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On April 3, 2025 Vivekananda International Foundation, New Delhi in collaboration, with Asian Institute of Diplomacy and International Affairs, Kathmandu, Nepal organized a full day seminar on “India-Nepal Relations” as part of the India-Nepal Think Tank Summit. The seminar consisted of the following sessions:

• Inaugural Session
• Session I: Revisiting India-Nepal Bilateral Ties: Opportunities and Challenges
• Session II: Prioritization of Energy Cooperation in India-Nepal Relations
• Session III: Consolidating India-Nepal Relations: Future Prospects

The speakers and moderators for the abovementioned sessions included:

• Dr Arvind Gupta- Director, Vivekananda International Foundation
• Mr Kuber Chalise- Senior Fellow, Asian Institute of Diplomacy and International Affairs
• Mr Gaurav Ahluwalia- Joint Secretary, National Security Council Secretariat (NSCS)
• Ambassador Ranjit Rae- Former ambassador of India to Nepal, Slovenia, Bosnia and Herzegovina, and Vietnam
• Dr Nihar Nayak- Research Fellow, Manohar Parrikar Institute for Defence Studies and Analyses
• Ambassador Jayant Prasad- Former Ambassador of India to Nepal, Afghanistan, and Algeria
• Mr Sunil Poudel- Joint Secretary, Department of Electricity Development, Nepal
• Mr. Sanjay Chadha- Former Additional Secretary of the Department of Commerce, Ministry of Commerce & Industry, Government of India
• Mr. Atul K. Thakur- Secretary, India-Nepal Centre, PHD Chamber of Commerce and Industry (PHDCCI)
• Mr Satyajit Ganguly- MD & CEO at Power Exchange India Limited (PXIL)
• Ambassador Pankaj Saran- Former Deputy National Security Advisor, Government of India and at present Convenor, NatStrat
• Brig. Rahul Bhonsle- Director, Security Risk Asia
• Ambassador K V Rajan- Former Ambassador of India to France, the US, the UK, Zambia, Algeria and Nepal.
• Dr Smruti S Pattanaik- Research Fellow (SS) at the Manohar Parrikar Institute for Defence Studies and Analyses

The VIF delegation was led by Dr Arvind Gupta, Director, VIF and Lt. Gen. R K Sawhney, Centre Head & Senior Fellow, National Security and Strategic Studies & Internal Security Studies, VIF. The AIDIA delegation was led by Mr Kuber Chalise, Senior Fellow, AIDIA. The AIDIA delegation also comprised of:

• Mr. Sunil Poudel- Joint Secretary, Department of Electricity Development, Nepal
• Ms Sajina Rai- Program Director, AIDIA
• Ms Shweta Karki- Research Associate, AIDIA
• Mr. Uttam Bhlon Lama- Vice President, Independent Power Producers’ Association, Nepal (IPPAN)
• Mr. Marshal Rathour- Deputy Director, Nepal-India Chamber of Commerce & Industry (NICCI)

The discussions brought to light several key points and suggestions which are outlined in the succeeding paras.

Inaugural Session

During the Inauguration session, Dr Arvind Gupta, Director VIF, welcomed the AIDIA delegation and emphasized the importance of sustained dialogue between India and Nepal. He noted that the seminar reflects the tradition of close bilateral engagement and focuses on key issues such as energy cooperation, regional challenges, and emerging areas of collaboration. Dr Gupta encouraged a forward-looking approach, highlighting the aspirations of youth and progress in connectivity between India and Nepal. He also discussed regional dynamics, including China’s rise and shifting U.S. influence, as critical factors. India’s economic growth, he added, presents new opportunities for deeper cooperation with Nepal.

In his opening remarks, Mr. Kuber Chalise, Senior Fellow at AIDIA, emphasized the strong and enduring relationship between India and Nepal, as well as between AIDIA and VIF. Acknowledging that political fluctuations are natural globally, he stressed the importance of focusing on the future and strengthening bilateral ties between India and Nepal. Mr. Chalise highlighted the growing trilateral cooperation among India, Nepal, and Bangladesh as a model for regional collaboration. He pointed to regional energy cooperation as a key area for progress and underscored that Nepal’s stability and prosperity are vital for regional stability and growth.

