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With China steadily expanding its area of influence, the new government at the Centre led by Prime Minister Narendra Modi is pulling out all the stops to strengthen India's relations with its neighbours. Modi's recent visit to Nepal has laid the foundation for deepening the economic relations and is likely to be a prelude to greater strategic cooperation between the two countries.
On the trade history between the neighbours, data reveals that while India's commodity exports to Nepal have been growing at a fairly robust pace, rising steadily from $2.17 billion in 2010-11 to $3.6 billion in 2013-14, import growth has been lacklustre. The rise in commodity imports has been virtually negligible over the past few years, rising marginally from $513.4 million in 2010-11 to $526.8 million in 2013-14.
One reason for the stagnation in imports from Nepal is that the country's export base is very narrow. Without greater investment in infrastructure and political stability, one may not witness a sudden surge in exports from the country.
One big area of cooperation has been hydro power. One could argue that with an estimated 40,000 Mw of economically feasible hydel-power potential, Nepal is perfectly positioned to supply power to India, especially to northern, power-deficient, parts of the country.
More so because India is a net importer of energy, importing a significant portion of the oil it consumes. Coal and oil together account for an overwhelming share of India's energy production with the balance being accounted by natural gas, hydro and nuclear. Thus, energy diversification should form an integral part of the country's overall power strategy.
However, of the 40,000 Mw of hydel power potential, Nepal has been able to develop only 600 Mw of hydropower, owning to various constraints such as technical and financial. Only 40 per cent of Nepal's population has access to electricity. The share of traditional sources in total energy consumption stands at 84 per cent, of which firewood alone contributes 75 per cent. The rest is derived from modern sources of energy.
In an email response, Sagar Prasai, country representative of The Asia Foundation, a non-profit international development organisation, said: "The Pancheshwor multi-purpose project (5,600 Mw) may actually gain momentum after Modi's recent visit to Nepal and the two countries may find common ground on the Power Trade Agreement by November SAARC Summit."
Thus, while harnessing this untapped source will immensely benefit both countries, one must be realistic in expectations as the new projects that have been announced seek to install capacity in multiples of what has been installed till date. While returns from these initial moves will take time to materialise, the Prime Minister's visit should be viewed as the first step in laying the foundation for greater cooperation in the future. As Prasai states: "The joint ministerial commission had not met for 23 years and it had been 17 years since the last Indian prime minister visited Nepal. This is beginning to change and conveying the message that India cares about its neighbors is important."
