Policy Update R.Tejaswini
BACKGROUND
India and Nepal share a unique relationship defined by geographical proximity, deep-rooted socio-economic and historical ties, and an open border. Despite the open border, the region was not physically integrated due to lack of hard infrastructure. Therefore India decided to develop infrastructure for cross-border connectivity under its Neighbourhood First policy.
The inception of such projects can be traced back to the 1950 Treaty of Peace and Friendship which laid down the basis for cooperation and connectivity. Building on this, the 2004 Railway Services Agreement, subsequent sector-specific MOUs and Letters of Exchange aimed at holistic development of rail, road, energy and petroleum infrastructure. These connectivity projects aim to reduce logistics costs and strengthen cross border integration. These connectivity projects focus on easing trade transit, digital integration, energy security and expand people to people linkages.
These projects ensure that a landlocked country like Nepal is landlinked leading to improved access to the global markets. Landmark projects include Motihari-Amlekhgunj pipeline, Jayanagar Kurtha Railway and various ICP’s enhancing regional integration. The 2025 Letters of Exchange, strengthened connectivity as it aimed to expand transit routes and liberalise cargo movements. This evolution reflects a cohesive approach to regional connectivity, by integrating physical infrastructure with digital and energy cooperation to strengthen bilateral engagement.
FUNCTIONING
India-Nepal Cross border connectivity projects function under approximately 40 institutional frameworks such as India-Nepal Joint Commission on Security, Inter Governmental Committee on Trade and Transit, bilateral treaties and so on. Even state owned enterprises, designated ministries and Nepalese counterparts play an important role in the implementation of projects as seen in the collaboration between POWERGRID Corporation of India and Nepal Electricity Authority for transmission infrastructure development. This emphasis of connectivity falls under the Neighbour First policy of India, under which these projects are implemented. There remain concerns regarding bureaucratic cooperation and infrastructure gaps that affect the functioning.
India, Nepal sign Agreements to Boost Power Cooperation and Cross-Border Transmission Source: Akashwani News
PERFORMANCE
Connectivity projects between India and Nepal have shown strong progress from the past 2-3 years. India’s Union Budget allocation from 550 crore in FY 2023-24 to 800 crore in FY 2026-27 underscores India’s financial commitment to enhancing bilateral cooperation, including connectivity projects. Over the past few years, connectivity initiatives have shown measurable operational outcomes across rail, road and energy infrastructure indicating execution rather than mere project announcement.
Recent energy based cooperation such as the 2025 Agreement for development of transmission lines signal a shift from transit based connectivity to grid integration. This positions Nepal as a structural energy partner to India, while India diversifies its energy needs. The temporary disruption of the cross-border logistics during September 2025, indicates the sensitivity of such projects to political stability. Although the infrastructure projects completion rates remain significant, timely project completion, balanced interdependence and Nepal’s capacity to maintain these projects will play a vital role in its long-term effectiveness.
IMPACT
Cross-border connectivity projects strengthen bilateral relations between the countries by creating structured frameworks for engagement thereby contributing to bilateral trust. These initiatives facilitate greater people to people connection and mobility, building up on the existing open border arrangement. Railway networks such as Jayanagar-Kurtha-Bijalpura have strengthened local trade facilitation, facilitated passenger movement for pilgrims and labourers and encouraged tourism and cultural exchanges. Energy cooperation has generated foreign exchange revenue for Nepal through electricity exports, reducing trade imbalances.
This grid integration has enhanced power stability in both countries. The ICPs have streamlined trade and movement facilitating expanded bilateral trade. Digital connectivity through UPI has deepened integration, enabling smoother transactions, signalling efforts not only for physical integration but also financial integration. However the impact of projects seem uneven, as further infrastructure integration might reinforce asymmetric interdependence without capacity development in Nepal.
EMERGING ISSUES
There exist certain issues pertaining to coordination between stakeholders, land acquisition, trade deficit and terrain difficulty.
- Cross border connectivity projects require coordination between multiple stakeholders from both the countries for effective implementation. Therefore sector-specific Joint Working Groups have been established to improve cooperation.
- Land acquisition in Nepal has been reported as a bottleneck that delayed implementation. The problem occurred as the implementation model involved India as both the funder and implementor, which was later revised in an MOU to ensure Nepal undertakes implementation for better cooperation at the local administrative level.
- Nepal is on a significant trade deficit with India despite the development of infrastructure such as ICP’s, roads and railways which are vital for trade facilitation. Recent bilateral discussions focus on customs coordination, expanding freight cargo and liberalising transit corridors to improve export facilitation by reducing logistics cost and shortening transit time.
- The connectivity projects cross through difficult terrains such as Himalayas which are prone to natural disasters. Therefore both the Governments have emphasised to build climate-resilient infrastructure for long-term sustainability.
WAY FORWARD
A forward looking approach for balanced development should be to align strategic objectives with development outcomes. Accountability and efficiency in these projects can be enhanced through regular bilateral reviews and strong coordination frameworks. The projects should focus more on timely execution and bureaucratic cooperation. For long-term sustainability, project planning should include local stakeholder consultation and environmental safeguards. Therefore, connectivity frameworks will contribute to neighbourhood integration, regional stability, economic prosperity, in alignment with Neighbourhood First Initiative.
REFERENCES
Ministry of External Affairs, Government of India. (2022). India–Nepal Bilateral Brief. Ministry of External Affairs. India–Nepal Bilateral Brief, March 22 2022 (MEA)
Ministry of External Affairs, Government of India. (2024). India–Nepal Bilateral Brief as on 20 June 2024. Ministry of External Affairs. India–Nepal Bilateral Brief, 20 June 2024 (MEA)
Embassy of India, Kathmandu. (n.d.). About India–Nepal Relations. Embassy of India, Kathmandu. About India–Nepal Relations (Indian Embassy Kathmandu)
Land Ports Authority of India. (2024). Perception Study of Passenger Movement Between India & Nepal Via Land Ports. Land Ports Authority of India. Perception Study of Passenger Movement Between India & Nepal (LPAI)
Press Information Bureau, Government of India. (2023). India–Nepal Agreements to Boost Power Cooperation and Cross-Border Transmission. Press Information Bureau. India, Nepal Sign Agreements to Boost Power Cooperation (PIB)
Press Information Bureau, Government of India. (2024). India–Nepal Power Sector and Connectivity Cooperation.Press Information Bureau. India‑Nepal Power Sector & Connectivity Press Release (PIB)
ABOUT THE CONTRIBUTOR
R.Tejaswini is a Research Intern at IMPRI. She is pursuing a Master’s in International Studies from Stella Maris College, Chennai. Her research interests include India’s foreign policy and Public policy.
Acknowledgement
The author extends her sincere gratitude to the IMPRI team for their invaluable guidance throughout the process.
Disclaimer
All views expressed in the article belong solely to the author and not necessarily to the organization.
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