Repairing ties with Nepal: A strategy of two hands, 10 fingers, Pg13

Key Highlights:

• Nepal is scheduled to lose its Least Developed Country (LDC) status on November 24 but has sought a three-year deferral from the UN.
• The country adopted the Smooth Transition Strategy (STS) in 2024 to achieve sustainable graduation from LDC status by 2030.
• India and Nepal are proposing a "two-hand strategy" focusing on economics and technology to move Nepal beyond its remittance-led growth.
• Nepal's economy has grown at approximately 4% annually for three decades, supported by low debt and $15 billion in annual remittances.
• The WTO estimates a 9% increase in tariffs, and the UN’s International Trade Centre estimates a 4% loss in exports for Nepal post-LDC graduation.

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Detailed Insights:

• LDC status provides preferential tariffs, market access, and concessional financing, which Nepal will lose upon graduation.
• Nepal maintains macroeconomic buffers, including 18 months' worth of foreign exchange reserves, to mitigate the impact of LDC graduation.
• Bilateral tariff agreements with India, including a fixed NPR-INR rate of 1.6 since the 1990s, offer a safety valve against economic shocks.
• Nepal joined China's Belt and Road Initiative (BRI) in 2017 to diversify its economic partnerships, though northern connectivity faces challenges.
• The proposed "two-hand strategy" with India includes economic measures like stable commerce rules and joint ventures, and technological cooperation in areas like digital infrastructure and space-tech.
• Key risks to be addressed include over-securitisation of the border, adverse perceptions of Indian dominance, and bureaucratic delays in project implementation.
• Recent technical meetings on river waters, railway connectivity, customs, and energy indicate re-established trust and momentum in bilateral relations.

Key Concepts Involved:

• Least Developed Country (LDC) Status: A classification by the UN for countries with low income, human resource weakness, and economic vulnerability.
• Smooth Transition Strategy (STS): A national plan adopted by graduating LDCs to ensure a sustainable and gradual shift from LDC-specific international support measures.
• Remittance-led Growth: An economic model where a significant portion of national income and consumption is driven by money sent home by citizens working abroad.
• Belt and Road Initiative (BRI): A global infrastructure development strategy adopted by the Chinese government in 2013 to invest in nearly 150 countries and international organizations.