concerns for India.

China’s Intervention

In recent years, Nepal has gradually moved away from India’s traditional sphere of influence, with China stepping in through increased investments, aid, and loans.

• Viewing Nepal as a strategic partner in its Belt and Road Initiative (BRI), China aims to develop key infrastructure projects to enhance global trade connectivity. However, deepening Nepal-China ties risk eroding Nepal’s historical role as a buffer state between India and China.

Way Ahead

Measures to strengthen bilateral relations between the two countries are as follows:

• Equal Respect in Bilateral Ties: India and Nepal must approach their relationship with mutual respect and understanding of each other's sovereignty.

• Economic Engagement: India needs to ensure timely completion of infrastructure and economic projects to build trust and deliver on commitments.

• Counter China: India needs to further develop regional collaboration by focusing on technologicalpartnershipsp.

• Sensitivity and Soft Power: India should respect Nepal's sensitivities, taking proactive actions and leveraging soft power to strengthen ties.

• Address Nepal’s Concerns: Actively engage with Nepal, addressing its apprehensions through dialogue and diplomacy and thus building public trust.

• Multilateral Engagement: India can engage with Nepal on multilateral platforms like

• SAARC – South Asian Association for Regional Cooperation

• BIMSTEC – Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation

• IORA – Indian Ocean Rim Association

• ISA – International Solar Alliance

• CDRI - Coalition for Disaster Resilient Infrastructure

• BBIN – Bangladesh, Bhutan, India, Nepal

UPSC Previous Year Questions 

Q. China is using its economic relation and positive trade surplus as tools to develop potential military power status in Asia; In the light of this statement, discuss its impact on India as her neighbour. (150 Word, 10 Marks- CSE 2017)