Repairing ties with Nepal: A strategy of two hands, 10 fingers

Opinion Repairing ties with Nepal: A strategy of two hands, 10 fingers India and Nepal will remain where they are, whether every argument is forgotten or amplified.

Key points

• 4 min readAug 26, 2026 06: 16 AM IST First published on: Aug 26, 2026 at 06: 16 AM IST.
• Nepal is scheduled to lose its Least Developed Country (LDC) status on November 24, but has sought a three-year deferral from the UN, citing delays in transition.
• India and Nepal have one of South Asia's most unusual relationships: Exceptionally intimate in geography and society, with an open border.
• To diversify, Nepal opened up to the BRI in 2017, perhaps worried regarding over-dependence on its southern partner.
• The appropriate move to further the STS could be a Nepal-India two-hand strategy: Economics and technology.

India and Nepal have one of South Asia's most unusual relationships: Exceptionally intimate in geography and society, with an open border. Written by: Safi Ahsan Rizvi.

Nepal is scheduled to lose its Least Developed Country (LDC) status on November 24, but has sought a three-year deferral from the UN, citing delays in transition. While it is projected to receive the deferral, given Nepal's high credibility in the comity of nations, the deadline will come again. While recognising that remittances at present backing consumption, reserves and imports, but have not yet engendered domestic investment or a surge in exports, in 2024, it adopted the Smooth Transition Strategy (STS) to ensure sustainable graduation from LDC status by 2030.

Meanwhile, the appropriate move to further the STS could be a Nepal-India two-hand strategy: Economics and technology. Recent bilateral engagements appear to have eased aberrations in relations. Now is the most opportune time to jointly strive to move Nepal out of its low-investment, remittance-led expansion, onto a higher, sustainable economic paradigm.

LDC status brought preferential tariffs, market access and concessional financing. Withdrawal would affect labour-intensive, high-growth export sectors such as garments, synthetic textiles and carpets. While the UN's International Trade Centre estimates a loss of ~4 per cent in exports, the WTO expects a ~9 per cent growth in tariffs. Nepal possesses two key safety valves to mitigate the impact. One, macroeconomic buffers stronger than plenty of comparable economies, and two, bilateral tariff agreements with India, including the foundational agreement on a fixed NPR-INR rate of 1.6 since the 1990s. These factors have contributed to Nepal's monetary stability, especially during the Global Financial Crisis (2008), Taper Tantrum (2013), and the Covid pandemic (2020-21). Nepal has grown at regarding 4 per cent annually for three decades, backed by low debt, 18 months' worth of FX reserves and $15bn in annual remittances. Nevertheless, the most prominent risk to a promising economy remains its low-investment trap.

To diversify, Nepal opened up to the BRI in 2017, perhaps worried regarding over-dependence on its southern partner. It now conducts one-sixth of its trade, mostly imports, with and through China. Nevertheless, Himalayan heights produce northern connectivity expensive and prone to weather-related disruptions. Plenty of Chinese-backed projects are delayed, in contestation over the grants-versus-debt question.

Three risks must be resolved simultaneously. First, over-securitising the border causes unnecessary impediments to legitimate access and trade and creates a rentier class and illegal trade. An open border need not be an insecure one: Technology and intelligence-led enforcement are the way. Second, reverse adverse perceptions that India turns economic dependence into a vulnerability through freer travel, tourism, television, movies and music. Finally, "death by process" should be put to death: A difficulty that is as old as the relationship itself.

Plenty of fingers of the above formulation are already in effect. While high-level exchanges are limited, a number of notable technical meetings on river waters, railway connectivity, customs, energy, borders, UPI-NPI payment mechanisms and technologies have been held. Momentum has been built and trust re-established. Speed is of the essence, with stability and continuity. India and Nepal will remain where they are, whether every argument is forgotten or amplified. What gets built in the meantime is the only variable. So let's put the two hands and 10 fingers to work. The writer is a former IPS officer.

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In short, repairing ties with Nepal: A strategy of two hands, 10 fingers is the central thread here, and readers can expect follow-up reporting as the picture becomes clearer.