A Shah Rises In Nepal. So Do Renewed Expectations

For India, the stakes are manifold. Nepal is India's closest neighbour, not only in terms of geography and culture but also in economic ties. Interestingly, Indian Prime Minister Narendra Modi is the first global leader to reach out to Shah after his party's sweeping election victory. Unlike K.P. Sharma Oli, who, as Nepal's Prime Minister, sought to burn bridges with India, Shah will, in all likelihood, adopt a pragmatic approach towards strengthening the India-Nepal ties, as already evident. 

From startups to information technology and digital public infrastructure (DPI), the two neighbouring countries could leverage the momentum built by Shah's sweeping win. Indian firms are among the largest investors in Nepal, accounting for 35% of the country's total FDI stock, valued at nearly US$777 million. Approximately 150 Indian ventures operate in Nepal across manufacturing, services (banking, insurance, dry port, education, and telecommunications), the power sector, and tourism, among others.  

The energy sector remains a crucial pillar of the ties, with recent trade agreements and joint development initiatives providing an impetus to bilateral cooperation. 

Cross-Border Energy Infrastructure

Nepal is sitting on a minefield of hydropower potential that has yet to be fully tapped. Over the past few years, cross-border energy infrastructure with India has also yielded results, as Nepal currently supplies energy to Bangladesh through the Indian grid. The first power transaction between Nepal and Bangladesh through India was inaugurated on 15 November 2024. This is the start of what could be the next success story in South Asian integration. 

In fact, one of the win-win areas of cooperation in the India-Nepal bilateral relations is the collaboration in the power sector. The Joint Vision Statement on Power Sector Cooperation, announced in 2022 during the visit of Nepal's then-Prime Minister to India, laid a comprehensive roadmap for bilateral cooperation in the sector. Its key pillars include the joint development of power generation projects in Nepal, the development of cross-border transmission infrastructure, bidirectional power trade, the coordinated operation of national grids, and institutional cooperation in sharing the latest operational information technology.

Nepal's Hydropower Resource

In January 2024, India and Nepal signed a 25-year, long-term power trade agreement, allowing for 10,000 MW of exports within 10 years, which will be auto-renewed. This partnership aims to utilise Nepal’s vast hydro potential to meet India's green energy demands while reducing Nepal's trade deficit.

But it is not just the power sector that is a bridge between the Himalayan State and India. New Delhi is the largest development partner of Nepal, with the major portion of development assistance focused on large-scale infrastructure projects under grants. In fact, India has been active in extending development assistance to Nepal since the 1950s. Some of the major projects undertaken and completed with Indian government grant assistance in Nepal include the Tribhuvan Airport, the East-West Highway, Nepal Bharat Maitri Emergency & Trauma Centre, Tri Chand College, development projects in Tribhuvan University, and the B.P. Koirala Institute of Health Sciences in Dharan.

India-Nepal Development Partnership

A significant facet of India-Nepal development partnership has been the High Impact Community Development Projects (HICDPs) Programme, which was started in 2003. These projects are implemented at the grassroots level through local authorities in the priority sectors such as health, education, drinking water, sanitation and drainage, rural electrification, hydropower, embankment and river training, among others. 

Over the past several years, several connectivity projects, including rail links between Jayanagar–Bijalpura–Bardibas (Nepal’s first ever broad gauge line) and road projects such as the Hulaki/Terai project, were taken up. The first cross-border petroleum pipeline in South Asia, connecting Motihari in India to Amlekhgunj in Nepal, was completed in 2019, ensuring a continuous fuel supply from India to Nepal. 

The partnership was kept intact and rather boosted by the interim regime in Kathmandu between September 2025 and February 2026. The interim government since the revolution, unlike the interim regime in Dhaka, remained committed to bilateral ties.

Shah is taking over from a positive trajectory, and it is expected that he will build a modern Nepal through forward-looking policies, free from past prejudices. The partnership with India may also fully mature.  

(The writer is a commentator on geopolitics and geoeconomics. Views expressed are personal.)