Nepal in the Geopolitics of Asia: Four Scenarios and Policy Options

Nepal is wedged between two powers: China and India. As great power rivalry spills over in the region, Nepal finds itself increasingly constrained. Prominent experts and thought leaders from across the country gathered in the country’s capital to explore different scenarios and discuss ways to overcome challenges.

FES Office for Regional Cooperation in Asia, in collaboration with FES Nepal office, organized a two-day national lab in Kathmandu. Nepalese experts and thought leaders from various backgrounds were invited to share their views and analyse the situation at play. Facilitated by the Executive Education team of the Lee Kuan Yew School of Public Policy, they discussed the geopolitical and geoeconomic megatrends affecting Nepal and explored possible scenarios for the country. The groups then devised strategy options that could help Nepal achieve optimal outcomes.

Scenario 1: Balancing the dragon and the tiger

In this scenario, tension between China and India escalates into conflict with violent clashes in the contested areas. The scenario also considers China possibly using the Brahmaputra River as a key hold over India’s river system in Arunachal Pradesh. This might exert pressure on Nepal to align itself with either India or China. By aligning itself with a regional superpower, Nepal can secure investments and the ability to leverage its position from the power that it aligns with. That will come with costs. If, however, Nepal strives to maintain its neutrality, it could play a key role as peace broker and play host for talks between the two parties.

Based on the scenario above, participants identified three strategic options to achieve positive outcomes and avoid undesirable features of the scenario:

  • Strengthen soft power projection as a peace-loving nation. This can be done by playing up the cultural importance of Nepal as the birthplace of religions and focusing on Nepal’s contribution to UN peacekeeping missions around the world.
  • Diversify investments and investment sources. This will allow Nepal to avoid dependency on any one source, to prevent one party from having too much leverage over the country.

Enhance state capability and improve the quality of governance, including increasing transparency and accountability in the delivery of public goods.

Scenario 2: Dancing Danfe

The scenario described by the group is one where multilateralism remains intact and countries reorient their focus on economic competition and development. (The danfe, or Himalayan monal, is the national bird of Nepal.) Regional powers - India and China - reach an agreement on ways to manage their border disputes, shifting their focus to economic competition. This in turn bolsters some regional economic institutions, fosters cooperation among countries for growth, and renews focus on climate deals. Nepal also participates proactively in several of these forums and in the process receives substantial aid for infrastructure and development. It will also be able to maintain its neutrality and non-alignment foreign policy.

Reflecting on the scenario above, participants came up with three policy recommendations to maximise its possible features:

  • Build consensus on foreign policy and augment execution capacity. It should also engage with other medium-sized powers such as Germany and other EU nations. To achieve this, Nepal should invest in think tanks and build a strategic community.
  • Enhance participation in multilateral forums and institutions and leverage its experience of conflict resolution. It can also play a larger role among the group of smaller states in non-traditional security issues that they might have in common.
  • Strengthen economic situation through reforms and investments, including adoption of policies to enhance the ease of doing business. Nepal should also invest in young generations and nurture the Nepali diaspora.

Scenario 3: Playing on safe waters but deep down in geoeconomic storm (Khai K, Khai K)

The scenario described by the group is one where regional diplomacy is improving but does not bring economic gains for Nepal. Despite China and India’s positive relations, regional trade agreements do not cater to Nepal’s needs. Foreign industries that set up base in Nepal merely use it for cheap labour and do not transfer technology and skills to the country. The lack of economic opportunities and the effects of climate change also drives a trend of brain drain in Nepal where young talent migrates to greener pastures abroad.

For this scenario, participants developed three strategic options to avoid undesirable outcomes:

  • Intensify research on the economic benefits of international treaties and build capacity to allow Nepal to make negotiate best outcomes for the country.
  • Leverage soft power and take leading roles in international negotiations for climate issues. It can also focus on exploring ways to generate economic opportunities within the green sustainable economy.

Strengthen economic resilience through tourism and focus on specialized offerings including the development of its cultural and spiritual heritage.

Scenario 4: Turbulent waters: Nepal in limbo

The scenario created by the group is one where there is conflict in the flashpoints of the South China Sea and Taiwan. As a result, India has a freer hand to be more assertive towards other countries in the region. While its regional rival is engaged in the aforementioned conflict, India may decide to settle its territorial disputes and Nepal can find itself in a precarious situation, or even in the crossfire. Furthermore, if India decides to align with the United States, there is a possibility that Nepal is severely constrained should Indian troops clash with their Chinese counterparts in the border areas. In such a situation where the situation escalates into full-blown war, foreign aid to Nepal will decrease following weakening democratic institutions and values as a result of regional and global conflicts. Nepal will be forced to compromise its neutrality with the reduced aid.

Participants devised three policy recommendations that Nepal could take to navigate through the scenario described above:

  • Assess and identify strategic threats and devise policies to deal with them. This should involve classification of those that are immediate, and include non-traditional and economic security issues.
  • Build narratives and establish a clear foreign policy, strengthening research institutions and capabilities.

Develop economic capacity and strategic policies to counter economic vulnerability and instability. This should be done by investing in upskilling its labour force, for the sake of the local economy, global opportunities and foreign investors.

Summary compiled by Dinkim Sailo, Senior Programme Manager, FES Office for Regional Cooperation in Asia and Takdanai Ketkaew, Programme Assistant, FES Office for Regional Cooperation in Asia.

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