Paradigm Change in Nepal-India Relations
Nepal-India border gate at Sonauli. (Photo: Wikimedia, Sanu N)
By Rishi Gupta

Paradigm Change in Nepal-India Relations

Mar. 04, 2019  |     |  0 comments

On January 24, 2019, Nepal’s Department of Labor and Occupational Safety under the Ministry of Labor, Employment and Social Security issued a directive, asking employers to provide the total number of Indian nationals working in their companies and ensure that the workers have a valid legal work permit to work in Nepal.

As per this directive, the government of Nepal has mandated employers in Nepal that “while inspecting the institutions the number of Indian workers would be updated and if they don’t have a work permit then inform the institution to take the work permit is directed hereby.” The directive comes as a surprise to India as, under the “special relations” arrangement between the two countries, workers from either country can cross the open border without a visa and work without a permit.

After the directive was posted on the government of Nepal’s Twitter handle, India registered its strong opposition, stating that it violated the very foundation of the Treaty of Peace and Friendship signed with Nepal in 1950. The head of the Indian mission to Nepal reportedly met with Nepali Prime Minister KP Sharma Oli to discuss the issue. Soon after the meeting, the government of Nepal had taken a step to clear the air, saying that the directive was issued due to a “misunderstanding” by the digital cell of the government of Nepal (#HellowSarkar) which is responsible for uploading copies of the government’s notifications on digital platforms.

While the government of Nepal is attempting damage control, India has taken a serious note of the directive. With mounting pressure from New Delhi, Nepal’s Labor Ministry issued a clarification that “Nepal and India have historical ties and there are many treaties between the two countries to address such issues, so there is no reason for making work permit compulsory for Indian nationals.” Meanwhile, the meeting of the Indian ambassador with Nepal’s Prime Minister in itself is self-evident of the unease at the diplomatic level between India and Nepal.

In the last five years, the equation between New Delhi and Kathmandu has reached an all-time low. It began with the implementation of a new democratic republican constitution by Nepal in 2015 where India had “noted” rather than welcomed. In a panic move, New Delhi sent its Foreign Secretary as the special envoy of Prime Minister Narendra Modi to Kathmandu to convey India’s security concerns at the India-Nepal open border. There had been ongoing protests in the Madhesh region (southern belt) against the provisions of citizenship and the demarcation of the federal boundaries within the country. India was concerned about the spillover effects of the mass protests on its states, especially Bihar and Uttar Pradesh that share border with Nepal. The last-minute suggestions to Nepal to accommodate the demands of the Madeshis in the new constitution were not only turned down, but the Nepalese envoy had also accused India of “micromanaging the internal matters of Nepal” at the United Nations which had not gone well with India. As a result, unofficial blockade at the India-Nepal border continued for a period of three months.  

In the aftermath of the alleged border blockade, attempts have been made at the diplomatic level in bettering the relationship. However, the delicate political environment in Nepal and rigidness of the policymakers in India has slowed down the process of cooperation between New Delhi and Kathmandu. Noteworthily, it had been seventeen years since an Indian Prime Minister had taken a trip to Nepal. In 2014, the new government led by Modi prioritized neighbors in India’s foreign policy, especially the Himalayan neighbors — Nepal and Bhutan. Since 2014, Modi has visited Nepal on three different occasions. Meanwhile, the erstwhile welcoming space in Nepal has turned into a hostile space for India after the 2015 border blockade.

The long-standing shadow of India on the policy-making process in Nepal began to receive strong resentment soon after the political transition of Nepal in 2008.

Further, in December 2018, in a significant monetary decision, Nepal Rashtra Bank banned the circulation of Indian currency in Nepal. The Indian currency, which is openly circulated in Nepal, remains strictly under an informal understanding between the two countries.  


Considering the amount of tourists and the informal sector trade passing through the open border, the note ban has affected the Nepalese tourism industry. Furthermore, the 2016 policy on the demonetization of the INR 100, 500 and 1000 currency notes in India led to a severe financial challenge for Nepal. A massive chunk of demonetized currency was stuck in Nepal, and no arrangement has been worked out till date to exchange the notes. India has indicated that since Nepal is a gateway to fake currency flowing into India through an open border, it needs to ascertain the exact numbers of demonetized notes that might be available in Nepal.


It is estimated that around 0.6 million Indians work in Nepal and about 6 million Nepalese work in India. The numbers are approximate since none of the governments maintains a formal record of the people crossing in and out of the border. For both nationals, the visa-free regime and open border provides an economical and easy opportunity for employment. The mechanism also cuts short the paperwork and qualification requirements process and the arrival of workers remain economical due to the openness of the border. However, Nepalese working in India outnumbers Indians working in Nepal and any stringent response on India’s part concerning Nepalese workers in India will have a severe impact on the Nepalese economy as remittances contribute approximately 30 pe cent of Nepal’s GDP. Hence, with the permit system for Indian workers becoming a reality, it will adversely affect the India-Nepal relations, especially for Nepal.


In 1987, in a similar act, the Nepal government introduced permits for Indian workers after an angry New Delhi asked Nepalese settlers in India to move back to Nepal. India was annoyed over Nepal’s arms purchase from China which was seen as a violation of the provisions of the 1950 Treaty of Peace and Friendship. For New Delhi, these developments were seen as deliberate attempts by the government of Nepal to jeopardize India’s security. Later, after a series of discussions at the government and people to people levels, the government of Nepal assured New Delhi about any future arms deals with any third country including China and the relations improved.


In the present context, going by the strong objections from India, the Nepal government claims to be unaware of any such directive. However, it is noteworthy that till date, the directive remains on the official Twitter handle of the Government of Nepal and no other official response has been communicated to the government of India on the issue.


To conclude, it is worth noting that following the establishment of democracy in Nepal, the country has been steadfast in conveying its quest for ensuring sovereignty. The long-standing shadow of India on the policy-making process in Nepal began to receive strong resentment soon after the political transition of Nepal in 2008. Despite several attempts by Nepal to update the provisions of the 1950 Treaty of Peace and Friendship, it was only in 2016 that India agreed to appoint a committee to look into the matter. The recommendations of the committee remain in limbo. Hence, present Nepal does not represent the political and diplomatic environments of the 1990s. With regards to the work permit directive and several recent diplomatic acts of Nepal, India needs to understand that Nepal is pushing for a regulated border and wants to formalize the incoming workforce from India into Nepal. Indeed, the effect of such acts will have serious implications for Nepal, but the country seems to be readying for a challenge.


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