India- Nepal Relations under Balen Shah: Opportunities and Imperatives

Nepal's newly elected Prime Minister Balendra "Balen" Shah has accepted Prime Minister Narendra Modi's invitation to visit India, marking the first significant diplomatic move by Nepal's government. This visit arrives at a moment of transition, notably after the ‘2025 Nepalese Gen-Z protests’, which resulted in resignation of former PM KP Sharma Oli and formation of an interim government. This transition is not merely of government, but also of generation and of governing principles which has long dictated Nepal’s engagement with its neighbours.

For India, this moment provides a clear assessment of  changes which have taken place in Kathmandu. The political landscape in Nepal has been remade by the generation that rejects old order. The fundamentals of geography and shared civilization between India and Nepal remains the same and imposes continuity even when the politics introduces change. They are a foundation upon which a new relationship must be built. The manner in which New Delhi engages with the Shah's government will determine whether the shared fundamentals will bring co-operation or will become the cause of discord.

Tectonic Shift is Kathmandu’s Political calculus 

Nepal’s political system has been characterised by chronic instability since its democratic transition in the 1990s. The country has seen 32 governments in three decades, with no single administration completing a full- five year term. For much of this period, power shifted between the Nepali Congress and the Communist Party ( Unified Marxist-Leninist), often in fragile coalitions with smaller Maoist factions. These alliances were bound less by shared ideology and more by the need for survival, and were prone to collapse. Governments rose and fell so frequently that instability became the norm.

The Gen- Z led uprising of September 2025, was the result of this accumulated frustration. Corruption, economic stagnation, and the political class widely perceived as self-serving and disconnected acted as catalysts. From such an unstable political environment, the emergence of an anomaly like Balendra Shah was perhaps inevitable . His biography defies all conventional political categorisation. He is Nepal’s youngest Prime Minister at 35, studied structural engineering in India, and rose to fame as a rapper before his election as Mayor of Kathmandu in 2022. The Rashtriya Swantantra Party(RSP), with which Shah is associated, was founded merely four years ago. In the 2026 general elections, it secured 182 of 275 seats in the lower house.The Communist Party of Nepal (Unified Marxist-Leninist), long dominant force under KP Sharma Oli, was reduced to 25 seats.

Shah’s governance has centred around taking direct aim at VIP culture, political patronage networks, bureaucratic systems. He recently unveiled a sweeping 100-point governance agenda, where under the new mandate, party- affiliated student organisations in schools and universities are to be dismantled within 90 days and replaced with non-partisan student councils or “Voice of Students” platforms. He has also ordered the removal of photographs of political leaders from government offices and imposed a ban on government advertisements in private media outlets.

Unlike other political parties that aligned their foreign policy orientation with their ideological foundations, the RSP offers no such clarity. The Nepali Congress, with its liberal democratic roots, was long viewed in New Delhi as a natural partner for India and the West. The communist parties acknowledged their ideological affinity with Beijing. Under KP Sharma Oli, relations with India faced predicaments a lot of times. Oli’s first tenure saw the 2015 blockade, when protests erupted along the India- Nepal border, and the flow of essential supplies got disrupted.

Nepal accused India of imposing an undeclared blockade. In light of this incident, Oli turned toward China , signing Nepal’s first-ever fuel agreement with China and making Beijing his first foreign visit, not New Delhi. It was a symbolic break from tradition that signalled a shift in Kathmandu’s foreign policy orientation. His subsequent terms were marked by visible tilt towards China with new transit agreements, Belt Road Projects, and rhetoric that often cast India as a domineering neighbour. When Pushpa Kamal Dahal “ Prachanda” assumed office in 2023, New Delhi watched closely. Prachanda, once the face of anti-India Maoist insurgency, had then maintained stable relations with India, yet his government remained a fragile coalition.

The RSP lacks such ideological character, making it difficult to predict its foreign policy preferences. This absence of ideological baggage means Shah’s approach will be pragmatic and anchored in what he determines as serving Nepal’s ‘national interest’.As former Foreign Minister Rameshnath Pandey observed, “ As both Balen and Lamichhane are new to diplomacy, they have no biases in international relations.” 

Nepal maintaining neutrality

Although the new government has taken swift measures already to convey its foreign policy orientation.

On April 8, Shah convened an unprecedented group meeting with 17 ambassadors and heads of diplomatic missions at his office in Kathmandu. The gathering included envoys from India, China, the United States, Japan, Pakistan, Bangladesh, Qatar, and the United Nations Resident Coordinator, among others. Instead of conducting bilateral meetings, he chose to address the diplomatic corps collectively, avoiding the tradition of signalling priority through the order of engagements.

The composition of the group included traditional partners, such as India, China, the United States, the United Kingdom, and were joined by Gulf countries. Nepali workers in the Gulf constitute one of the largest immigrant communities in the region, and remittances from these workers contribute approximately a quarter of Nepal's GDP( Gross Domestic Product). With the worsening situation in West Asia, engagement with Gulf counterparts is of utmost priority for the new government.

Foreign Minister Khanal's public statement, "New doesn't mean discontinuity," shows the approach of calibrated engagement. He further states, "Our fundamental values remain the same. In terms of relationships with neighbours and partners, they will be linked to national interest." For India, which has historically relied on the integration of the two societies to secure its interests in Nepal, this represents a significant challenge. The cultural and organic ties must now be translated into tangible gains. This is not a disadvantage, but a new opening. A government unburdened by historical grievances or fixed ideological inclination can be engaged on mutually beneficial terms. There is an opportunity for a fresh start, that can be based on productive outcomes rather than symbolic gestures. 

