Nepal needs to rebrand itself

Edited excerpts from the 'Geopolitics and Economic Diplomacy' session during Kantipur Conclave 9-10 September with Swarnim Wagle, former vice-president of the National Planning Commission and development economist Prof Mahendra P Lama who is leading a team to prepare India’s North East Region Vision 2035.

Swarnim Wagle: Let’s start with connectivity, which everyone is talking about in Nepal. Even in India, Narendra Modi has emphasised it. There are different forms of connectivity, physical, energy, digital, citizen-to-citizen connectivity.

Mahendra P Lama: Connectivity is now of primary importance. China is building connectivity projects in Africa. India is also talking about connectivity. There are visible and invisible connectivity plans moving forward.

Historically in Nepal, it was King Mahendra who first raised the issue of landlocked Nepal’s direct access to the sea during the 1964 United Nations Conference on Trade and Development (UNCTAD). He repeated that in Kabul in 1970. India was angry that a subject of bilateral concern should be raised on the international stage, and blockaded Nepal in 1970. India only allowed the movement of milk, salt, medicines and kerosene across the border into Nepal.

I accompanied Indian Prime Minister Indra Kumar Gujral when he visited Nepal in 1997. He opened the Phulbari corridor so that Nepalis could travel across India to Bangladesh. The Asian Highway is 25km away from Kakadvitta, from there, you can go directly to Dhaka, Chittagong, and the Indian north-east from Bangladesh’s ports.

Similarly, the road to Shillong from Dawaki Tamabil in Meghalaya was also opened, as was the road to Akhora, Tripura and Bangladesh.

The Indian government is now building a 'trilateral highway' to connect South-East Asia under the 'Look East Policy'. In two years you will not have to fly to Siliguri, Gauhati, Manipur, Burma and Thailand, there will be highway connections, opening up opportunities for business, tourism, healthcare and education.

Eastern Nepal occupies 17% of Nepal's area with 14 districts, and a population of 4.5 million. East Nepal can have a corridor from Chiwa Bhanjyang to West Sikkim. Then from Gazing, Soren in West Sikkim, one can go directly to Taplejung from the north to Pathibhara. It will be beneficial economically as well as for pilgrims. Nepal has a chance to play a big role in this. 

Swarnimji, you have released the new book The Great Upheaval, which also talks about connectivity at the local and regional level. The idea is different in different parts of the world. What is the difference between their thinking, and our thinking here at the local and regional level?

Swarnim Wagle: Connectivity is not just about economic development, but also involves geopolitics, the competition between China and India. Bangladesh has struck a good balance in this regard. 

When I reviewed China's Belt and Road Initiative (BRI), I found that it expanded first from the strategy of 'Going Out' in 1999. After 2013, it came out as the BRI concept with Xi Jinping. That was when China aggressively moved ahead and emerged as a kind of ‘power broker’.

The global economic recession of 2008 was a 'trigger'. China invested all its trade surplus in American Treasury Bonds. After this, interest rates fell sharply, becoming negative. The 'surplus' was invested in BRI. China began producing cement, aluminum, glass, construction material, and the demand for these products from developing countries led to the rise of China.

From 2008 till Covid in 2019, China's two major banks, Exim Bank and China Development Bank, had become institutions comparable to the World Bank. Looking at the 10-year figure, there was $462 billion in accumulated debt. In some years, these two Chinese banks invested more in loans than international financial institutions including the World Bank, the Asian Development Bank, and the African Development Bank. It reached a high point in 2016. Both banks alone had $75 billion in loan investments.

The BRI was discussed in Nepal in 2017, but along came Covid-19. It is now on hold, but it looks like it will come in a new form, a BRI 2.0 with a focus on technology.

Even if it is directly China, it can involve BRI multilaterally. This would reduce risk. After all, the main investors are these two banks. China does not have unlimited resources, but banks have non-performing loans. It was 5% in 2010 and now it is 65%. There were random loan investments which borrowers also abused, as seen in the Philippines.

Maybe China will keep Pokhara Airport in BRI. Otherwise, we will be left out of this whole process. Now we have to join BRI 2.0, but on our own terms.

Mahendra P Lama: You talked about BRI 2.0. BRI has a plan called China-Pakistan Economic Corridor from Gwadar port on the Arabian Sea to Balochistan, Sindh, Punjab, Kashmir all the way to Gilgit, Baltistan, up to Xinjiang through Kashgar. By building this railway, China will influence the culture, agriculture and natural resources there. There is no other example of China entering other countries like this.

In Xinjiang, there is trouble. There are militants in Pakistan, connectivity could also mean that China will be importing insecurity. Beijing is taking a calculated risk here, they think that the returns are big enough to take the risk. Most of the 55-60 CPEC projects that China is working on within Pakistan are related to energy like electricity, coal, oil.

