South Asia’s Rectangular Triangle – Nepal, Bhutan And India


By Rajeev Sharma

It is a tale of two contrasting neighbors for India. Nepal and Bhutan have been as similar and yet as dissimilar as chalk and cheese. The China factor has further muddied the waters when it comes to the Nepal- Bhutan-India triangle — or shall we say a rectangular triangle? This poses a stiff challenge for the Indian diplomacy.

Both Nepal and Bhutan have been monarchies. Both are landlocked nations, heavily dependent on big brother India. Both have made a transition to democracy — a forced and violent one in the case of the former, while peaceful and voluntary in the case of the latter. The Hindu-dominated Nepal has traditionally been a troubling neighbor for India that has used the China card for decades even though the Nepalese culture is analogous to India’s and absolutely different from China’s. On the other hand, the Buddhist-majority Bhutan (incidentally both religions, Hinduism and Buddhism, have emanated from India), has been a model neighbor for India, barring a handful of flashpoints (when it ignored the Indian advice and voted differently in the United Nations) and has never used the China card against India, though Beijing has wooed Thimphu for doing so.

Bhutan’s model neighborliness was demonstrated in 2003 when it launched Operation All Clear against anti-Indian terrorist and insurgent groups and drove them out from its soil. On the other end of the spectrum there is Nepal, a poor advertisement for good neighborliness. Nepal has become a favorite staging post for enemies of India who use Nepalese territory for flooding India with counterfeit Indian currency notes, illegal arms, drugs and even terrorists. Thanks to the large presence of Pakistan’s Inter Services Intelligence officials in Kathmandu, Nepal has emerged as an important alternate route for infiltrating well-trained and well-equipped terrorists into India. Elements inimical to India have taken advantage of the fact that the more than 1850-km-long Indo-Nepal border is open and no visa is required for to-and-fro travel. As a result, Nepal has become an important transit route for smuggling fake currency, terrorists and arms and ammunition into India. And unlike Bhutan, Nepal has routinely done precious little to address Indian concerns despite the matter having been taken up by New Delhi with Kathmandu at senior political and official levels. Despite these pinpricks, India has never reversed its open-borders policy with Nepal. The long tradition of free movement of people across the borders — Nepal shares a border of over 1850 Kms with five Indian States,   Sikkim, West Bengal, Bihar, Uttar Pradesh and Uttarakhand – continues.

Much of anti-India activities being staged from the Nepalese soil are known to New Delhi and yet the Indian government has been unable to stem the rot. The reason for Nepal becoming a bug bear for India, rather than being a well-meaning neighbor, is that India’s influence in that country has consistently been on the decline. Not many years ago, India used to be the power in Kathmandu. The US, UK, European Union, the United Nations were nowhere on the Nepalese political radar screen. The influence of China and Pakistan was minimal. But this is no longer so. The influence of China has rapidly increased in Nepal and similar is the case with the US, the EU and the UN – all at the cost of India. Though in terms of influence in Nepal, China is still number two, behind India, but it is a close number two. The way China is going at a breakneck speed in helping Nepal in all areas, particularly road and infrastructure projects, China is set to be the most important foreign influence in Nepal in not too distant future.

India has been involved with both Bhutan and Nepal in a major way for years and has been behind much of development in the two countries in past half a century. India is taking railways into both Bhutan and Nepal. But the rapidly increasing Chinese infrastructure around these countries has spurred India to be pro-active in its engagement with these two countries. In fact, what India did in Afghanistan post 9/11 is nothing but replicating the model of developmental aid and assistance that it has been practicing with Nepal and Bhutan for decades. India has pumped in ten thousand crore rupees worth developmental aid and assistance in Bhutan in past half a century, including paying for electricity which Bhutan generated with Indian help and sold to India. Similarly, India has helped Nepal with developmental aid and assistance worth thousands of crores of rupees (over a billion US dollars) till date.

The grant assistance extended to Nepal during 2008-09 under ‘Aid to Nepal’ budget was over Rs. 128 crores (about $ 30 million). In addition, the Indian government has extended considerable economic assistance to the ongoing peace process in Nepal. The Small Development Projects scheme offered by India delivers development assistance at grass-roots level in sectors identified with the local population. It now covers over 335 projects with an outlay of approx. Rs 1622 crores (about $370 million).

The relations of both Nepal and Bhutan with India are tied to a decades-old bedrock treaty with each of them. Here again the responses of the two to the bilateral treaty with India characterize their attitude. Both countries voiced reservations about their bilateral treaty with India. But while the Nepalese are still spewing fire and brimstone against the treaty, Bhutan patiently and painstakingly worked amicably with India to iron out the rough edges in the India-Bhutan treaty.

The India-Nepal Treaty of Peace and Friendship of 1950 is the cornerstone of the special relations that exist between the two neighbors. The treaty gives to the Nepalese citizens unparallel advantages in India as they can avail the facilities and opportunities at par with Indian citizens. Significantly, the Treaty has enabled Nepal to overcome the disadvantages of being a land-locked country. But for decades, many regimes in Nepal raised the issue of revision of the treaty and India assured of its willingness to examine all bilateral arrangements with a view to further strengthening the ties. In August 2009, the two countries agreed to review the 1950 Treaty, which gives India immense influence on Nepal’s affairs, including defence and security matters, that some sections of the Nepalese society feel amounts to encroachment of its sovereignty.

