India continues to be the largest trading partner of Nepal. According to Nepal Trade Statistics released by the Department of Customs, Nepal’s trade deficit stood at NPR 237.45 billion till mid-September of fiscal year 2024-25. 

Key points: 

• Nepal has a trade deficit with more than 100 countries out of 145 countries with whom Nepal has trade relations. 

• Nepal continues to have the highest trade deficit with its two neighbours India and China to the amount of NPR 144.67 billion and NPR 51.80 billion respectively. 

India-Nepal Relations

• Nepal shares border with 5 Indian states of Sikkim, West Bengal, Bihar, Uttar Pradesh and Uttarakhand. India-Nepal relations are defined by the deep rooted people to people links, commonality in religion, language and culture of both countries.

• India and Nepal share deep historical, cultural, and religious ties, with Hinduism and Buddhism playing a significant role in their relationship. 

• Nepal is home to Lumbini, the birthplace of Lord Buddha, which adds a unique religious connection between the two countries.

• Additionally, the two nations have an open border, allowing for the unrestricted movement of people, fostering close societal ties. 

• The familial bonds between India and Nepal are also strong, often referred to as “Roti-Beti ka Rishta” (relationship through food and marriage), which reflects the cross-border marriages and cultural intermingling that bind the two nations together.

• The India-Nepal Treaty of Peace and Friendship of 1950 serves as the cornerstone of this special bilateral relationship, providing for mutual respect, cooperation, and close diplomatic and economic interactions. 

• The treaty allows for the unhindered movement of people and goods and forms the legal framework that underpins the deep strategic and cultural relations that the two countries continue to share.

Areas of Cooperation Between the Two Countries

Strategic Importance:

• Border Proximity: Nepal shares a border with five Indian states — Uttarakhand, Uttar Pradesh, West Bengal, Sikkim, and Bihar — making it a key point of cultural and economic exchange.

• Buffer State against China: Nepal, along with Bhutan, acts as a northern ‘borderland’ buffer state, helping secure India’s Himalayan frontiers against potential Chinese aggression. 

• Water Resources: Rivers originating in Nepal, such as the Gandak and Koshi, feed India’s perennial river systems, crucial for ecology, agriculture, and hydropower potential. 

• Religious Significance: Nepal is home to important Hindu and Buddhist religious sites, including Lumbini, the birthplace of Buddha, attracting large numbers of Indian pilgrims.

Areas of Cooperation Between India and Nepal:

i) Trade and Economy:

India is Nepal’s largest trade partner and the biggest source of foreign investment. Nepal exports Hydroelectric power, resin, agricultural produce, yarn, pashmina shawls, hide and skins, handicrafts items, silver and gold jewellery and other items to India. Nepal imports petroleum products, Chemical fertilizers, salt, sugar, rice, vehicles, copper, cotton and other items from India.

ii) Connectivity:

• Landlocked Country: Nepal is surrounded by India on three sides, and India’s transit routes are essential for Nepal’s third-country trade.

• Rail Links: India and Nepal signed MoUs to establish an electric rail link from Kathmandu to Raxaul, improving trade and travel.

• Inland Waterways: India is developing inland waterways to provide Nepal with additional access to sea routes, enhancing economic cooperation. 

iii) Development Assistance:

India provides development aid to Nepal, focusing on infrastructure projects related to health, education, water resources, and rural development. 

iv) Defence Cooperation:

• Military Support: India assists in modernising the Nepalese Army through the provision of equipment and training. 

• Gorkha Regiments: Indian Army’s Gorkha regiments recruit soldiers from Nepal’s hill districts.

• Joint Military Exercises: India and Nepal conduct the annual military exercise Surya Kiran, boost overall interoperability between the two militaries. 

v) Cultural Ties:

• Sister-City Agreements: India has signed sister-city agreements linking Kathmandu with Varanasi, Lumbini with Bodhgaya, and Janakpur with Ayodhya, promoting cultural exchange.

• People-to-People Contact: Initiatives in art, culture, academia, and media foster stronger ties between local bodies and people of both countries. 

vi) Humanitarian Assistance:

Nepal, being prone to natural disasters such as earthquakes and floods, is a major recipient of India's humanitarian aid. India has provided significant relief in times of need, including during the 2015 earthquake. 

vii) Indian Community:

A large Indian community resides in Nepal, engaged in diverse professions like business, trade, healthcare, engineering, and construction. 

viii) Multilateral Cooperation:

India and Nepal collaborate in multiple regional and international forums such as Bangladesh, Bhutan, India, Nepal (BBIN) Initiative, BIMSTEC, SAARC, and the Non-Aligned Movement, further strengthening their partnership on multilateral platforms. 

(The author is a trainer for Civil Services aspirants.)