Nepal’s political shift offers India a chance to reset ties

Country’s youthful leadership faces early tests at home and abroad.

Now that the dust and din of the elections have subsided, the Balendra Shah-led Rashtriya Swatantra Party government, which has secured close to a two-thirds majority, has to hit the ground running. It carries the hopes and aspirations of millions of Nepali citizens who want good, corruption-free governance and rapid economic development. The government has to address several serious issues, both domestic and international.

The Gulf crisis linked to tensions in West Asia is hitting Nepal hard. The impact of skyrocketing oil prices, fertiliser shortages, a depreciating currency, declining remittances, and above all, the safety of its citizens has to be dealt with, especially if the conflict prolongs. India, similarly affected, is in a position to help if requested, as it did during the COVID crisis.

For a new government with relatively young and untested leaders, it has acted with alacrity on demands to punish those responsible for the killing of innocent youths during the Gen Z protests of September 8, 2025. Both former prime minister K P Sharma Oli and former home minister Ramesh Lekhak, indicted in the judicial inquiry, have been arrested. It remains to be seen what steps will be taken to bring to book the arsonists who destroyed State property on September 9, 2025.

Over the next few months, Nepal is expected to graduate from LDC status to that of a developing country. This will have implications in terms of tariff preferences provided by developed countries and the availability of grant assistance, especially from multilateral financial institutions. Nepalese exports and foreign aid could be impacted. Navigating this turbulence will require serious policy focus. Of course, Indian grant assistance will remain unaffected.

With India, Nepal’s most important bilateral partner, there is a wide range of issues, including some irritants, on the agenda. Now is the time to focus on win-win development cooperation — hydropower, connectivity in all its forms, especially digital finance, and infrastructure development. In due course, the irritants will also need to be addressed. Now that a government with a huge majority is in place, discussions could begin on the 1950 Treaty on Peace and Friendship that Nepal wants to amend, as well as the boundary dispute.

Above all, a warm relationship of mutual trust and understanding needs to be forged with the new leadership of Nepal. Some progress has already been made. India was a strong supporter of the elections and helped by providing logistical materiel. Prime Minister Narendra Modi has had a friendly conversation with the new leadership, and warm messages have been exchanged. An early meeting of the top political leaders would pave the way for rapid progress on the substantial bilateral agenda.

It is important to hold the Joint Commission at the level of the foreign ministers. A periodic review at the political level, followed by regular joint monitoring of bilateral projects, is essential for improved delivery and efficiency. These mechanisms need to be strengthened and should not be impacted by fluctuations in the bilateral relationship. A special focus is required on hydropower cooperation. A quick agreement on the mega multipurpose 6,000 MW Pancheshwar project would bring about a sea change in the relationship.

The benefits to Nepal of exporting electricity to India, and through India to Bangladesh, are tangible and are assisting in reducing Nepal’s trade deficit with India. Similarly, other major bilateral hydropower projects, including Arun III, Upper Karnali and West Seti, need to be progressed rapidly by the Indian public and private sector companies implementing them. Guidelines for the export of Nepalese power to India could be eased, particularly in view of the Gulf crisis linked to developments in West Asia.

The people-to-people connect is the foundation of bilateral relations. Facilitating cross-border connections, developing the Ramayana and Buddhist circuits, and strengthening academic exchanges are critical. Balendra Shah is the first Madhesi prime minister of Nepal. He launched his campaign from Janakpur, the spiritual and political centre of the Madhesh, and his swearing-in ceremony was organised on the occasion of Ram Navami. India should expeditiously deliver on its commitments made at the level of the President and the Prime Minister for the development of the ancient town.

In the new Nepalese government, India will be dealing with a group of youthful, talented and well-educated leaders. Balendra Shah himself is an engineer. He has a special attachment to Bengaluru, where he studied for three years, from 2016 to 2018, at Nitte Meenakshi Institute of Technology. Several other leaders are educated in the US and other Western countries. They are pragmatic and non-ideological, unlike some of their predecessors. It is unlikely that they will indulge in the kind of balancing game played by communists and royalists in the past.

These are nationalist leaders committed to the development of their country. They will maintain friendly relations with China as well, but will judge BRI projects against the standards of economic viability and national benefit. Of course, China’s role will evolve, since it no longer has the leverage provided in the past by communist parties that have received a drubbing in the elections.

India’s neighbourhood policy must recognise the fundamental changes taking place in the region. The power of youth movements has been witnessed in Sri Lanka, Bangladesh and now in Nepal. The median age in all these countries is below 30. This is a new generation — digitally connected and aware — and large diaspora communities influence political behaviour back home. It is an impatient generation, curious and questioning, and wanting a better life.

India needs to make the youth and development partnership a fulcrum of its neighbourhood-first policy. Unlike in the past, political leaders do not have a close relationship with the emerging political class in countries of the region. This needs to be remedied, and programmes that bring young leaders of the two countries closer together should be strengthened.

The dramatic changes in Nepal have created a great opportunity for a reset in the bilateral relationship. The historical baggage of the past that has bedevilled ties will, hopefully, no longer be too salient. The challenge for the new leaders is to deliver on the sky-high expectations of their people. India can help by extending its full support and cooperation. A friendly, stable and prosperous Nepal is in India’s own strategic interest.

(The writer is a former Ambassador to Nepal)