Nepal-China BRI Agreement

Nepal’s Prime Minister KP Sharma Oli recently visited China, marking a significant development for Nepal’s infrastructure and its relations with both China and India. The visit led to agreements that will affect regional connectivity and Nepal's participation in China's Belt and Road Initiative (BRI). This has direct implications for India due to the geographical and strategic positioning of Nepal.

Key Developments from Nepal-China Agreements:

• The Belt and Road Initiative (BRI) is a mega connectivity project that connects China with Southeast Asia, Central Asia, Russia and Europe. Currently, 139 countries are involved in the BRI, accounting for 40% of global GDP.
• During the visit, Nepal agreed to strengthen its participation in China’s BRI, a global infrastructure project. This was formalized in a Joint Statement between Nepal and China, where both countries agreed to enhance development cooperation and pursue a Trans-Himalayan Connectivity Network. This means Nepal will develop rail links and other infrastructure with China.
  • The Jilong-Kathmandu railway project, which would connect Nepal to China via Tibet, is one of the major initiatives under this cooperation. A feasibility study for this project is underway.
• Rail Connectivity: Nepal already has several rail links with India (like Raxaul-Birgunj and Jayanagar-Bijalpura), and it plans to expand its network. Nepal is working to connect Kathmandu (its capital) with India and China through railways.
  • Southern Link: India and Nepal are working on a 140 km rail link from Birgunj to Kathmandu (Birgunj is already connected to India). The survey for this project is complete, but financing and construction remain issues.
  • Northern Link: Nepal is also working to connect Kathmandu to Gyirong (in China) via Shigatse and Lhasa. This rail link will connect Nepal to the larger Chinese rail network.
• Financing and Partnerships: Nepal is exploring various financing options for these cost-intensive rail projects. The BRI framework will likely help fund the Kathmandu-Gyirong railway link, while India may be involved in the Birgunj-Kathmandu link through its line of credit.
  • For its East-West rail link, which will connect multiple districts of Nepal, Nepal is seeking funds from multilateral institutions and public-private partnerships (PPP).

Shift in Nepal’s Diplomatic Calculus

• Nepal’s decision to formally align itself with China and the BRI signals a significant pivot in its foreign policy.
• Historically, Nepal has maintained close ties with India, a neighbor with which it shares a long, porous border.
• For years, India was Nepal’s primary foreign partner, with Nepalese leaders often making New Delhi their first foreign visit upon assuming office.
• But Prime Minister Oli’s decision to visit Beijing first highlights a shift in Nepal’s diplomatic calculus.
• Nepal’s decision to formally align itself with China and the BRI signals a significant pivot in its foreign policy.
• Historically, Nepal has maintained close ties with India, a neighbor with which it shares a long, porous border.
• For years, India was Nepal’s primary foreign partner, with Nepalese leaders often making New Delhi their first foreign visit upon assuming office. But Prime Minister Oli’s decision to visit Beijing first highlights a shift in Nepal’s diplomatic calculus.

Impact on India:

• India's Role in Nepal’s Rail Network: India is already ahead of China in providing rail connectivity to Nepal. India has completed surveys for important rail links like Birgunj-Kathmandu, while China is still developing its northern connection.
  • India is also supporting rail projects in the region through its Look East Policy, aimed at improving ties with neighboring countries like Nepal. India is involved in Bangladesh, Bhutan, India, Nepal (BBIN) cooperation and regional frameworks like BIMSTEC.
• Strategic Implications: Nepal’s growing ties with China, particularly through the BRI, have implications for India’s security and regional influence. However, India's rail links with Nepal ensure that Nepal remains connected to India’s broader rail network. This is crucial for both trade and geopolitical balance.
  • India is keen on completing the Birgunj-Kathmandu rail link as soon as possible, which will provide Nepal with easier access to the Indian market and ensure smoother trade between the two countries.
• Challenges: The rail projects are expensive, and financing remains a challenge for both India and Nepal. The Birgunj-Kathmandu link, costing around $4 billion, will require significant funding, which may involve both Indian credit and international loans.
  • There are also challenges related to the difficult terrain of Nepal, especially in the hilly regions, which make construction more expensive and time-consuming.