Ties of Trade and Trust: India and Gen Z Nepal

Over the past three years, India’s three close neighbours – Sri Lanka, Bangladesh and Nepal – have witnessed regime change through large-scale protests, primarily driven by youth. There are close resemblances in the way crises unfolded in these three countries, but Nepal’s case is different in many ways, and India’s role would be critical in getting its northern neighbour back to normalcy and on track for development.

“Nepal’s past two peoples' movements abolished the monarchy but failed to give law and order, and inclusive governance to the people. This third movement by Gen-Z is the outcome of such a failure,” said Binod Atreya, Managing Director of the Banking, Finance and Insurance Institute of Nepal (BFIN). “While global communities are putting more thought into protectionist policies, and a disaster like Covid-19 encouraged regionalisation, Nepal expects a constructive role from neighbouring countries, mainly from India, to support the smooth economic transition and ensure stability in the region,” added Atreya.

India is Nepal’s largest trading partner. Around two-thirds of Nepal’s foreign trade is with India. The two countries share a long and open border. Over 150 Indian ventures operate in Nepal, accounting for more than 35% of the country’s foreign direct investment.

The recent violent anti-government protests have resulted in massive damage to the Himalayan country’s public infrastructure and businesses. The interim government led by Sushila Karki, a 73-year-old former chief justice of Nepal, has vowed to fix the issues that led to the deadly Gen Z protests.

India has been proactively engaging with Nepal's new administration and has offered all types of cooperation to fix the issue. Prime Minister Narendra Modi has dialled Karki to convey “India’s full support to Nepal in its efforts towards restoring peace and stability.”

Naveen Srivastava, New Delhi’s envoy to Kathmandu, has met Finance Minister Rameshwor Khanal and Energy Minister Kulman Ghising of the interim government.

“Industry in Nepal, at this point, is confronting unique challenges and opportunities. Undeniably, a stronger bilateral economic cooperation mechanism between India and Nepal will immensely help,” said Nirvana Chaudhary, Managing Director of Nepal’s largest business conglomerate, Chaudhary Group, and the senior vice president of the Confederation of Nepalese Industries.

Former CEO of Investment Board Nepal, Sushil Bhatta, said that close bilateral economic cooperation between India and Nepal would be critical to normalise the investment climate. “At this important juncture, restoring investor confidence must be the foremost priority. Strengthening the rule of law, maintaining peace and security, and ensuring timely facilitation by all relevant agencies are essential to create stability and predictability for both domestic entrepreneurs and existing foreign investors,” Bhatta said.

As per the Federation of Nepalese Chambers of Commerce & Industry (FNCCI), the recent turmoil has made a dent of at least Nepalese Rupees 80 billion in the country’s economy.

The business leaders in Kathmandu and New Delhi suggested that India's support to Nepal in rebuilding its economy should focus on addressing the Gen Z aspirations and winning the trust of the youth.

“Confidence-building efforts should be pursued in a balanced manner, fostering trust among businesses and the general public alike. A high level of economic cooperation can help sustain business momentum, expand cross-border opportunities,” said Bhatta.

“Irrespective of the unimaginable losses the industry suffered, the view is still positive for Nepal. India should support Nepal in all ways possible, keeping a friendly spirit as a guiding force,” said Kamlesh Jain, Co-Chair, India-Nepal Centre, PHDCCI and executive director of Varun Beverages.

The damage to infrastructure and businesses poses a serious challenge to the banking sector and may lead to a jump in non-performing assets (NPAs).

“The interim government in Nepal faces substantial challenges with restoring financial stability and boosting private sector confidence in the banking sector,” said Anukool Bhatnagar, former MD & CEO, Nepal SBI Bank.

Bhatnagar suggested that the Nepal Rastra Bank (NRB), which is Nepal’s central bank, should maintain strict supervision to manage rising Non-Performing Loans (NPLs) and to enforce strong risk management practices to prevent asset quality deterioration.