On economic issues that constitute a vital component of national interest, Nepal and India have a vast area of shared concern as well as ample opportunities for shared prosperity (see Shifting paradigm, Dec. 25). Geographically, Nepal is India-locked to the east, west and south, and China-locked to the north with the great Himalaya from where the major river system vital for the Gangetic civilization originates. When India followed slow-growth, license raj economy, Nepal went along the same trajectory for the simple reason that as long as India, and specifically Uttar Pradesh and Bihar, do not grow, Nepal’s economy cannot expand rapidly. This could be labeled the economics of neighborhood, which greatly influences economic growth of a small nation over time, especially if it is landlocked like Nepal. Happily, the situation is changing rapidly.
To some, India achieved its political independence in 1947, but its economic independence only in 1991. Many may disagree with this analysis, but the fact remains that India is now a private sector driven economy that has achieved high growth rate, with the private sector contributing as much as 26 percent of annual investment. Even now, when the world economy is in a kind of turmoil, India’s growth rate is expected to be close to six percent, which many nations, including Nepal, will be more than satisfied to achieve. Better still, states like Bihar that were considered members of the so called “bimaru states” have transformed themselves into roaring tigers with growth rates exceeding 10 percent. This is good news for Nepal, and it means that we could be a part of this prosperity, implied in the shared prosperity paradigm. But this requires a change in the mindset of both nations, more so of India, so that shared prosperity is viewed as not only viable but also essential to safeguard national interests of both countries.
FUTURE COURSE OF ACTION
The shared concern and shared prosperity paradigm defining relationship between the two countries is a challenge to leaders of both nations. Operationally, it entails the following.
First, Nepal has to have its political house in order. We seem to be in a state of semi-permanent political transition, not being able to promulgate a constitution which, in essence, is also an economic roadmap for the future. We have not yet been able to agree on a consensus prime minister who can lead the country to a new democratic election. This has discouraged both national and foreign entrepreneurs from investment, created supply bottlenecks, encouraged corruption and led to steady erosion of bureaucratic competence in planning and service delivery.
In the meantime trade balance between Nepal and India continues to deteriorate alarmingly. Trade deficit is not necessarily a bad thing, but if it leads primarily to increased consumption instead of investments, it will create problems for the future. Its management calls for new realism and initiative on the Nepali side and a new orientation on the side of India so that bottlenecks in trade and investments, and there are many, are addressed as vital issues of shared concern and shared prosperity. I do not see this happening so far. In fact, it is about time we thought about the kind of economic interaction we would like to see between Nepal and India, say 25 years from now. This requires a dynamic approach that links the industrial development of smaller countries like Nepal with the growth structure of India, including product fragmentation and industrial relocation, something akin to the famous flying geese model that was first articulated in the case of East Asian economies.
In 1996 we did sign a trade treaty with India that was theoretically based on this logic, and it led to significant increase in Indian investments in Nepal and also a major expansion of Nepali exports to India. That is all history now. It need not be that way if we care to promote national interests of both the countries. Why did we fail to uphold the content and spirit of the 1996 trade treaty that was geared towards a free trade regime? This is a question that needs to be explored.
Second, a major issue of shared prosperity as it relates to economic interests of both nations is the utilization of water resources for mutual benefit. There are over 440 million people living in the Indo-Gangetic plains in India. If the Indian economy continues to grow at the rate of 7-8 percent for the next 25 years or so, the requirements of water for irrigation, industry and so on will increase significantly. And data tell us that around 70 percent of the water flow of Ganga in the lean season comes from rivers that flow south from Nepal.
India needs regulated flow of water for irrigation which is vital to sustain growth. This calls for cooperation with Nepal that will have to be different from what we saw in the 1950’s in Koshi and Gandak projects. On the other hand, Nepal’s hope of achieving prosperity depends on how it is able to exploit its water resources, including hydropower, for agriculture and industry. A new model that serves mutual interests needs to be worked out so that people of both nations feel there is equity and justice in the use of vital resources. Neither Nepal nor India has been able to produce this model so far. In the meantime, Nepal has not yet been able to rid itself of the hangover of water resource agreements with India in the 1950’s. This has to change. We must learn to articulate our perspective clearly and forcefully in the use of water resources for the benefit of our people.
Similarly, on the Indian side, there is a need to come up with a cooperation framework that takes into consideration the interest of both nations as well as international practice. So far this has not happened, and there is a general tendency to blame each other for lack of progress. Legislators, politicians and intellectuals in states like Bihar and UP must also be involved in the analysis of the problem so as to work out alternative strategies for suggestion to our respective governments. A vigorous second track interaction on these issues is a must. Reliance on the bureaucracy of the two nations to come up with mutually beneficial solution has not worked so far. Ultimately, we must learn to transform water to increase wealth and income for people in both the countries.
Third, to achieve our economic interests within the framework of the shared concern and shared prosperity paradigm, it may perhaps be time to think of a land link between India and China for trade proposes via Nepal. The dynamism of both the Chinese and the Indian economy has led to dramatic increase in trade between these two giants, a trend that will continue in the foreseeable future. In India there is the look east and north east policy, while in China the new focus is increasingly towards the west and the south west. Increased economic interaction between the two regions of these two great nations will call for a land route, and this brings Nepal into the picture.
In this context, a trans-Himalayan railway with investment from the private sector of all three countries, connecting the planned all weather dry port in the Nepal-China border with the dry port in the Indo-Nepal border at Birgunj could be the beginning of a new era in the economic interactions between the three nations. This new link will be part of integrated development of agriculture, industry and tourism in Nepal. This would indeed be shared prosperity.
Finally, Nepal and India share an invisible cultural link, all the way from the misty heights of the Himalayas, the abode of Lord Shiva, to the holy Rameswaram on the southern tip of the Indian subcontinent and the vastness of the Indian ocean. But if history is any guide, we must remember that cultural closeness is no guarantee of political amity and peace between nations. Our cherished cultural bonds will be strengthened if we are able to follow the true implications of the shared concern and shared prosperity paradigm. Ultimately, it is the best way to promote the national interests of both our nations in the future.
The writer is former foreign minister
This is the second and final part of a two-part article. The first part was published yesterday (Jan 5)
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