Mr. Gaurav Ahluwalia, Joint Secretary at NSCS, highlighted the unique India-Nepal relationship, rooted in civilizational ties and people-to-people connections. He emphasized Nepal's central role in India’s Neighbourhood First Policy, with growing engagement through high-level visits and over 40 bilateral mechanisms. Key cooperation areas include connectivity, infrastructure, energy, and digital integration, such as the introduction of UPI in Nepal. Hydropower exports from Nepal to India have grown significantly. India has extended its support to Nepal through more than 560 development initiatives and educational exchange programs. Mr. Ahluwalia affirmed India’s commitment to a strong, independent, and mutually beneficial partnership with Nepal.

SESSION I

Revisiting India-Nepal Bilateral Ties: Opportunities and Challenges

During the first session, the following themes were discussed:

Strategic Overview between India-Nepal Relations

India-Nepal relations must be understood in the context of Nepal's internal political instability, youth dissatisfaction, and economic challenges. Regionally, the U.S.-China rivalry impacts Nepal through initiatives like the Belt and Road Initiative (BRI) and Millenium Challenge Corporation (MCC), though recent aid cuts have created uncertainty. As Nepal moves towards Developing Country status, concerns over reduced foreign assistance and trade benefits are rising. Bilaterally, ties with India remain crucial, with upcoming high-level meetings signalling progress. Key areas like hydropower and digital connectivity, including UPI integration, offer immense potential to realize shared development goals and regional economic integration.

India-Nepal Relations: Cooperation in Conventional and Non-Conventional Security Domains

India-Nepal defence ties are deeply rooted, beginning with post-1947 agreements like the 1950 Treaty of Peace and Friendship, which established open borders and cooperation. Key accords include the Kosi Agreement (1954) and Extradition Treaty (1953), though a Mutual Legal Assistance Treaty remains pending. Military cooperation is symbolized by Gorkha recruitment, joint exercises like Surya Kiran, and reciprocal army honours. Security collaboration includes border patrolling, intelligence-sharing, and addressing non-traditional threats like cybersecurity and disaster management. India and Nepal maintain strong institutional dialogue through mechanisms such as the Joint Commission at the Foreign Ministers’ level, annual Home Secretary-level talks, the Bilateral Consultative Group on Security Issues (BCGSI), and Director General-level meetings between their border security forces. However, irregular bilateral institutional meetings and contentious bilateral issues are some of the challenges faced by both the nations. Strengthening these frameworks can ensure a resilient, future-focused partnership.

Economy and Trade in India-Nepal Relations

Nepal’s economic growth surged in the 1990s following liberalization and a new trade and transit treaty with India, reaching an average growth rate of 5.5 percent. This boom, driven by increased Indian FDI and trade, was later disrupted by political instability and the Maoist insurgency, reducing growth to around 4.1 percent. India remains a vital economic partner, contributing 35 percent of Nepal’s FDI, yet its role is under-acknowledged. Remittances are a key economic pillar, with informal flows from India playing an unrecorded but significant role. Trade with India accounts for over half of Nepal’s total foreign trade, though a large trade deficit persists. Nepal is working to bridge this through hydropower exports, including a trilateral agreement with India and Bangladesh. Meanwhile, Nepal’s EV market is expanding, dominated by Chinese brands due to their technological edge. Future bilateral cooperation may focus on energy, technology, and digital infrastructure.

SESSION II

Prioritization of Energy Cooperation in India-Nepal Relations

Energy has become central to India-Nepal relations, with Nepal now a net electricity exporter to India. Backed by a vision statement, cooperation includes joint power projects, cross-border infrastructure, and regional trade. Nepal aims to produce 30,000 MW, with India set to purchase 10,000 MW, boosting Nepal’s economy.

During the second session, the following themes were discussed:

Investment on Energy Projects in Nepal

Nepal has vast renewable energy potential, with 83,000 MW in hydropower and 432,000 MW in solar, though only a small fraction is currently utilized. Aiming to generate 28,500 MW of hydropower by 2035, Nepal seeks to become a regional clean energy exporter. Regulatory bodies like Ministry of Energy, Water Resources and Irrigation in Nepal MOEWRI and Investment Board Nepal oversee energy projects, supported by clear policies and incentives. Major international investments, including Indian-led projects like Arun-3 and Upper Karnali, highlight growing interest. Dollar-denominated PPAs and expanding cross-border infrastructure boost Nepal’s appeal. With low labour costs, abundant resources, and strong India ties, Nepal offers strategic opportunities for energy investment and regional cooperation.

