The latest upheaval in Nepal’s political landscape is a scenario not unfamiliar to New Delhi. Historically, India has engaged deeply with Nepal due to their shared borders, intertwined economic interests and ethnic ties. Consequently, India has consistently monitored cross-border developments to protect its strategic interests, especially in the face of growing Chinese influence.

For India, changes in Nepal’s political arena have profound implications for trade, security and regional stability. As Nepal forges closer ties with China, India has launched diplomatic efforts to recalibrate its relations and strive to maintain a balance in a rapidly changing geopolitical landscape.

Despite this dynamic, India’s foreign policy towards Nepal has remained largely unchanged. The basic principle remains: a stable neighborhood is essential to India’s security, especially given the porous border and significant ethno-cultural links. Indian political parties recognize that a cooperative strategy for mutual prosperity and security will foster a more beneficial bilateral relationship. India’s broader global strategy will inevitably continue to shape its foreign policy, but recent geopolitical developments, including a fragmented election result at home, add complexity to the strategic decisions ahead.

India has traditionally seen Nepal as an important ally, but shifts towards China threaten to change power dynamics in South Asia. If Nepal embraces initiatives like the Belt and Road Initiative (BRI), it could undermine India’s historical influence.

Recently, Nepal’s increasing imports from China, especially in the area of ​​electric vehicles, along with a decline in imports from India, concerned New Delhi. The decline in imports from India, mainly due to restrictions on food exports, highlights vulnerabilities in their trade relationship, prompting India to rethink its policies and seek renegotiation to maintain market access. An increased dependence on Chinese goods could further shift Nepal’s political landscape towards Beijing.

The trend of economic cooperation increasingly favoring China raises urgent questions about Nepal’s future foreign alignment and its implications for regional stability. New Delhi is treating this issue with extreme caution as it seeks to protect its geopolitical interests.

Recently, a senior official from the Communist Party of Nepal-Unified Marxist-Leninist (CPN-UML), now part of the ruling coalition, indicated that Nepal intends to adopt a neutral foreign policyaimed at protecting its national interests and integrity. This approach also aims to address critical issues such as border disputes and trade imbalances, marking a significant shift in Nepal’s diplomatic strategy. As these developments unfold, it remains to be seen how India will navigate this evolving relationship and ensure that its influence in the region is not irrevocably compromised.

CPN-UML’s KP Sharma Oli’s return to power is viewed with concern from India’s perspective, as reflected in Indian news coverage. His previous tenure as prime minister was marked by contentious border disputes that heightened tensions with India. Despite these challenges, Oli has demonstrated an understanding of the importance of economic ties. During his previous term, he visited New Delhi twice, met with Indian Prime Minister Narendra Modi and initiated one of largest hydropower project in the region. This indicates an awareness of the need for cooperation, even in the midst of political contradictions.

But India is likely to proceed cautiously in its dealings with Nepal this time, especially given the unexpected coalition between the CPN-UML and the Nepali Congress. While the Nepali Congress is often perceived as pro-India, it has played a notable role in promoting China’s BRI. This change complicates the geopolitical landscape, as the Nepali Congress has frequently changed its position within the framework of the coalition. The evolving dynamics between these two parties will undoubtedly affect India’s strategic calculations in the region.

India is likely to adopt a diplomatic and strategic approach in its interaction with Nepal during this new political phase. However, it is worth noting that since 2015 the nature of diplomatic engagement has softened; the diplomatic mission no longer exerts the same influence it did before that year. Things have certainly changed. Be it the bilateral partnership or personal relations, India-Nepal relations are not the same – especially mine an increase of worsening political polarization.

The Bharatiya Janata Party’s lack of an outright majority in the new parliament places the Indian government in a particularly sensitive position given the role of the Janata Dal (United) Party in the coalition. The JD(U) is rooted in Bihar and connected through long-standing ties with Nepal’s Madhesh region. Nepal is of great importance to Bihar, as most of its rivers flow into the Ganges in Bihar, and estimated 200,000 Biharis are employed in Nepal’s construction industry, factories, service sector and trade.

The Telugu Desam Party (TDP), another notable coalition partner, is also unlikely to remain passive. TDP president N. Chandrababu Naidu played a central role in Vajpayee’s government from 1999 to 2004, actively engaging with foreign governments to attract investment. Often regarded as India’s commercial diplomat, Naidu became one of the most prominent faces in India’s economic reform and growth story.

India’s ruling coalition may struggle to streamline foreign policy objectives due to potential conflicts of interest and divergent policies.

At the same time, Nepal’s ruling coalition faces its own balancing act. The CPN-UML Alliance are particularly vulnerable from an ideological perspective, given their ethical differences. Issues such as power-sharing, political discontent, ideological fissures and underperformance are likely to emerge over time, given their political history and strategic moves to their advantage. A reconfiguration of alliances would not be surprising.

New Delhi appears to recognize the instability of power dynamics in Kathmandu. However, India will need to engage with the government in power at the moment – ​​and establishing a productive working relationship with the CPN-UML and the Nepali Congress coalition poses significant challenges. The CPN-UML is often perceived as advocating closer ties with China, in line with its ideological stance and ultra-nationalist outlook – which is largely seen as anti-India. This complicates New Delhi’s efforts to effectively engage with the Kathmandu administration, as the dynamics are confusing and unpredictable.

The emergence of a new government in Nepal indicates a change in the dynamics of politics that could affect the priorities of both nations and influence regional geopolitics amid evolving geo-economic trends, with Nepal continuing to be insatiable and India’s approach somewhat lacking. New Delhi is likely to monitor Kathmandu’s political maneuvering closely and adopt a proactive strategy to protect its interests in the region.

Providing some balm to India, the Nepali Congress Foreign Ministry is now headed by Arzu Rana Deuba, a well-known leader who is also the wife of a former Prime Minister of the Nepali Congress, Sher Bahadur Deuba. Her appointment arguably reflects a nuanced strategy aimed at balancing power dynamics and promoting leniency within the ruling coalition. Nevertheless, major challenges remain. The coalition may well differ on foreign policy and its implementation.

The decisions taken by the government in Kathmandu will be crucial in shaping Nepal’s future and influencing the region’s changing geopolitical landscape. The CPN-UML-Nepali Congress coalition will face significant challenges in maintaining a strategic balance with New Delhi and Beijing in a shifting geopolitical landscape, further complicated by the unpredictability of the upcoming US elections. Nepal needs to initiate various diplomatic efforts focusing on trade, cultural exchange and diplomatic channels. But so far, it has yet to take full advantage of its strategic location in the Himalayas.

Balancing the competing interests of India and China while pursuing the Nepalese government’s own domestic goals will be no easy task. The current political flux and unpredictable alliances could further complicate this delicate balance, potentially affecting Nepal’s geopolitical trajectory in unforeseen ways and impacting its development goals. Nepal needs to tread carefully, considering the wider South Asian context.