Until the end of the 104-year autocratic Rana regime in 1951, Nepal remained largely isolated from the rest of the world. By that time, the economy of the country was in a primitive stage. The state treasury used to be the sole monopoly of the Rana rulers. In the infrastructural sector, there were no roads outside the Kathmandu valley. Except on foot, there were no other means for the people in different parts of the country to visit Kathmandu, the capital city. The common mass of the Nepalese population did not even have access to modern health and education facilities.
Therefore, understanding Nepal’s zeal to change its primitive economy into a vibrant economy, India started supporting Nepal in its drive for modernisation since the early 1950s. Nepal’s first Five-Year plan that started in 1956 and also the second Plan were entirely supported by India. During last seven decades of economic cooperation between Nepal and India, there is virtually no important sector in which India did not support Nepal — be it the development of roads, railways, airports, education, health or power.
Understanding Nepal’s zeal to change its primitive economy into a vibrant economy, India started supporting Nepal in its drive for modernisation since the early 1950s.
Such exemplary cooperation was possible mainly due to the open border system between the two countries that allows the citizens to cross the international border without any restriction. Furthermore, the 1950 Treaty of Peace and Friendship between the two countries that accord national treatment to the citizens of one country into the other countries made the relation still stronger. As such, nearly seven million Nepalese
, which is almost one-fourth of the country’s total population, work in India; while the number of Indians working in Nepal is six hundred thousand.
Most of the Nepalese who work in India belong to western Nepal. Earlier, many of the Nepalese from the Terai region also used to go to Indian states like Haryana and Punjab to work as labour in the agricultural sector in certain seasons. Subsequently, those people changed their destination and now they mostly go to the Gulf countries or Malaysia for jobs.
Those of the Nepalese who are economically better off commonly make their destinations to first world countries of Europe, USA, Australia, South Korea and Japan for jobs; but the others who are not in a position to go there often end up in the second world countries of the Gulf region and Malaysia for this purpose. Mostly only those Nepalese who are poor choose to go to India for employment as there is least cost involved in travelling.
Most of the Nepalese who work in India belong to western Nepal.
Interestingly, the history of the Nepalese getting service in Indian security agencies exceeds 200 years. Following the Sugauli Treaty between the King of Nepal and the East India Company in 1816, the Nepalese citizens began to be recruited in the Indian Army and Para Military Forces and this practice is continuing till today even after Indian achieved independence from the British in 1947.
Presently, 40,000 Nepalese citizens work in seven regiments of the Indian Army. Over and above, the Nepalese citizens are also serving in Indian police. The number of those Nepalese who retired from the Indian Army and who receive pension is 80,000
. Besides, 11,000 widows
of Nepalese soldiers, apart from the 17,000
retired of Assam Rifles are also benefited from such benefits.
The Nepalese receive pensions in the same way as their Indian counterparts. Each year Nepal receives a hefty amount of money in the form of remittance and pension from India. Of Nepal’s total remittance of $8.8 billion, the share of the remittance from India through the official channel is only $1.5 billion
, but the actual remittance from this country through the informal source is quite substantial.
The history of the Nepalese getting service in Indian security agencies exceeds 200 years.
In Nepal’s development, the role of pegging arrangement
between the Nepalese and Indian currencies is no less important. It was for the first time in 1957 that the Nepalese currency was pegged to the Indian currency. Accordingly, the exchange rate between the two currencies was fixed at Nepalese Rupees 160 equivalent to Indian Rupees 100. On 6 June 1966, the exchange rate between the two currencies was fixed at Nepalese Rupees 101 equivalent to Indian Rupees 100. And, on 1 February, 1993, the new exchange rate between the Nepalese and Indian Rupees was fixed at Nepalese Rupees 160 equivalent to Indian Rupees 100, which is continuing until today.
Because of its strength in the international market, the Indian currency is in demand not only in Nepal but also in many countries of Asia. Political stability, apart from the higher rate of economic growth ever since the 1990s, proved a great asset to the Indian currency to maintain its value vis-à-vis other currencies, though in the recent its value as compared to the dollar has also declined. On the contrary, the political instability dominated the scene in Nepal for decades as most of the governments on average could not last for more than a year. During the time of Maoist insurgency (1996-2006), the earthquake (2015) and the Madhesh movement (2015-16), Nepal’s rate of economic growth fell too low. Had there been a floating exchange rate during that period, the value of Nepalese currency could have crashed, but this did not happen mainly due to the pegging arrangement between the two currencies.
Though itself being an aid recipient country, India’s development assistance to Nepal in all such connectivity projects such as as roads, airports and communication is all the more important. Under the “Aid to Nepal” budget in 2019-20, India provided Indian Rupees 1,200 crore
for the economic development of Nepal. Each year, Nepal is benefited from such assistance from India.
Political stability, apart from the higher rate of economic growth ever since the 1990s, proved a great asset to the Indian currency to maintain its value vis-à-vis other currencies, though in the recent its value as compared to the dollar has also declined.
India constructed Nepal’s first highway, Tribhuvan Rajpath, to link Kathmandu to Birgunj through the most difficult rugged hill regions of the country as far back as in 1956
. Almost 75 per cent of East-West Highway that connects one end of the country to the other through the Terai region was completed by India. The Koshi Barrage
that is important in irrigating land in Nepal and India also happens to the sole bridge to link the entire eastern region of Nepal to the rest part of the country. Other vital Indian projects like the Gandaki Irrigation project, Devighat Hydropower project, and B.P. Koirala Institute of Health Sciences
in Dharan proved immensely valuable to Nepal.
For quite some time, India has been constructing part of the Hulaqi Sadak
(Postal Highway) in the Terai region, apart from constructing other link roads in this region. A 69 km crossborder petroleum pipeline
between Motihari (Bihar, India) and Amlekhgung (Nepal) was constructed in September 2019 to ensure year-round supply of oil from India to Nepal. The Birgunj-Raxaul Integrated Check Post
was completed in 2018; while the Jogbani-Biratnagar Integrated Check Post was completed in 2020 to facilitate bilateral trade and people-to-people contact between the two countries. Also, India’s support to Nepal in the construction of the crossborder railway
between Jaynagar (Bihar, India) and Bardibas (Nepal) will prove a milestone in relations between the two countries.
Nepal is also benefiting from the 150 Indian ventures
that have been operating in Nepal. The share of these ventures in the country’s total approved foreign direct investments is over 30 per cent. Contributions of these firms in Nepal’s manufacturing, banking, insurance, education, telecom, power and tourism sectors are significant. Some of the major Indian investment
firms in Nepal include Dabur India, Hindustan Unilever, VSNL, State Bank of India, Punjab National Bank,
Life Insurance Corporation of India, Asian Paints, GMR India, CONCOR, IL&S, Manipal Group, MIT Group Holdings, Nupur International, Transworld Group, Patel Engineering, Bhushan Group, and Tata Power.
India’s enormous support to Nepal in its quest for economic development remains unmatched. The pegging arrangement between the Nepalese and Indian currencies provided a cushion to Nepal to stabilise the value of its currency. The economic cooperation between Nepal and India not only helped Nepal to create a sound foundation for economic development, but it also strengthened the traditional bonds of friendship between the two countries. Let this cooperation on the economic front be given continuity as it could have a healing effect even at the time of occasional ruptures in relations between the two countries.
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