India-Nepal Energy: Hydropower Potential, Progress, and the Path Forward

Nepal has 83,000 MW of hydropower potential, with 42,000 MW considered viable, but development has been slow due to political instability, regulatory issues, and infrastructure limitations. Recent progress includes reaching 2,800 MW in capacity and plans to reach 20,000 MW within a decade. India’s commitment to importing 10,000 MW over ten years highlights growing energy cooperation. Major projects like Upper Karnali and Arun-3 benefit Nepal and India. However, challenges such as political instability, inadequate investment, and transmission gaps remain. Nepal must streamline policies, improve infrastructure, and enhance regional cooperation to ensure energy security and stability in South Asia.

India-Nepal Energy Sector Cooperation: Past, Present & Possible Way Forward

The COVID-19 pandemic has prompted South Asia to reassess regional cooperation, with platforms like SAARC, BBIN, and BIMSTEC gaining importance for economic resilience. India, as a regional leader, plays a key role in balancing national interests with regional stability, particularly through enhanced energy and trade cooperation with neighbours like Nepal. Nepal’s vast hydropower potential, with over 43,000 MW economically viable, offers a sustainable energy source for India, which plans to import 10,000 MW over the next decade. Projects like Arun-3 and Lower Arun exemplify this collaboration, although challenges such as transmission limitations and regulatory gaps remain.

Prioritization of Energy Cooperation in India-Nepal Relations

India and Nepal have strong potential for enhanced energy cooperation, particularly in hydropower, which constitutes over 95 percent of Nepal’s electricity. While Nepal exports surplus energy during the summer, seasonal variations create power deficits in winter, covered by thermal imports from India. To ensure long-term stability, Nepal is exploring solar energy, battery storage, and pumped storage projects. India’s robust power exchanges provide a platform for efficient trading, while Nepal’s green energy portfolio positions it well for participation in India’s Renewable Energy Certificate and Carbon Credit markets. The India-Nepal partnership aligns with the regional integration vision under the "One Sun One World One Grid" initiative.

SESSION III

Consolidating India-Nepal Relations: Future Prospects

The session aimed to conduct a reappraisal of India-Nepal relations and explore pathways for a reset. The discussion focused on the complex interplay of history, economics, governance, cultural identity, and geopolitics that shape bilateral relations.

Indian FDI played a pivotal role in Nepal’s industrial growth in the 1990s and several Indian companies remain the largest taxpayers in Nepal even after three decades. A study, conducted by AIDIA, covered 17 Indian companies in Nepal and outlined hurdles and untapped potential for economic cooperation.

The discussion highlighted Nepal’s domestic political instability, primarily due to its post-Maoist constitution and mixed electoral system, which hampers the formation of majority governments and fosters coalition politics. This instability, along with weak governance and ineffective federalism, has hindered policy consistency and deterred long-term investments and bilateral cooperation.

Emphasis was placed on strengthening institutional ties in military, civil services, and infrastructure. Despite strong cultural and social links, institutional continuity remains vital for bilateral relations. The discussion also acknowledged the high returns from Indian investments in Nepal, such as State Bank of India and Dabur Nepal.

Cultural and civilizational ties between India and Nepal, rooted in shared Hindu traditions and pilgrimage sites like Pashupatinath, Lumbini, and Jagannath, form a strong foundation for bilateral relations. The open border fosters deep people-to-people engagement and institutional connections, such as Nepalese participation in the Indian Army. However, concerns over cultural assimilation fuel anti-Indian sentiments in Nepal. Despite India’s historical influence, its soft power in South Asia has declined. In this context, the role of think tanks and academics is vital in fostering grassroots understanding and countering negative narratives to strengthen the relationship and promote mutual understanding.

