Indian PM unveils $12.5b in development aid for Nepal

Indian Prime Minister Narendra Modi announced US$10 billion (S$12.5 billion) in development aid for Nepal and promised to help its economy, including kick-starting stalled hydropower projects, as he continued his charm campaign in the small Himalayan kingdom.

Since Mr Modi took office in May, he has embarked on a diplomatic push aimed at improving ties with all of India's immediate neighbours and countering China's influence in the region.

Yesterday, Mr Modi, dressed in a saffron-coloured kurta pyjama, prayed at the Pashupatinath Temple, a sacred Hindu temple near Kathmandu that draws tens of thousands of pilgrims annually.

Analysts said a good beginning has been made with Nepal, which had almost fallen off India's foreign policy radar, but there was still some way to go. Nepal has rolled out the red carpet for Mr Modi.

"The visit gets very high marks for making a significant impact on public opinion. The message of Mr Modi that has come across is that he cares for Nepal," said Mr K.V. Rajan, a former Indian ambassador to Nepal. "And he wants to ensure that the development agenda on which he has set his mind and heart as far as India is concerned is extended to countries like Nepal."

In his address to Nepal's Parliament on Sunday, he promised India would not interfere in Nepal's politics but would help build infrastructure and power transmission lines.

"Now Modi needs to deliver, especially after convincing Nepal he is different from his predecessors and keen to take the relationship to new heights, fully respecting Nepal's sovereignty," said Mr Yubaraj Ghimire, editor of Nepal's Annapurna Post Daily.

India has traditionally wielded a lot of influence over Nepal, sandwiched between China and India, but has also been criticised for taking its tiny neighbour for granted. In the past couple of years, as the previous Indian government was bogged down by domestic problems including slowing growth, China used the opportunity to steadily increase its presence in Nepal, where political instability has fanned economic problems like a crippling energy shortage. Nepal generates only 660 MW of electricity out of a possible 45,000MW.

The Chinese are currently funding two power plants to generate 810MW of electricity while Indian projects got stuck in negotiations and local politics.

Many regard Mr Modi's visit to Nepal, which ended yesterday, and earlier to Bhutan, which shares a long border with China, as a way to counter Beijing's growing influence in the neighbourhood.

While he will next travel to Japan and the United States, a visit to a third neighbour, Myanmar, is being planned.

"India is closer to Nepal than China… The Chinese are better at project implementation... That is a weakness India has to address," said Dr C. Rajamohan, a distinguished fellow at the Observer Research Foundation, an independent think-tank.

While many feel Mr Modi's diplomatic push has changed the atmosphere in the region, they acknowledge he has much to do.

"It takes two to tango. I'm not really sure all the neighbours have arrived at a consensus on the precise nature of the relationship they want with India. They have a lot of expectations," said South Asian foreign policy expert S.D. Muni.

This article was first published on August 5, 2014.
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