India’s Economic Miracle & Nepal | 1 India’s Economic Miracle & Nepal Hari Bansh Jha Executive Director, Centre for Economic and Technical Studies Kathmandu, Nepal © Vivekananda International Foundation 2020 Published in 2020 by Vivekananda International Foundation 3, San Martin Marg | Chanakyapuri | New Delhi - 110021 Tel: 011-24121764 | Fax: 011-66173415 E-mail: [email protected] Website: www.vifindia.org ISBN: 978-93-90061-04-4 Follow us on Twitter | @vifindia Facebook | /vifindia All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form, or by any means electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher Contents Foreword ....................................................................................... 5 Preface .......................................................................................... 7 Part - I India’s Economic Miracle: How Can Nepal Benefit from It? ...........11 Part II India needs to revamp its working style in Nepal .............................79 Modi’s Cultural Diplomacy: Bearing Fruit in Nepal ........................83 Modi in Janakpur: Cementing bilateral ties .....................................87 Mahakali Treaty: Now, Implement It ...............................................90 Evolving Nature of Nepal-India Relations ......................................93 India, Nepal Need to Plan a Joint Strategy to Tackle Floods ...........97 Visakhapatnam Port: More Beneficial to Nepal .............................104 Demonetisation of Indian Currency and Nepal .............................109 The Gujarat Model of Development: Can it Work for Nepal? .......117 Better Government to Government Efforts Needed to Rejuvenate Nepal-India Relations ....................................................................121 Benefits of the Pegging Arrangement Between Nepali and Indian Currencies ......................................................................................131 Indian Investment in Nepal: Challenges and Opportunities ..........135 Nepal-India Cooperation in River Water Management .................138 Prologue .................................................................................... 161 Foreword Vivekananda International Foundation (VIF) has maintained an abiding interest in promoting bilateral relations with India’s neighbours. Nepal has always figured right up there in its list of priorities. When it was proposed to write a book on “India’s Economic Miracle and Nepal”, the idea was that the proposed work should move beyond the usual narrative of special historical socio-cultural ties, Roti-Beti ka Rista, open borders etc. Instead, it should help draw up a sustainable and irreversible model of economic and commercial complementarities between the two neighbours, pegged round what Dr. Jha describes as the growing ‘Economic Miracle’ of India. I am happy to say that the author has done precisely that by convincingly building the argument that Nepal has tremendous scope to modernise and develop its economy by integrating/aligning it with the Indian story. To undertake this challenging task, there could not have been a better qualified person than Dr. Hari Bansh Jha, who till recently was the Vice Chairman of the Policy Commission, Province No. 2 (2018-19). Earlier, in 2016-17, he was a Visiting Scholar at the Indian Council of World Affairs, New Delhi, and at the Chengdu American Centre for Study Abroad, Sichuan University, Senior ICCR Fellow at the Institute of Defence and Strategic Analyses, New Delhi (2011-12) and the list goes on. Between 1976 and 1998, he was Professor of Economics at Nepal’s 6 | India’s Economic Miracle & Nepal Tribhuvan University. His areas of interest include planning and policy making, regional affairs, Madheshi/Terai issues, strategic affairs etc. Being a prolific writer, he contributes articles on topical issues regularly both within and outside the country, including to the VIF website The world is in a flux. India and Nepal will not remain unaffected. The new generation is aspirational and upwardly mobile. Bilateral relationship has become complex, as the recent events have shown. India and Nepal need to refresh their relationship by bringing in new ideas and new synergies between themselves while retaining the essence of their unique friendship and close ties. I am confident this book will be useful for students of India-Nepal economic relations by defining a new approach to bilateral cooperation between these close neighbours, particularly in South Asia. New Delhi Arvind Gupta, 27 July 2020 Director, VIF Preface India happens to be the world’s fourth-largest economy in terms of purchasing power. Expectations are that it might overtake Japan, China and the United States in the next four decades or so. As its closest neighbour, Nepal has a great potential to benefit from India’s fast economic growth through road, air and railway connectivity and above all in governance sectors. The probability to do so arises because of Nepal adopting a model of economic growth almost similar to the one India has been pursuing since the 1950s. However, Nepal and India don’t share the same level of economic growth. India has been maintaining an economic growth rate of eight percentt or so for the last several years, while Nepal’s growth rate is around five percent. This is intriguing because Nepal offers possibilities of a higher growth rate due to the huge, friendly and fairly diverse Indian market located at its footstep. The large potential to produce hydropower, laws favourable for investment, including foreign direct investment (FDI), diverse ecological belts suitable for different agricultural activities, an attractive tourism sector, besides its location as a prospective transit economy between India and China. The core problem in Nepal’s development is its institutional bottlenecks. The country is plagued by weak governance, inadequate infrastructure, power shortage, labour militancy, expanding trade deficit, poor tourism 8 | India’s Economic Miracle & Nepal policy and a politically divided society. To overcome these bottlenecks and to initiate catch up with India, there is a need for a politically stable and committed government in Kathmandu to encourage private trade and capital flows with India. The focus should be on macroeconomic stability through provision of goods, development of infrastructural facilities and higher investment in health and education services. Time demands that Nepal must improve relations with India, keeping in mind traditional ties in economic, political, cultural, social, religion, language, and historical fields. A porous Nepal-India border has not only fostered greater people-to-people ties, but also made such relations dynamic and evergreen. Considering this unique equation between Nepal and India, the book titled “India’s Economic Miracle and Nepal” intends to create awareness in both societies about various possibilities that exist and can be benefitted from. Significantly, the book has a chapter on “India’s Economic Miracle: How Can Nepal benefit from it?” This chapter reveals how India achieved stunning results in most important sectors, including agriculture, industry, service and trade through economic reforms introduced in 1991. The time has come for Nepal to explore how it can benefit from the Indian economic growth experience. The chapter also mentions how Nepal can transform its under-developed economy into a vibrant one. The book is divided into two parts. Part one talks of how Nepal can benefit from India’s economic miracle, while part two has a collection of important articles published in leading newspapers, websites and journals of Nepal and India. I worked on the theme of “India’s Economic Miracle: How Can Nepal Benefit from it?” as a Senior Fellow at the Indian Council for Cultural Relations (ICCR) in 2011-12 and at the Institute for Defence Studies and Analyses (IDSA) in New Delhi, India. The data presented in the original text was subsequently updated to the extent possible. India’s Economic Miracle & Nepal | 9 It would not have been possible for me to complete this work without the support of the ICCR for which I would like to express my gratitude. Besides, I am also obliged to Dr Arvind Gupta, former Director-General of the IDSA who gave me affiliation to work at the IDSA as an ICCR Fellow. My thanks are due to Dr Ashok Behuria, Dr Nihar Nayak and other members of the South Asia cluster at the IDSA for exchanging views with me related to my research theme. I would like to extend special thanks to the library staff of IDSA and the Research and Information Centre (RIS) for their kind support during my research period in New Delhi. My obligations are also due to Professor Charan Wadhwa, former President and Chief Executive of the Centre for Policy Research in New Delhi for his valuable inputs to make my study meaningful. I would also like to express my heartfelt thanks to all those newspapers, websites and journals which published my works (as presented in part two of the book) on various facets of Nepal-India relations. Last but not the least, I would like to express my gratitude to the New Delhi-based Vivekananda International Foundation (VIF), for taking the trouble to edit and publish this book well in time. Hari Bansh Jha March 20, 2020 Part - I India’s Economic Miracle: How Can Nepal Benefit from It? Background After achieving independence in 1947, India adopted parliamentary