India and Nepal signed a revised trade treaty in October 2009 which allows Nepal greater access to the Indian market. India and Nepal have a treaty of transit, which confers transit rights through each other’s territory through mutually agreed routes and modalities. The treaty was last renewed for seven years in March 2006. India is Nepal’s largest trade partner, source of foreign investment and tourist arrivals. According to figures for the Nepalese fiscal year 2065 (ending July 15, 2009), bilateral trade with India accounted for 58.22% of Nepalese total external trade. India also remains Nepal’s largest source of foreign investment, accounting for 43.17% of the total foreign investments in Nepal.

India and Bhutan signed their first ever Friendship treaty way back in 1865 when India was under British rule. The British India was the first country to recognize Bhutan when it became a monarchy and renewed the treaty in 1910. Bhutan reciprocated the gesture and was the first country to recognise Indian independence. The India-Bhutan treaty was revised in 1949 with a new clause that India would assist Bhutan in foreign relations. Diplomatic relations between India and Bhutan were established in 1968 with the appointment of a resident representative of India in Thimphu. Before this India’s relations with Bhutan were looked after by a Political Officer from the Ministry of External Affairs in Sikkim.

On February 8, 2007, the India-Bhutan Friendship Treaty was substantially revised and Article 2 in the 1949 treaty, which the Bhutanese were uncomfortable with, was amended. The Article 2 of the 1949 treaty read as “The Government of India undertakes to exercise no interference in the internal administration of Bhutan. On its part the Government of Bhutan agrees to be guided by the advice of the Government of India in regard to its external relations.” In the revised treaty this now reads as, “In keeping with the abiding ties of close friendship and cooperation between Bhutan and India, the Government of the Kingdom of Bhutan and the Government of the Republic of India shall cooperate closely with each other on issues relating to their national interests. Neither government shall allow the use of its territory for activities harmful to the national security and interest of the other.” The revised treaty also strengthens Bhutan’s status as a sovereign nation and includes in it the preamble “Reaffirming their respect for each other’s independence, sovereignty and territorial integrity”, an element that was absent in the earlier version. The updated India-Bhutan Friendship Treaty lays the foundation for their future development in the 21st century and provides, among other things, for perpetual peace and friendship, free trade and commerce, and equal justice to each other’s citizens.

India continues to be the largest trade and development partner of Bhutan as over 90 per cent of Bhutan’s trade is with India. An important feature of Indo-Bhutan trade is that the balance of trade is in Bhutan’s favor because from 2006 Bhutan’s exports to India have been more than Bhutan’s imports from India primarily due to exports of energy from Bhutan to India. The India-Bhutan engagement is multifaceted and covers sectors like hydro power, health, education, human resource development, media, information technology, telecom, etc. India has been helping Bhutan in a big way in generation of hydroelectric power. Three major hydroelectric projects have already been commissioned with India’s assistance. These are the Chukha Project (336 MW), the Kurichhu Project (60 MW) and the Tala Project (1020 MW). The fourth and the biggest hydel power project –Punatsangchhu (1200 MW), is currently under construction. Besides, India is helping Bhutan in developing a knowledge-based economy by way of a Rs. 205 crores ‘Total Solutions Project’ which will provide access to information technology and IT solutions to a significant proportion of Bhutan’s population over the next five years. The project envisages training and establishing ICT enabled schools, computer labs, and computer stations in rural Bhutan.

Both Bhutan and Nepal have made faltering transition to democracy. While the former has cleared the acid test with aplomb so far, Kathmandu’s tryst with democracy is still tenuous and full of uncertainties. The primary reason behind this is the deeply fractious and gutter-level politics of Nepal as opposed to a much more dignified and peaceful polity of Bhutan. Here is an example.

In mid-2009, Bhutan was confronted with a litmus test for its nascent democracy. The two houses of the Parliament – National Assembly and National Council – got embroiled in who-is-more-powerful contest. The National Council had a bee in its bonnet and decided that it could oversee the National Assembly and could call the ministers of the Council during the Question Hour to explain their actions. The Prime Minister intervened to say that in democracy all were equal and the matter rested at that. In another incident, on July 17, 2009 the National Assembly decided that the government did not intend to implement controversial Driglam Namzha (traditional etiquettes) program by force, but by education. The Bhutan government took note of the fact that the brutally strict implementation of the program in mid-eighties alienated large pockets of the population and resulted in the uprising of Lhotsampas in southern Bhutan.

In contrast, Nepal has been hobbling in its march down the road of democracy. In June 2010, the life of the Constituent Assembly (CA) was saved at the eleventh hour when the three major political parties, the CPN-Maoist (CPN-M), the Nepali Congress (NC) and the CPN-UML (CPN-UML) managed to avoid a constitutional crisis. In the true Nepalese tradition of resolving a thorny political issue, the three parties thrashed out a consensus by signing the three-point agreement to dissolve the political standoff.

The biggest strength of India as a nation in past 63 years has been that it has remained a vibrant democracy and a free society. History is replete with instances of how democracies are more reliable than autocracies, oligarchies and military dictatorships. India is a luminous beacon of democracy for the world, particularly South Asia where democracy is not as strong and deep-rooted as in India.

(The writer is a New Delhi-based journalist-author and commentator on foreign policy, international relations, terrorism and security issues. This article appeared in the latest issue of Strategic Affairs magazine, New Delhi and republished with their permission. He can be reached at [email protected].)


SAAG is the South Asia Analysis Group, a non-profit, non-commercial think tank. The objective of SAAG is to advance strategic analysis and contribute to the expansion of knowledge of Indian and International security and promote public understanding.

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