India-Nepal Relations: Between Sovereignty Claims and Strategic Reality
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Summary
India-Nepal ties remain deeply intertwined by geography, economy, culture, and people-to-people links. Despite political differences, the structural realities of trade, energy cooperation, and security outweigh symbolic tensions.
In the aftermath of Gen Z movement Nepal has a new political regime under the leadership of Prime Minister Balendra Shah; a new generation of political leader who challenges the past conventions and calls for a renewed approach to foreign policy. This shift raises the question – how should India react to its neighbouring country’s move to deliberately distance itself from New Delhi while making attempts to assert its sovereignty? The answer must be beyond emotions and based on strategic realities that underpin one of the most interconnected relationships in South Asia.
The Bilateral ties
The debate on India-Nepal ties has been swinging between extremes for decades. Leaders and commentators frequently talk of the close civilisational, cultural and historical ties of “Roti-Beti” between the two countries. On the other side, the accusations of interference, dependency or unequal treatment often dominates political discussion. Both narratives have valid grounds but neither gets the full story of the relationship. Geographically, economically, migration-wise, religiously and even socially, India and Nepal are tied together in a manner unparalleled in the international world.
The relationship with many of the other neighbours of India is not part and parcel of everyday life as it is with Nepal. There are millions of Nepali citizens who reside, work and are studying in India and thousands who cross open borders every day without visas or passports. Families live on either side of the border and the movement is frequently necessary for families’ economic sustainability. These bonds are also reinforced by common religious practices and pilgrimages, fostering a sense of familiarity beyond formal diplomatic exchanges. These facts make it impossible for any temporary disagreement, nationalist propaganda or diplomatic disagreement to change the basic nature of the relationship. Political tides have not damaged the human and social ties uniting the two countries.
For Nepal, 2025 was a year of political chaos. It began with a Gen Z-led movement that forced the resignation of the old guard, including Prime Minister K. P. Sharma Oli, moved into a transitional phase under former Supreme Court Chief Justice Sushila Karki, and finally paving way for a new government in March 2026 under Balendra Shah. Shah belongs to a younger political generation that has not been bonded to the traditional diplomatic customs and has a greater emphasis on the promotion of sovereign equality. His style of diplomacy moves beyond the traditional diplomatic excursions like regular visits among ambassadors and ceremonial visits by lower-level officials. Recently a meeting between Indian Foreign Secretary Vikram Misri with Prime Minister Shah was reportedly called off citing concerns over protocol. These gestures reflect aspects of the Nepalese society that feel that the country has always been under the shadow of the great powers. Thereby, political leaders who show autonomy tend to be both domestically legitimate and popular.
The recent tensions began on 3 May, with Nepal’s objection to India’s Kailash Mansarovar Yatra via the Lipulekh pass. This was further escalated by Balen Shah’s 31 May statement in the Parliament: “After becoming prime minister, I came to know that not only has India encroached on Nepal’s land, but Nepal has also encroached on India’s land in multiple places.” This statement by Nepal's PM was not well received in New Delhi, which responded, “While close to 98 per cent of the India-Nepal boundary has been demarcated, there are some unresolved segments.” Soon, there began a series of visits to New Delhi. First, Rabi Lamichhane, head of Nepal’s ruling Rastriya Swatantra Party (RSP), visited India on 1 June, followed by Nepal’s Foreign Minister Shisir Khanal’s three-day (5–7 June) visit to India. However, no official statement was made on the territorial issues. Such tensions are bound to arise when symbolic claims to sovereignty start to meet structural facts.
Geographically, Nepal is landlocked between India and China. In terms of trade volume, more than 60 per cent of its trade is with India and the remaining trade with the outside world takes place through the India ports of Kolkata, Haldia and Vishakhapatnam. The economic interdependence has further increased in recent years. The historic power trade deal signed in 2024 provides for the supply of 10,000 megawatts of electricity by Nepal in the next ten years, bringing in long term revenue potential. Similarly, the cross-border transmission lines are growing and Nepal has started to export electricity to Bangladesh via India. Furthermore, the Motihari-Amlekhgunj petroleum pipeline has reduced transport expenses, increased energy security and increased efficiency. These are developments that establish lasting economic ties, much more enduring than transitory political differences or symbolic conflicts.
New Delhi’s perspective
India, on its part, looks at Nepal from a broader strategic perspective. One of the wrong assumptions is that New Delhi looks for alignment or loyalty from its neighbours. In reality, the recent civil unrest in South Asia highlights India’s concerns of the external actors manipulating regional dynamics to create security gaps. This is where the sensitivity of such issues as Lipulekh, China’s infrastructure investments, and diplomatic gestures comes from. In India’s security architecture in the Himalayan region, Nepal is more than a neighbour, and to continue its cordial relations with India, Kathmandu should be sensitive to India’s genuine concerns in its policy transformation. The nationalism of the youth is being influenced by social media and is less connected with the traditional ties India-Nepal relationship.
Conclusion
The changing contours of domestic and foreign policy will have clearly visible impact on India-Nepal ties. History has been a testament to India’s support to Nepal in thick and thin. The amount of economic integration, cultural proximity and human connectivity between India and Nepal is no match when it comes to Nepal’s relations with China, US or UK in that case. Thus, the success of Nepal’s development trajectory will only benefit from India’s continued economic growth. The structural realities make it unlikely that the two countries will be separated for long even if there are occasional differences and political adjustments.
Disclaimer: Views expressed are of the author(s) and do not necessarily reflect the views of The Statecraft Institute.