India's Window and Its Challenges

For India, the electoral outcome in Nepal presents a significant strategic opportunity, but the history of India-Nepal relations over the past decade signal towards caution. The 2015 border blockade remains a vivid and painful memory in Nepal's political consciousness. The UNICEF warning from that period, that over three million children faced elevated risk of disease or death due to shortages of medical supplies, shows the human toll of that episode. The 2020 map controversy over Kalapani, Lipulekh, and Limpiyadhura further strained relations. Nepal released its own revised political map claiming these territories and the Indian Ministry of External Affairs responded with measured but firm rejection.

The change in ruling power presents a new opportunity to both the countries to calibrate the ties and work together on several interconnected sectoral priorities. Deeply rooted historical, social, religious and cultural connections and strong people-to-people ties have long been the bedrock of the solid relationship between Nepal and India. The Nepal-India relations have, over time, evolved into a multidimensional partnership encompassing various areas such as energy, connectivity, infrastructure, health, education, agriculture, trade, tourism and culture.

Economic Integration- Nepal's ambition to double its GDP within a decade cannot be achieved without deepened economic integration with India. India accounts for approximately two-thirds of Nepal's total trade and is the source of all petroleum supplies. The new government is conducting an internal review of the roughly 40 bilateral mechanisms that govern India-Nepal relations, with the aim of setting clear priorities. Energy connectivity, transit rights, and investment facilitation will dominate the economic agenda. Progress on cross-border transmission infrastructure and power trade agreements can result in tangible benefits to both sides.

Security Cooperation- The open border is the relationship's greatest asset as well as its most significant vulnerability. It enables people-to-people ties, but it also facilitates smuggling, trafficking, and the movement of criminal and extremist elements. Traditional Indian security concerns about Chinese influence in the Himalayan belt, dating back to the 1962 war, remains relevant. The Kalapani-Lipulekh tri-junction is a point of unresolved sensitivity, where both countries maintain different positions. The new government’s approach to security cooperation with India will be an important indicator of the broader orientation.

The Gulf Diaspora- One of the more notable features of the new government's diplomatic signalling is its attention to Nepal's Gulf diaspora. Khanal's discussion with Jaishankar in Mauritius addressed the impact of West Asian instability on Nepali workers and their remittances. This signifies a change from Nepal's traditionally India-and-China-centric foreign policy discussions, and it reflects the economic reality of the country. India has its own large diaspora in the Gulf and shares an interest in regional stability, similarly, Nepal is also more actively engaged in protecting its workers abroad, thus, aligning with Indian regional objectives.

The China Factor 

For China, Nepal is of both strategic and symbolic importance. Strategically, Nepal's northern border with the Tibet Autonomous Region is a security frontier that Beijing closely monitors. The security calculus also remains active  due to the active presence of thousands of Tibetan exiles in Nepal. China's push for trans-Himalayan connectivity through railways, roads, energy grids, and digital links under the Belt and Road Initiatives, aims to bind Nepal more closely into Chinese economic and infrastructural networks.

On the symbolic side, China has invested in projecting an image of itself as a development partner, that respects sovereignty, and that offers an alternative to Western and Indian models. The success or failure of this projection in Nepal serves as a test case for China's broader neighbourhood strategy.

PM Shah's  commitment to a non-aligned foreign policy can introduce complications for China's position. The RSP's election manifesto called for Nepal to become a "vibrant bridge" between India and China. This  formulation suggests a desire to derive benefit from both relationships rather than choosing between them. 

The United States, too, maintains a stake in Nepal's orientation. The $550 million Millennium Challenge Corporation compact, ratified in 2022 after considerable domestic controversy, represents a significant American investment in Nepal's electricity and road infrastructure. In 2022, the previous government decided  to opt out of the State Partnership Program which was a U.S. Defense Department cooperation initiative. It  reflected Nepal's policy of non-alignment and its sensitivity being drawn into strategic competition. As of early 2026, MCA-Nepal has resumed operations and is moving forward with procurement, including contracts for substation construction and transmission lines, aiming for completion within the five-year deadline. 

The path forward

The relationship between Nepal and India is built on a foundation that is fundamentally mutual and inescapable. Economic realities have made the countries essential to each other. People in the Tarai-Madhesh belt of Nepal enjoy close roti-beti (literally bread-daughter, a metaphor for the warm bilateral ties) relations with those across the border in India, including in Bihar, which shares over 700 km of border with Nepal. But the relation between both countries is far more than just cultural, there is a great scope of economic potential which has consistently underperformed. Nepal’s trade deficit with India continues to widen each year, exacerbated by weak industrial capacity, regulatory hurdles and challenges of managing an open border.

For New Delhi, managing these realities demands a recalibration of approach. The rhetoric pf ‘ Neighbourhood First’ must now be translated into the outcomes that are measurable and visible in Kathmandu. The new generation of Nepali leadership expects engagement that fetches them mutual benefit, not symbolic gestures and the ‘big brother’ attitude , that has long been the perception of India in Nepal. The era in which Nepal could be taken for granted, has passed. The new government does not have an ideological alignment but it is attuned to domestic sentiments.  India needs to prioritise visible and swift delivery of ongoing projects like transmission lines, railways, digital payment integration etc. Also, the exercise of restraint in public discourse is also needed from New Delhi. Casual remarks can reinforce narratives of Indian dominance that the new government has promised to resist. The requirement is of treating Nepal as a sovereign equal, rather than a small neighbour country to be managed.

The opportunities are considerable. Deeper economic integration ,improved digital connectivity and security cooperation offers a model for addressing shared challenges effectively. The fundamentals of geography and civilization are fixed. Whether they become a foundation for partnership or contention will depend on how New Delhi chooses to engage with Kathmandu.