The role of media, misinformation, and disinformation emerged as a pressing concern. Social media platforms and irresponsible journalism were identified as significant threats to bilateral understanding. Indian media’s pursuit of sensationalism often inflames public sentiment and creates distortions, while social media in both countries fosters mistrust through unverified content. Think tanks and academic institutions were encouraged to play a corrective role by providing research-driven, credible narratives that counter polarizing content.

Moreover, Chinese engagement with Nepal particularly through projects like Pokhara International Airport, the BRI, were discussed as a strategic concern for India. In this regard, mutual sensitivity to each other’s geopolitical challenges were discussed, especially around transit access and border security.

A critical gap identified was the lack of consistent high-level political dialogue. The absence of recent meetings between Prime Ministers and foreign ministers was seen as a missed opportunity for strategic alignment. Participants emphasized that personal diplomacy and regular summits are essential to navigate sensitive issues and maintain momentum in bilateral projects. Moreover, symbolic controversies—such as map disputes or images involving prominent leaders—can rapidly escalate into political flashpoints unless managed with maturity.

Recommendations

• With Nepal adopting a federal structure, there is an immense potential in fostering state-to-state relations along both sides of border. Joint border development initiatives along both sides of border could bring tangible benefits to both sides.
• There is a need to revive and expand educational exchanges as the level of interaction between Indian and Nepalese youth has declined in recent years.
• Fostering cultural and sub-regional cooperation through initiatives such as organizing “Himalayan Games” or establishing forums for cooperation among Himalayan regions of India, Nepal, and Bhutan could strengthen civilizational ties.
• Skill development is another area which needs focus as large number of Nepalese citizens are working abroad. Upgrading their skills would enhance employment prospects and bring broader economic benefits to the country.
• Climate change and environmental sustainability must become central to the bilateral agenda between India and Nepal. The rapid melting of Himalayan glaciers poses a shared threat and joint initiatives on this front are urgently needed.
• A visionary proposal could be to recognize Kailash Mansarovar region a sacred heritage to mankind under UNESCO.
• Institutional meetings must be held regularly between India and Nepal to ensure consistent engagement and coordination.
• At the regional level, collaboration through platforms like BIMSTEC and SAARC can help address shared threats such as terrorism and natural disasters.
• India and Nepal must also broaden cooperation in sectors like cybersecurity, climate change, and public health. These should become key pillars of bilateral engagement.
• Coordinated training and response mechanisms between India and Nepal can enhance readiness in the face of increasingly frequent natural calamities along both sides of the border.
• Promoting Track 1.5 and Track 2.0 dialogues engaging civil society, scholars, and former officials can help bridge gaps and encourage innovative approaches to cooperation.
• The foundation for Nepal’s economic future will be strengthened, through enhanced ties with India, particularly in sectors like energy cooperation, digital connectivity, and improved trade relations.
• Both India and Nepal should prioritize joint water management, and inclusive regional frameworks.
• With India’s rapidly rising energy demand and Nepal’s hydropower surplus, cross-border electricity trade could transform South Asia’s energy landscape, reduce migration pressures, and redefine Nepal’s role to a key energy exporter.
• Nepal could consider building redundancy in power exchange participation, explore platforms like the Indian Energy Exchange (IEX) and Power Exchange India Limited (PXIL), both of which offer a range of trading instruments. This diversification would assist in handling peak demand periods efficiently, ensure uninterrupted power flow, and protect against market volatility.
• From a regulatory standpoint, Nepal could streamline approval processes and engage with Indian regulators like the Central Electricity Authority (CEA) and Central Electricity Regulatory Commission (CERC) to support automatic contract clearances and future market integration efforts.
• There is a need to revive consistent high-level political communication between India and Nepal to maintain momentum on key bilateral issues, by institutionalizing the regular engagements through annual summits, strategic dialogues, and a permanent task force for sustained coordination.
• Cultural diplomacy is vital to strengthen India-Nepal ties, especially through shared heritage and people-to-people connections. Initiatives like pilgrimage tourism, and joint festivals can assist in building lasting trust.
• A joint India-Nepal media council was proposed to ensure fact-checking and balanced reporting to combat misinformation which threatens to undermine bilateral relations. The initiative should be vetted by both the governments.
• The open border between India and Nepal is a strategic asset to promote research, educational & professional exchanges, and grassroots entrepreneurship.