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.

Table of Contents

What is the Significance of Nepal for India?

Economic Significance:
- Trade: Nepal shares a border with 5 Indian states. Hence an important point of trade and economic exchange.
- Energy security: India and Nepal share many transboundary Himalayan rivers with huge hydropower potential.
- Nepali exports: India has a good demand for Nepali exports like Pashmina textiles.
Strategic Significance:
- Buffer state: Nepal acts as a buffer state against any possible aggression from China.
- Internal Security: Curbing cross-border infiltrations and drug trade with help of Nepal.
Cultural Significance:
- Pilgrimage sites: Many Hindu and Buddhist religious sites are in Nepal making it an important pilgrim site for a large number of Indians.
- Common religion: 80 per cent Hindu population in both countries integrate the people.
- Diaspora: Nepali diaspora in India and Indian workforce in Nepal.

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, it 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 an MoU with India for Kathmandu-Raxaul railway link. Sagarmatha to Sagar: India is looking to develop the inland waterways to Nepal and providing 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 recruitment from hill districts of Nepal. Joint military exercise: Surya Kiran
Cultural cooperation	There have been initiatives to promote people-to-people contacts in the area 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. 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 development 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.