By Esha Rao

Edited by Anandita Malhotra, Senior Editor, The Indian Economist

According to Nepal’s Finance Minister Ram Sharan Mahat “China is growing in importance, because of new trade horizons and the cheap pricing of Chinese goods, Chinese trade vis-a-vis Nepal is growing.”

Sandwiched between two of the most influential Asian countries India and China, Nepal has for long been grounds for contention between the two developing economies.  Being at the perfect vantage point, Nepal is critical to the security and stability of both countries. According to Akshay Mathur, head of research at Mumbai-based Gateway House “China looks to Nepal as a gateway to South Asia, it is part of a broader strategy to extend its sphere of influence.”

The $45 million upgrade for roads in the Nepalese capital is one of the several projects taken up by the Chinese government challenging India’s long standing dominance in Nepal. The Himalayan mountain range has for years served as a natural barrier which has prompted Nepal to trade more across its flat border with India. However, China this year overtook India as Nepal’s biggest foreign investor by funding power plants, noodle factories and meat-processing units. In terms of trade between the two countries, Nepal’s commerce with China has outpaced that with India by 17 times since 2006. This has led to severe erosion of the influence India had in the Nepalese Economy.

With China completing a railway link near the Nepal border this August, Chinese goods could be diverted from Kolkata port. Data gathered by Bloomberg shows how India accounted for 53%of Nepal’s trade last year, down from 60% in 2006. China’s share of Nepal’s trade has risen to 31% from 3% in that time. China’s investment of 7.3 billion Nepali rupees rose head and shoulders above India’s 6.5 billion.

 The Nepal Investment Board has predicted that the electricity generated by harnessing power from more than 5000 rivers fed by the Himalayan glaciers, will be able to light up a third of the Indian sub-continent. Moreover, exporting electricity to India rather than China is easier because its rivers flow south off the Himalayas toward India’s most populous states, while China’s biggest cities and industries are far to the east. Realising the potential that Nepal has to offer Prime Minister Narendra Modi told Nepal’s parliament last August during the first visit by an Indian prime minister in 17 years, “Nepal can become a rich country by selling electricity to India.” Furthermore, he also offered a $1 billion line of credit to fund development- highways, information technology and transmission lines for electricity. In less than three months, return on this investment is seen in the form of Nepalese support for Chinese membership in SAARC. This reflects the increasing strong hold China has on Nepal. This move has caused the balance to shift in favour of the Chinese government.

The recent developments in Nepal at the hands of the Chinese have rattled the Indian nest and left the Indian government unsettled. Being sandwiched between two of the fastest growing economies, Nepal has a gold mine in its hands, a market of billions of the middle class population on either side of the border. With Nepal completely aware of the attempt both India and China are making to have greater influence, its economic future seems to be a tedious balancing act.

Esha is a first year student pursuing Economics Honours at Lady Shri Ram College, Delhi University. Being an avid reader she loves books by Paulo Coelho, Khaled Hosseini and Corban Addison. Esha has also represented her schools at various command level basketball matches and finds immense pleasure in playing the sport. She enjoys debating, turn quotes, symposiums, extempore, group discussions etc. Social service has been one of her utmost priorities. Being a part of Enactus LSR has helped widen her reach. She is also fortunate enough to work with the women of the National Association of the Blind.

Posted by The Indian Economist | For the Curious Mind