Could all this bring a new kind of nationalism to Nepal and Sri Lanka? In international relations, it is called 'resource nationalism'. African nations are saying that they will not allow anyone to take their water, forest, or coal. Nepal could be in a similar situation to Sri Lanka. What will China do?

Swarnim Wagle: China came to challenge the western development model that was in place for more than a century. Initially the west did not pay much attention and called it 'neo-colonialism'. Recently Chinese workers have been chased away in Angola, Kenya, Tanzania, and Zambia. China paused the entire BRI in 2019 to address the issues.

We should also learn from the experience in the neighborhood. Let's leave Africa aside and take Sri Lanka. Chinese investment there was in the non-trade sector. When things went downhill with the bombings in Colombo in 2019, then the Covid-19 crisis, the Russo-Ukraine war, its foreign revenue plummeted, and they could not pay back loans. Added to that were policy mistakes and government arrogance.

High cost loans are risky. As soon as there is a change in an external factor, whether Covid-19 or war, things can go south fast. Internal disorder can also make things difficult. We have to be aware of this.

In Nepal, China is always looked at as a counterbalance to India, and people compare China and India. However, things are changing, the Nepali media has started to talk about the Tatopani border being closed. They are also talking about transparency in Chinese loans. The debate has started at a community level.

On the good side, China seems to be taking these things in its stride and practicing covert diplomacy by gradually using its soft power, and then hard power. All this is a bit new for us.

Mahendra P Lama: The biggest challenge for Nepal, Bangladesh and Pakistan is that China is working on geopolitics and economic diplomacy. On the other hand, all these countries have an established and close relationship with India, which cannot be compared with China. In India, we have Indian Gorkha troops, citizens of Nepal have gone to India and settled down and vice versa. So the big concern is how will Nepal balance all this with China.

You have worked in the government of Nepal. How can Nepal strike that balance between its two giant neighbours?

Swarnim Wagle: For that we need enlightened leadership.  There is an interesting anecdote in BP Koirala’s autobiography. While visiting China, he met Mao Zedong at 11 o'clock at night. Mao asked, How much is India giving you?

BP said – About Rs200 million

Mao said - Then we will give 160 million from our side. Since you need to maintain your relationship with India, we cannot give more than them.

Even our neighbor China was thinking of what was best for Nepal. Now things have changed, of course. But we should be thinking of win-win relations.

Multilateral relations with India should move forward, but China has advanced a lot in terms of infrastructure, new technology, and artificial intelligence. It is even ahead of the West in some cases. We are far behind, only ahead of Afghanistan in this region. China’s assistance is vital.

Both the countries have their own strategic interests. But we should balance both of them and not put them against each other. B P Koirala managed it well. In the beginning, King Mahendra also struck a balance, although later, he tried to pit Delhi and Beijing against each other. Gyanendra tried to do the same thing, and it didn't work.

Both are emerging powers, and we can move forward by keeping both their security concerns in mind. Mao thought of Nepal’s interest, but we need to have leadership in Nepal that is looking out for the national interest. 

My question to you is: Sri Lanka oscillates between India and China, as do the Maldivians, but Bangladesh has been able to maintain that delicate balance?

Mahendra P Lama: Once, I was speaking to Ambassador Bhesh Bahadur Thapa. He told me about the instance when he accompanied Prime Minister Kirtinidhi Bista to China. On arrival at the airport, Mao Zedong gave the three of them an overcoat, hats and gloves. They were surprised. But when they came out of the airport, it was so cold that the clothes they brought from Nepal would have been of no use. 

Similarly, when Tenzing Sherpa climbed Everest, he was felicitated in India. When he met Prime Minister Jawaharlal Nehru, Tenzing told him that he had been invited to England.After the gala that night, Nehru handed him an overcoat, hat and gloves saying, “How can you withstand the cold in London in these clothes?”

Diplomacy starts with such small things. Bangladesh did not look to anyone on how they could balance India and China. They followed a strategy that worked for them.

In the 1990s, when Deng Xiaoping introduced the idea that "it doesn't matter whether a cat is white or black, as long as it catches mice”, what he meant was that it does not matter who comes, as long as they can take China out of economic stagnation.” 

The Cultural Revolution of 1966 to 1976 had pushed China off the cliff.  At that time their biggest enemy was Japan. But they brought Japan in, which in turn brought in investment, helping to reduce poverty. They did the same with the Americans. And it was only when China became economically strong that the rivalry started.  

Look at India, on the one hand they support the Indo-Pacific alliance together with the US. On the other hand, they sidelined the Indo-Pacific during the war between Ukraine and Russia. What India needs is gas and oil, and they made their foreign policy accordingly.

If India had not struck that balance, the petrol Nepal imports from India would by now have cost Rs400 a litre. Nepal should also learn from such a balanced diplomacy.

