Who is the largest source of FDI in Nepal?

India is the largest source of FDI in Nepal

India Nepal Relations

The Prachanda-Oli coalition coming to power in Kathmandu is seen as a cause of concern for India’s strategic interests as both communist leaders are widely considered to lean towards China.

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Context: Nepalese Prime Minister Pushpa Kamal Dahal is on an official visit to India, seeking to enhance cooperation in power, transport and tourism.

More on the news: Key highlights of visit

Export of hydropower: India-Nepal have signed a series of agreements, including export of Nepal’s hydropower to Bangladesh through Indian Territory.
- A long-term Power Trade Agreement has been signed, aiming to set a target of importing 10,000 MW of electricity from Nepal in the coming years.
Infrastructure assistance: NHPC and VUCL (Vidyut Utpadan Company Ltd.) of Nepal have signed agreement for the development of Phukot Karnali Hydroelectric Project and Lower Arun Hydroelectric Project.
Access to inland waterways: Both the sides have signed the revised Treaty of Transit under which Nepal will get access to India’s inland waterways.
Railway connectivity: Both sides jointly inaugurated a cargo train from Bathnaha in India to Nepal Customs Yard. The rail link was built with an Indian grant.
Upgradation of petroleum pipeline: Foundation was laid for development of Phase-II facilities as part of the Motihari-Amlekhgunj Petroleum Pipeline.
Religious tourism: The projects related to the Ramayana Circuit will be expedited.

India-Nepal ties: Significance

Economic significance:
- Trade: Nepal shares border with 5 Indian states. Hence an important point of trade and economic exchange.
- Energy security: India and Nepal share many trans-boundary Himalayan rivers with huge hydropower potential.
- Foreign exchange: Remittances sent from India is one of the major sources of foreign exchange.
Strategic significance:
- Buffer state: Nepal acts as buffer state between India and China. It prevents any future chances of aggression.
- Internal security: Cooperation of Nepal is necessary for curbing cross-border smuggling of weapons, fake currency and narcotics.
Cultural significance:
- Pilgrimage sites: Many Hindu and Buddhist religious sites are in Nepal making it an important pilgrimage site for Indian citizens.
- Common religion: Majority of citizens in India and Nepal are Hindus, forming a major civilisational link between the two nations.
Diaspora: Nepali diaspora in India and Indian workforce in Nepal act as people-to-people link.

Areas of Cooperation between India and Nepal

Trade and Economy	Bilateral trade: India is the largest trading partner of Nepal. In FY 2021-22, Nepal constituted 2.34% of India’s exports. And exports from India constitute almost 22% of Nepal’s GDP. FDI: India is the largest source of FDI in Nepal. Indian firms engaged in manufacturing, services (banking, insurance, dry port), power sector and tourism industries etc.
Connectivity	Transit: Nepal being a land-locked country, needs freedom of transit. India provides transit for almost the entire third country trade of Nepal. Recent developments: A 35-km cross-border railway line linking Jaynagar in Bihar to Kurtha in Nepal flagged off. India has also handed over the Solu Corridor, a 90-km, 132 kV power transmission line which will help bring electricity to several remote districts in northeastern Nepal. Nepal has signed a MoU with India for Kathmandu-Raxaul railway link. Sagarmatha to Sagar: India is looking to develop the inland waterways to Nepal and provide sea access for Nepal.
Defence cooperation	Defence modernization: India provides assistance to the Nepalese Army in its modernization through the provision of equipment and training. The Gorkha Regiments of the Indian Army are raised partly by recruiting from hill districts of Nepal. Joint military exercise: Surya Kiran
Cultural cooperation	There have been initiatives to promote people-to-people contacts in the areas of art & culture, academics and media with different local bodies of Nepal. Recent developments: Sister cities: India has signed three sister-city agreements for Kathmandu-Varanasi, Lumbini-Bodhgaya, and Janakpur-Ayodhya. Recently PM Modi laid the foundation for construction of the India International Centre for Buddhist Culture and Heritage in the Lumbini Monastic Zone, Lumbini, Nepal. The Ramayana Circuit train: It includes major pilgrimage sites from India and Nepal that are related to the Ramayana.
Energy cooperation	Hydroelectric projects: Arun 3 Project, Pancheshwar Multipurpose Project, Pokhara (1 MW), Trisuli (21 MW), Western Gandak (15 MW), and Devighat (14.1 MW). Motihari-Amlekhgunj Pipeline: Pipeline carries petroleum products from Motihari in India to Amlekhgunj in Nepal. India and Nepal have a Power Exchange Agreement since 1971 for meeting the power requirements in the border areas. Nepal also invited Indian companies to invest in the West Seti hydropower project in Nepal.
Assistance	Developmental assistance: The Government of India provides developmental assistance to Nepal in the areas of infrastructure, health, water resources, and education and rural & community development. Humanitarian assistance: Nepal remains the biggest recipient of India’s humanitarian assistance due to its ecological fragility. Vaccine diplomacy: India has extended vaccines and COVID related aid to Nepal.
Multilateral Partnership	India and Nepal share multiple multilateral forums such as BBIN, BIMSTEC, Non-Aligned Movement, and SAARC etc.