The two emerging economies in Asia are competing to invest in Nepal
Related story
What Nepal can learn from China
India increased its grant assistance to Nepal by 40 percent to IRs 4.2 billion in the annual budget of 2015/16 unveiled early March. This is the fourth largest Indian grant to a South Asian country after Bhutan, Afghanistan and Sri Lanka.
China announced a fresh aid package of RMB 900 million (nearly US$145 million) to Nepal during the meeting of President Dr Ram Baran Yadav with his Chinese counterpart Xi Jinping on the sidelines of the Boao Forum for Asia in Hainan on March-end. The fresh aid package was announced in line with China's decision to increase its annual aid to Nepal over five-fold, from RMB 150 million to RMB 900 million.
The FDI commitment from China stood at Rs 7314 million while India's commitment was limited to about Rs 6541 millions in the fiscal year 2013/14, according to Nepal Rastra Bank. Nepal received FDI commitment of Rs 34,450 million in the first eight months of the current fiscal while Chinese FDI commitment remained at Rs 23,376 millions.
Although some see this in terms of strategic interests of the two big neighbors, many spot a wonderful opportunity for economic development. "Increased investment and FDI from both India and China is a welcome development. The goodwill Nepal has been able to generate from both the neighbors should now translate into economic development of the country," argued Prof. Jayaraj Acharya, former Nepali ambassador to United Nations.
Interestingly, China used to commit much less to Nepal until 2010/11. While India had a total FDI commitment of Rs 7,007 million, China only committed Rs 1,235 million back then. "The aid and FDI are increasing significantly from both the neighbors. The challenge now is how to make them productive," Prof. Acharya further said.
The Pancheshwor Multipurpose Project, which has a capacity to generate 6,000 megawatt hydroelectricity, is set to kick off the cycle of Indian investment in the far-western development region. Likewise, China's Three Gorges Corporation is set to start construction of a 750-megawatt hydro project, West Seti. A large number of other small and medium scale hydropower projects, which can potentially transform the country, have also been recently started.
Former Foreign Secretary Madhu Raman Acharya believes strategic competition between India and China has little to do with their increasing aid and FDI commitment to Nepal. "This is rather a consequence of their improved economies and better policy environment in Nepal. Although aid amount has increased significantly in Nepal, Chinese investment, for instance, is growing everywhere in the world. Nepal is not an exception," he said.
FDI from both India and China will witness a steady growth in coming years as they grow economically stronger and Nepal becomes more stable politically.
The interactions of Nepal with both India and China have grown not only in terms of grant and FDI, but also in terms of people-to-people interaction including flow of tourists and exchange of high level political visits and government to government relations. Nepal must capitalize on the increased interest and goodwill of the two big neighbors, experts say.
Land-locked Nepal is constrained by lack of connections with the outside world, which also hinders its development aspirations. But since China has agreed to extend the Qinghai-Tibet Railway up to Nepali border at Kerung by 2020 and India has similar agreement to extend its rail network to Nepal's southern plains, things could soon change for the better.
Separately, Nepal has agreed to be a part of China's proposal to revive the old Silk Road that runs through Lhasa to Kathmandu to Patna, India.
According to official data, in 2014, 107 million Chinese travelled abroad, which is 19.49 percent increase over 2013. Likewise, the number of Indians travelling overseas is expected to rise from around 15 million today to 50 million by 2020. "We can bring about a huge change in our tourism market if we could tap even one percent outbound tourists of our immediate neighbors," said Binayak Shah, General Secretary of Hotel Association of Nepal (HAN).
Shah said Nepal should now focus on India and China in order to realize its goal of two million inbound tourists by 2020. "We tend to focus on western tourists. It's time we focused on immediate neighborhood as we enjoy both cultural and linguistic affinity and geographical proximity," he further said.
Foreign affairs expert Dr Nischal Nath Pandey sees warming relations between India and China as hugely beneficial for Nepal as this can also help realize Nepal's proposal of trilateral cooperation and transit economy. "It is good to note that relations between India and China are improving. I think the issue of Nepal and entire South Asia could figure during the meeting between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping," said Dr Pandey, who is also Director of the Centre for South Asian Studies (CSAS).
A huge economic opportunity knocks at our doors. It is up to Nepal to capitalize on it by ensuring political stability and investment friendly environment through various reforms including adequate infrastructure development.
Twitter: @KoshRKoirala
