The Manohar Parrikar Institute for Defence Studies and Analyses (MP-IDSA) organised a lecture by H.E. Ambassador (Dr.) Shankar P. Sharma, Ambassador of Nepal to India, under the Eminent Persons Lecture Series on 17 April 2025. The theme of the lecture was “Strengthening India-Nepal Relations.” Ambassador Sujan R. Chinoy, Director General, MP-IDSA, chaired the event. The Institute’s scholars were in attendance.

Executive Summary

India-Nepal relations have deepened through enhanced cooperation in energy, infrastructure, trade, and digital connectivity. Hydropower agreements, cross-border petroleum pipelines, and railway projects have strengthened economic ties, while integrated check posts are streamlining trade flows. Digital payment systems are expanding, though regulatory issues persist. Progress in education, agriculture, and environmental cooperation is evident, yet challenges remain in areas like certification standards and seasonal power shortages. Migration and youth mobility continue to shape bilateral dynamics. Despite political fluctuations and administrative delays, both countries are moving toward a more structured, investment-driven partnership grounded in shared geography and cultural proximity.

Detailed Report

Ambassador Sujan R. Chinoy introduced the speaker by outlining his distinguished career as a diplomat, academic, and policymaker. He highlighted the strong civilisational and cultural ties between India and Nepal, emphasising their open border, shared traditions, and growing economic connectivity. He underscored recent developments in physical infrastructure, such as new railway links and pipelines, that are bringing the two countries closer together and making them active partners in each other’s economic progress. He noted that the enormous movement of people across the border, with many Indians working in Nepal and vice versa, reflects this deepening integration.

Ambassador (Dr.) Shankar P. Sharma began by focusing on recent developments, particularly over the last three years, in key sectors such as hydropower, digital payment systems, infrastructure, education, and others. In the hydropower sector, he highlighted a landmark agreement signed in 2022 between the Prime Ministers of India and Nepal. This long-term strategic document envisions electricity generation in Nepal and its subsequent transmission and trade with India. He highlighted that the agreement, which initially commenced with a capacity of 39 megawatts (MW) in October 2021, has evolved to allow Nepal to export up to 1,000 MW of electricity to India. He noted that under this framework, India has committed to importing 10,000 MW over the next ten years. This advancement is anticipated to contribute substantially to Nepal’s revenue generation and aid in narrowing its significant trade deficit. However, he pointed out Nepal’s seasonal limitation: hydropower generation drops to around 1,000 MW during winter due to river conditions. During these lean months, Nepal imports electricity from India, a mechanism in place for years.

Discussing the Indian Pubic Sector Undertakings (PSUs) and companies like National Hydroelectric Power Corporation (NHPC) Limited and Satluj Jal Vidyut Nigam (SJVN) Limited, Ambassador (Dr.) Sharma noted that they are engaged in several hydropower projects in Nepal. The investment so far has been government-to-government (G2G), he emphasised the need to attract private sector participation. A key issue has been the expected 21.9 per cent free energy provision by Nepal. Some projects cannot offer this due to financial non-viability—especially in western Nepal. This makes commercial negotiation models critical. He underlined the need to liberalise electricity trade so that private companies from both sides could participate. Although currently regulated, he suggested opening up the power trade to the private sector in both countries.  Given India’s growing energy demand, this would be a significant opportunity.

Ambassador (Dr.) Sharma also informed the audience that Nepal has set an ambitious target to develop 28,500 MW of hydropower by 2035 for three main reasons: to meet domestic demand year-round, especially during winter; to cater to increasing domestic consumption; and to export to third countries, including Bangladesh. He noted that a tripartite agreement involving Nepal, India, and Bangladesh aims to enable 500 MW of power exports to Bangladesh. The estimated investment needed for this development is USD 46 billion, equivalent to ₹4 trillion. He acknowledged that attracting foreign investment will be essential and that India would play a central role. He said that the efforts are ongoing to bring more investors on board to realise this 10-year development vision in Nepal.

Ambassador (Dr.) Sharma then discussed the growing success of digital payment systems between the two countries, citing that Indians transfer around ₹66 million using QR codes in a single day—a reflection of the increasing convenience for tourists visiting from India. He also underlined ongoing issues, such as limits on how much cash can be officially carried across the border. He also emphasised that expanding digital infrastructure and addressing regulatory hurdles will be crucial to further unlocking the potential of this technology for both economies.

