India and China vying for energy resources in Nepal

With his two-day trip to Nepal, Narendra Modi became the first Indian PM to visit the neighboring country in 17 years. But was the trip, aimed at boosting ties, enough to counter China's growing influence? DW examines.

Deutsche Welle, 5 Aug 2014

The visit to the Himalayan nation was part of Modi's bid to improve India's standing with its neighbors following years of neglect of a region where China already has a strong presence. During the official visit, which started on August 3, Modi addressed the Constituent Assembly - speaking briefly in Nepalese - and offered one billion USD in low-interest development loans to finance projects such as highways and hydropower plants in the energy-starved nation.

India and Nepal have long had fraught relations - particularly issues of mistrust over water sharing plagued the ties. "Until recently improving them had not been a priority for India, especially given that Nepal was afflicted by conflict and instability for many years," Michael Kugelman, South Asia expert at the Washington-based Woodrow Wilson Center for Scholars, told DW.

This is why the main purpose of Modi's trip was to implement one of his chief foreign policy goals: Deepening engagement with India's neighbors. It is widely believed that New Delhi gets along better with countries far away than with those in its own neighborhood. But Modi wants to change this, and his outreach to Nepal is a step in that direction, Kugelman argues.

Modi pledged to help Nepal with its

transition to a constitutional republic

and offered one billion USD in low-interest

development loans

Achievements

During his visit, the Indian leader pledged to help Nepal with its transition to a constitutional republic following the abolition of the monarchy in 2008. Modi also met with his Nepalese counterpart Sushil Koirala and President Ram Baran Yadav, and called for stronger bilateral ties based on the cultural and historical links between the two nations.

Although Indian leaders have attended regional summits in the capital Kathmandu, Modi's trip to Nepal marks the first bilateral visit by an Indian prime minister in 17 years.

One of the key accomplishments of the visit - other than the fact that the trip happened - was that some basic agreements were concluded on water sharing, arguably one of the biggest tension points in India-Nepal relations.

For instance, the two governments reached a deal on the 5600-MW Pancheshwar multipurpose project on the Mahakali river, which was stalled for more than a decade. "The fact that the two sides came together over an issue that engenders so much mistrust is a big accomplishment," said Kugelman.

Some observers expressed their disappointment, however, about the fact that a proposed bilateral electricity trading agreement did not materialize and that no reason was given for the delay. Nevertheless, Sumit Ganguly, India expert and professor of Political Science at the Indiana University Bloomington, says that Modi's visit succeeded in creating an atmosphere of good will.

Unfulfilled promises

However, the task before him and his team is to follow through and consummate the hydroelectric power agreements under discussion, the analyst added.

This is important because India has made similar investment promises in the past, but not always delivered. For instance, New Delhi's past assurances to assist Kathmandu in the building of roads and other construction projects in the Himalayan nation remain unfulfilled. At the same time, neighboring China has stepped up its economic engagement by investing vast sums of money in power plants, highways, an airport and telecommunication facilities.

Analysts believe China's expanding footprint has caused concern in New Delhi which has long viewed Nepal as part of its strategic backyard. "Indian policymakers had fretted about China's increasing clout as it has contributed to a loss of Indian influence in the country," Ganguly told DW.

Energy race

Nepal, like many countries in Asia and beyond, has thus become a site of Indo-Chinese competition as they both jockey for influence. One might argue that China's role in Nepal influenced Modi's decision to reach out to Nepal with this trip.

The landlocked South Asian nation finds itself between the two energy-hungry Asian giants, and Nepal has a lot to offer. Bestowed with 2.27 percent of the world water resources and about 6,000 rivers, including rivulets and tributaries totaling about 45,000 kilometers in length, Nepal is the second richest country in inland water resources, according to the government data.

This presents a huge potential for the generation of hydroelectric power, a key energy source both New Delhi and Beijing have set their eyes on.

Although there have been fears that competition between both countries could lead to tension and even conflict, Kugelman says that this is unlikely given Modi's apparent dovishness toward Beijing. However, the competition is likely to continue. "For India, Nepal remains an important strategic buffer," Ganguly stressed.

A 'big prize'

Analysts believe China's expanding
footprint has caused concern in New
Delhi which has long viewed Nepal as
part of its strategic backyard

Ideally, the Modi administration would like a pro-Indian Nepal and keep Chinese influence at bay; at worst, it would settle for a scrupulously neutral Nepal, the analyst explained.

The Chinese, on the other hand, would like to limit India's political influence in Nepal, use it to crack down on Nepalese Tibetans and to keep a close watch on India's military capabilities in the Himalayan region, Ganguly added.

Overall, analysts believe that Nepal remains a big prize for both India and China, and not just because of its geographic position. "Indeed, in this age of natural resource shortages and impending scarcity, any country blessed with water and energy resources will be seen as very strategically attractive," said Kugelman.