Illustration: Katmandu Journal
IT IS A tricky thing, being a small country wedged between two ambitious giants. Nepal’s traditional diplomatic answer has been to hedge, balancing China’s promises against India’s proximity. But there is a difference between keeping your options open and having a strategy. As the giants grow more assertive, mere hedging looks like an increasingly dangerous game. Nepal’s diplomats, schooled in protocol and politics, need to start thinking like economists. Their country’s sovereignty may depend on it.
The need for a clearer head has grown over the last decade. A turning point came in 2015, when India imposed an unofficial blockade to show its displeasure with Nepal’s new constitution. The halt in fuel and medicine was a brutal lesson in dependency. China swooped in with emergency supplies, casting itself as a reliable alternative. Since then Beijing has diligently applied its now-familiar toolkit: splashy pledges of roads and power plants (some built, many stalled), scholarships, party exchanges and the steady rhetoric of “win-win” partnership. It is a courtship that flatters Kathmandu even as it seeks to bind it.
For its part, India has tried to make amends. It remains Nepal’s biggest trade partner and has extended nearly $2bn in aid and credit since the blockade. But its statecraft generally lacks subtlety. Big projects get bogged down in politics and delays. Meanwhile the Adani Group, a conglomerate with close ties to India’s prime minister, has become the dominant face of Indian private investment, with stakes in airports and energy. When one well-connected firm comes to embody a neighbour’s economic push, it breeds suspicion and risk.
This is more than just a tale of two rivals. It is a classic problem of asymmetric dependence, one that economists have long understood. In the 1940s Albert Hirschman showed how Nazi Germany used trade relationships as weapons, exploiting the leverage that comes from supplying essential goods. His insight was that even mutually beneficial trade can give one side a grip on the other’s throat. That idea is back in fashion. A new wave of scholars is putting numbers on how economic reliance translates into political power. Their finding is poisonous: leverage does not rise in a straight line. As one supplier nears a monopoly, the cost of escaping its grip soars.
Apply this lens to Nepal and the picture is worrying. More than 80% of its exports go to India. Nearly all its fuel comes from across the southern border. China is fast becoming the main source of infrastructure finance and telecoms gear. From energy and communications to education and capital, Nepal is caught in a duopoly. The maths of dependency are cruel: if a single neighbour provides 90% of something you need, finding alternatives demands a ninefold increase in supply. A little less dependence—say, cutting that share to 80%—halves the giant’s potential coercion. Small shifts can bring big gains in freedom of manoeuvre.
So what is to be done? Nepal does have other potential partners. It has begun exporting a trickle of electricity to Bangladesh. The European Union and Japan have shown interest in green projects. Gulf states matter hugely for migrant workers and remittances. None can replace the two giants next door, but together they can dilute their hold. The problem is that Nepal lacks a system to weigh these choices. Foreign policy is obsessed with ceremony; trade talks are scattered across ministries. No one in government is systematically tracking which dependencies are deepening and where new options could be prized open.
Nepal does not need a new ministry of geopolitics. But it urgently needs to start counting. A simple dashboard tracking import shares, supplier concentration and financial exposure would be a start. A national investment plan that prizes diversification would be better. A diplomatic doctrine that treats economic redundancy as a strategic goal would be best of all. Hirschman’s lesson was that strength lies not in size but in being hard to push around. For a small country like Nepal, that means making sure it always has somewhere else to go. It is time its diplomats learned to do the sums. ■
