India on its guard over China-Nepal deal

Nirmala Ganapathy – A new transit agreement between China and Nepal could increase Chinese influence in India’s neighbourhood, analysts here warn.

The two countries signed the transit agreement allowing Kathmandu access to Chinese ports and land routes during the week-long visit of Nepal’s Prime Minister K.P. Sharma Oli to China that ended on Sunday. The two sides also agreed to expand land connectivity and explore rail links between Nepal and key Chinese production centres.

As more than 98 per cent of Nepal’s third-country trade goes through India, the transit agreement is aimed at giving the landlocked Himalayan country an alternative trade route.

A months-long blockade of a key border crossing by the Madhesi ethnic minority group in Nepal’s southern Terai region, bordering India, triggered a fuel and food crisis. Nepal is dependent on India for petrol, cooking gas and other critical supplies.

The Madhesis were unhappy with a new Constitution adopted in September that they say deprives them of fair political representation.

The crisis was eventually resolved and routes opened, but not before Kathmandu blamed New Delhi for supporting the protesters and imposing an unofficial blockade, a charge India has denied.

Though an alternative trade route through China is expected to take time to implement as infrastructure is lacking and to cost more than the India route, analysts say the development signalled deepening ties between Beijing and Kathmandu.

“India should be concerned by this… it shows the ease of the relationship between Nepal and China,” said Dr Rajeswari Rajagopalan, a senior fellow at the think-tank, Observer Research Foundation.

But New Delhi insists that its neighbour “is free to explore any practical option it wants”.

When asked about the transit agreement, External Affairs Ministry spokesman Vikas Swarup said: “Our relations with Nepal have their own natural logic. Is there any other country in the world which can have the kind of relationship that Nepal has with India?”

India continues to exert influence in Nepal, which stands as a land buffer between India and China.

Since coming to power, Indian Prime Minister Narendra Modi has made improving ties with Nepal and other neighbours a foreign policy priority, as he eyes China’s expanding footprint in the region.

During a visit in November 2014, Mr Modi offered a US$1 billion (S$1.37 billion) line of credit to Nepal. Last month, Nepal was given access to a second port, Visakhapatnam, off the Bay of Bengal. Until then, Nepal had use of only Kolkata port for its import-export trade.

While ties between India and Nepal have improved since last year, experts say that, given China’s growing interest in Nepal, India needs to do much more

“The Chinese are willing to invest money in highways and ports in Nepal. So India needs to invest more in Nepal and the neighbourhood,” said former Indian foreign secretary Lalit Mansingh.

The Kathmandu Post said in an editorial that implementation of the transit agreement would be tricky, but also noted that Mr Oli’s visit showed “a convergence of opinion on a range of issues, including most conspicuously on the new Constitution, which the two sides describe as ‘a historic progress'”.

Some Indian analysts believe it is still too early to sound the alarm.

Mr K.V. Rajan, a former ambassador to Nepal, said India would not be unduly alarmed by the agreement, though it would probably continue to watch China-Nepal ties very closely.

Nirmala Ganapathy is India Bureau Chief of The Straits Times in New Delhi. This analysis has been published in The Straits Time on 29 March 2016.

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