Further discussing infrastructure cooperation, particularly the petroleum pipeline projects, Ambassador (Dr.) Sharma explained that one such project—the Motihari-Amlekhgunj pipeline—was completed two years ago, marking a milestone as South Asia’s first transnational petroleum pipeline. Two additional extensions are currently under construction with Indian support, including the development of storage terminals and distribution infrastructure. He assessed that these pipelines are expected to save Nepal millions of dollars annually by reducing dependence on expensive, leak-prone, and inefficient tanker truck transport. In addition to economic benefits, the speaker noted that the shift to pipeline-based supply contributes to environmental gains by lowering emissions and easing congestion along key road corridors and border points.

Turning to transport infrastructure, Ambassador (Dr.) Sharma highlighted progress in railway connectivity. A Detailed Project Report (DPR) for one of the proposed cross-border rail corridors has been completed and is currently under inter-ministerial review. This railway line is expected to play a significant role in facilitating trade and reducing overland transport costs. The speaker also mentioned that three out of five planned Integrated Check Posts (ICPs) have been completed—at Raxaul-Birgunj, Jogbani-Biratnagar, and Sunauli-Bhairahawa. Construction of the remaining ICPs is underway, and once completed, these facilities will form the backbone of a corridor-based connectivity strategy aimed at integrating Nepal more effectively into regional economic and trade networks.

On education, Ambassador (Dr.) Sharma cited the MoU between IIT Madras and Kathmandu University, alongside scholarship contributions by the Indian Council for Cultural Relations (ICCR). He also pointed to multiple joint initiatives in sustainable development, agriculture, sanitation, environment, and biodiversity.  In agriculture, he mentioned that the Kathmandu lab has been accredited by India, allowing the export of nine agricultural products without additional testing. Ongoing negotiations aim to expand this list.

Ambassador (Dr.) Sharma also addressed the occasional politicisation of trade issues, such as palm oil exports, which are benefiting from Nepal’s zero per cent tariff regime. Although exports have grown rapidly, he argued they remain a small fraction of India’s total consumption. However, he flagged concerns about India’s Bureau of Indian Standards (BIS) certification requirement for Nepalese industrial exports. With around 70 small manufacturers needing certification, it places a disproportionate burden on both Nepali exporters and Indian regulators. He proposed mutual recognition of certificates or expedited inspection processes, noting that as of now, 30 companies have been certified.

 Q& A Session

The Q&A session opened with inquiries into Nepal’s evolving political landscape and its implications for bilateral ties with India. Responding to a question on the frequent governmental changes in Kathmandu, Ambassador (Dr.) Sharma noted that while coalition politics remains the norm, this has led to policy paralysis on key strategic issues, especially those requiring long-term planning.

Participants then turned their attention to the open border arrangement, questioning its future in light of emerging security challenges. Ambassador (Dr.) Sharma supported the arrangement as a model of regional integration but acknowledged vulnerabilities due to inadequate documentation and weak border surveillance. He added that misuse of the open border by third-country nationals has remained a point of concern, particularly as transnational crime networks and trafficking rings become more active across South Asia.

The conversation shifted to energy cooperation, where participants challenged the slow pace of hydropower exports despite repeated political assurances. Ambassador (Dr.) Sharma agreed that the figures often quoted in public discourse—like Nepal’s theoretical 80,000 MW capacity—rarely translate into actual exports. He attributed this to delayed project clearances, lack of transmission infrastructure, and inconsistent political support within Nepal. Nonetheless, he highlighted the recent entry of Indian private sector players into Nepal’s energy space as a positive development, signalling a shift towards commercially driven partnerships, less reliant on G2G frameworks.

On the economic front, questions arose regarding Nepal’s agricultural stagnation and the role cross-border trade could play in reviving rural livelihoods. Ambassador (Dr.) Sharma observed that Indian subsidies and support mechanisms have unintentionally distorted incentives for Nepali farmers, making it difficult for them to compete. He proposed more targeted bilateral agreements in food processing, access to regional value chains, and institutional support for smallholders. One suggestion was to capitalise on emerging corridors like the one linking Eastern Nepal to Siliguri, which could offer seamless access to Indian and Bangladeshi markets.

Finally, participants raised questions on youth migration, particularly the long-term impact of Nepali students studying abroad. Ambassador (Dr.) Sharma underscored that while migration offers economic relief through remittances, it also fuels a brain drain when students relocate to Western countries and do not return. He recommended expanding scholarships in Indian institutions as a way to retain talent within the region, arguing that students trained in India tend to maintain cultural and professional links with Nepal. In his closing remarks, he urged both governments to move beyond symbolic gestures and implement structural changes—especially in education, infrastructure, and institutional coordination—to convert goodwill into durable partnerships.

After the Q&A session, Ambassador Chinoy made his closing remarks and brought the discussion to a close. He thanked the speakers and audience for their engagement and emphasised the importance of continued dialogue on India-Nepal relations.

Report prepared by Ms. Sneha M, Research Analyst, South Asia Centre, MP-IDSA