India does not recognise BRI because China is treating Kashmir as a part of CIPEC without asking India. China created the Asian Infrastructure Investment Bank (AIIB) in 2016 to advance the BRI, and India also became its member. By 2022 India had brought in 20 projects worth $5 billion through AIIB. This is the kind of geostrategic balance where national interest is prioritised.

When it comes to national interest, one has to go all in to reap the maximum benefit. Nepal should do that. 

Swarnim Wagle: The relationship between Sheikh Hasina and Narendra Modi also shows how mutual trust and respect between leaders can help advance bilateral relationships. Bangladesh was born in 1971 with the help of India, but for decades there was mistrust. It has melted away now. But Bangladesh is also bringing in investment from China, which in turn is benefiting India.

India made the Hambantota port in Sri Lanka a big issue, and partly because of this there was regime change in Colombo and the downfall of the Rajapaksas. But Hambantota port built with Chinese loans is currently being used most extensively by Indian car companies. Neighbors can also benefit from infrastructure that we build in Nepal.

Mahendra P Lama: Interestingly, China has adopted the same policy as the US to continue its hegemony in the world. The US gave foreign aid and invested heavily to make others dependent on them. They adopted the policy to threaten and fight when that dependence was challenged. We call it the dependency threshold. China is just doing the same.

They made others dependent on them like in Sri Lanka and even India. When India’s trade deficit with China increased from $270 million in 1990 to $120 billion now, they attacked eastern Ladakh. Such games are played in international relations, some overtly, some covertly.

Now my question, the model of development that we adopted in the hills has failed. Look at Darjeeling, what did farming tea for 160 years do? The world drank the tea every morning for Rs6, the tea plantation workers were paid Rs 230 daily. The owners jet around the world and the workers have no savings.

Hydroelectric power is generated in the mountains. The water is ours, the displaced people are ours, the land is ours, the environment is ours, everything is ours, but the electricity is everyone else’s, the profit earned from electricity is someone else’s. 

Look at cardamom, traders sell it at Rs4,000 per kg whereas the farmers get Rs200 per kg. The further it gets from Sikkim’s border, the more costly cardamom becomes. You have been in the Planning Commission, what is Nepal’s take on this?

Swarnim Wagle:  You were born in Sikkim and I was born in Gorkha so we both know the situation of the mountains. When Prime Minister Modi came to Nepal he said that ‘the mountains cannot hold water and youth”. 

Even today people in my village have to work 16 hours a day to afford two meals a day. People are leaving the hinterland in droves for better opportunities. We descended to Chitwan from Gorkha, then further afield because of malaria. Now 52% of Nepal’s population live in the plains.

We had to walk for hours to get water in the hills, in Chitwan we had water in our backyard. Life was easier. But we need to think about the mountains too. There should be better education, healthcare, and more importantly connectivity. Why would I live in Kathmandu if I could go to Gorkha in half an hour?

The per capita income of mountain villages from Ilam to Baitadi is now in the range of Rs1,200. When it reaches Rs3,500 to 4,000, middle-income Nepalis will climb the mountains in search of their second homes.

We often say that the villages have been abandoned. But the 2011 census shows that there has been rapid migration in 21 villages, the number has increased in the recent census. Some 80% of Nepal's population lives along Mahendra Highway, Kathmandu, Pokhara, Dang and Prithvi Highway.

While we think of the resources as our own, the truth is that capital and the market are outside. We should think about how locals can get maximum benefits like giving communities a share in hydropower.

Mahendra P Lama: But it is also true that others have progressed using what is ours. Bangladesh was built with our stones. If you stand in the Phulbari Corridor, you can see trucks carrying stones from Himalayan quarries to Bangladesh. Why haven’t we been able to utilise our own resources? We have to buy stone and sand. India’s new policy is to generate electricity in the North-East and sell it all over South-East Asia. But why sell it at a cheaper rate, why not add value, and look for markets with higher profit? 

Currently Sikkim has the highest per capita income in India at Rs425,000. But we are not clear on things. We need to create a value chain for ginger, cardamom and tiger grass.

Swarnim Wagle: You talked about organic products which require minimal infrastructure. But they are doing better than that: up to 25,000 youth are engaged in software development. In 70 years we have increased our exports to $1 billion, but we are earning more than that through the IT sector.

Mahendra P Lama: Nepal should now give up its old identity. A nation sitting in the lap of Mt Everest, all smiling, bright-faced friendly Nepalis, brave Nepalis. All that's fine. But now Nepal needs to reposition itself. No other country can play the role Nepal has to play in the Himalayan region on the climate crisis -- Nepal should stand up and take charge of the knowledge, discussion, and concern. It can change Nepal’s image, make it an intellectual leader in the world.

Read the excerpts in Nepali at