Khadga Prasad Sharma Oli, leading a coalition government formed with the Nepali Congress and other smaller parties, assumed office as Nepal’s Prime Minister on July 15, 2024, succeeding Pushpa Kamal Dahal who lost the vote of confidence in parliament.[i] This indicates that Oli will serve as the country’s top leader for the fourth time, following his brief premierships in 2015, 2018, and 2021.
According to the agreement made with the coalition partners, the pro-India Nepali Congress and Oli’s Nepal Communist Party (Unified Marxist-Leninist) have agreed to govern the country alternately until the end of 2027.[ii] Additionally, the newly constituted cabinet comprises ministers from various coalition partners. A particularly notable development is the appointment of Arzu Rana Deuba, a member of the Central Working Committee of the Nepali Congress, as the Minister of Foreign Affairs. This appointment is especially significant given the pronounced policy divergences between the Nepali Congress and Oli’s Nepal Communist Party with regard to China and India.
Landlocked Nepal shares a border exceeding 1,850 kilometers with five Indian states to the south. Consequently, Nepal imports all of its petroleum and the majority of its supplies from India. Nepal’s dependence on India for trade and transit routes underscores the importance of maintaining functional relations with this country. This geographical proximity, combined with the deep cultural and economic ties between Nepal and India, renders Nepal an important partner for India in maintaining its strategic influence in South Asia.
On the other hand, Nepal also shares a border with China to the north. During periods of tense relations with India, support from China will be significant. To recall, during Oli’s initial tenure as Prime Minister in 2015, relations between Nepal and India deteriorated to their lowest level due to India’s refusal to recognize Nepal’s new constitution.[iii] This situation led India to impose an unofficial economic embargo on Nepal, resulting in shortages of petroleum, medicine, and other essential commodities in the country.[iv]
The Transit and Transport Agreement signed by Oli with China in 2016 represents a significant milestone in Nepal-China relations. Indeed, this agreement grants Nepal access to Chinese ports, thereby holding the potential to mitigate its substantial dependence on India during periods of economic embargoes or political tensions. This underscores the crucial importance of Nepal maintaining a balanced relationship with both China and India.
Oli is generally perceived as a leader with a “pro-China” inclination. This perception stems from his past policies and public statements advocating closer ties with Beijing. China’s presence in Nepal has markedly expanded through the financing of various infrastructure projects. These initiatives encompass hydroelectric power plants, roads, and potentially a cross-border railway. China’s growing influence over Nepal has become a significant factor in the country’s political and economic structure. China’s investments in Nepal, while welcomed by some sectors for their potential to boost economic development, have also raised concerns regarding the increasing debt burden.
One of the areas resurfacing with Oli’s return to power is the possibility of Nepal engaging more deeply with the Belt and Road Initiative. Despite Nepal’s official participation in the Belt and Road Initiative in 2017, the implementation of these projects has been hindered by frequent government changes and political instability, coupled with the coalition governments’ failure to reach an agreement on loans from China.
Prime Minister Oli and its coalition partner Nepali Congress have divergent views regarding China’s Belt and Road Initiative. The Nepali Congress adopts a cautious stance towards acquiring loans under this initiative, whereas leaders of Oli’s Nepal Communist Party support the advancement of Belt and Road projects through concessional loans.
India harbors concerns regarding the leadership of Oli, who has been re-elected as Prime Minister. Oli has previously pledged to reclaim certain territories that Nepal regards as its own from India, and such statements have led to tensions in bilateral relations. During Oli’s tenure, the Nepalese government published a new map in 2020 showing the disputed areas of Kalapani, Lipulekh, and Limpiyadhura as within its borders, in response to India’s attempt to build a new road in the contested region.[v] This step was taken despite ongoing diplomatic negotiations. In June 2020, the Nepalese Parliament formalized this new map through a constitutional amendment.[vi]
These regions are currently under Indian control and are of strategic importance. India continuously asserts that Kalapani, Lipulekh, and Limpiyadhura are integral parts of its territory. In contrast, Nepal has included these disputed areas in the design of its 100-rupee banknotes, thereby asserting its claim over them. This symbolic action is viewed as an effort by Nepal to strengthen its position in the border dispute. The reinforcement of Nepal’s claims over these areas implies that future negotiations on this issue are likely to become even more challanging.
China perceives Nepal’s extensive border with Tibet as a critical security matter and is consequently intensifying its efforts to strengthen relations with Nepal within the framework of the Belt and Road Initiative. With Oli’s re-election as Prime Minister, longstanding debates surrounding the Belt and Road Initiative may begin to translate into concrete actions. These developments reflect the challenges India may encounter in its relations with Nepal.
In the upcoming period, one of the significant challenges for Nepal will be aligning the increasing interests of major powers with its national interests. In an era of intensified competition in the Asia-Pacific region, it is crucial for the new coalition government to manage the United States of America (USA)-China and India-China relations in a balanced and strategic manner, given the implications for the country’s sovereignty and economic development. The characterization of changing governments in the past as either “pro-China” or “pro-India” has influenced global perceptions and complicated Nepal’s efforts to pursue a stable foreign policy and achieve economic development. Consequently, it is crucial for the new government to adopt a stable and balanced foreign policy.
The new government arrangement, composed of a diverse array of coalition partners that reflect Nepal’s broad political spectrum, may lead to delays in achieving consensus and decision-making processes on foreign policy matters. To optimize the effectiveness of the foreign policy formulated by the Nepal Congress and the Nepal Communist Party —both of which hold divergent perspectives on China and India—it is essential to ensure effective coordination and communication between the Ministry of Foreign Affairs and the Prime Minister’s Office. Such collaboration will enhance both consistency and strategic alignment in foreign policy. For the coalition parties to implement a coherent foreign policy strategy, it is crucial to prioritize economic cooperation and avoid geopolitical tensions with major powers. Sustaining balanced and amicable relations with these powers is vital for Nepal to attract increased investment and technology, thereby advancing its economic development.
[i] “KP Sharma Oli sworn in as Nepal’s new prime minister”, EFE, https://efe.com/en/latest-news/2024-07-15/kp-sharma-oli-sworn-in-as-nepals-new-prime-minister/, (Date of Access: 19.07.2024).
[ii] “New Prime Minister Is Named in Nepal After Government Collapses”, The New York Times, https://www.nytimes.com/2024/07/14/world/asia/nepal-prime-minister-government.html, (Date of Access: 19.07.2024).
[iii] “Nepal’s new prime minister has taken the oath of office at a ceremony in Kathmandu”, AP News, https://apnews.com/article/nepal-politics-new-prime-minister-oli-bb44de6376ee099e5282f1040fdeebce, (Date of Access: 19.07.2024).
[iv] Ibid.
[v] “Why Nepal Escalated Its Map Dispute With India” The Diplomat, https://thediplomat.com/2024/05/why-nepal-escalated-its-map-dispute-with-india/, (Date of Access: 19.07.2024).
[vi] Ibid.
