Compass | The Sour Note

The geostrategic powerplay in Nepal between India and China

Sudeep Chakravarti

In late November 2025, another regional niggle played up when Indian media en masse accused Nepal of ‘reigniting’ a bilateral boundary dispute. It had depicted a map—as a watermark on an NPR 100 currency note—which included territory India claims as its own. Indian media also took care to mention that a Chinese company had printed the note.

And by doing so, elevated a dispute that involves a 370sqkm strip along the nearly 1,850km-long India-Nepal border with Nepal into a regional Great Game.

It is a story with layers of assumptions and presumptions. And, of course, an element of India and China’s talk-talk-fight-fight play that skewers Nepal’s foreign policy outlook in the same manner it does for most South Asian countries. But at the core of the dispute lies what I like to term India’s ‘zamindari’ attitude in South Asia that has for decades created space for dissonance. It is the opposite of India’s supplicatory attitude with, say, G7.

The currency flap has brewed for a while. In early May 2024, Nepal’s government announced plans to print new 100-rupee notes with a map that would contain the regions of Lipulekh, Limpiyadhura, and Kalapani in northwestern Uttarakhand state. It followed a decision taken by Nepal’s cabinet over two meetings.

The disputed areas lie along the border with Tibet Autonomous Region (TAR) in China. This adds a supercharged geopolitical layer to an on-again, off-again border dispute between India and Nepal particularly since 1997.

Nepal reinforced that position in 2020 when it updated its official map, citing measurements by the Survey Department of Nepal’s ministry of land management. It followed India’s updating of its own maps in 2019 which show these areas as being within its borders. India even unveiled a road link via Lipulekh for pilgrims to Kailash-Mansarovar in TAR, a move that drew a diplomatic protest from Nepal.

India’s foreign ministry responded to Nepal’s announcement of the proposed currency design. Indeed, more strongly than this time around; that was also the time of general elections to India’s parliament.

But India has consistently underestimated national sentiment and attitudes in Nepal. Take the example of the border dispute. India has seen one prime minister since 2014. Nepal has seen ten—with K.P. Sharma Oli assuming premiership thrice, Pushpa Kamal Dahal twice, so too Sher Bahadur Deuba. Sushila Karki, interim prime minister since Nepal’s spectacular Gen-Z led political meltdown this past September, is the tenth in this series. All of them, whether perceived as pro- or anti-India—or pro-China, for that matter—have remained steadfast on this border issue. Nepal first.

Let us recall the formal inauguration of India’s new parliament building in end-May 2023. The inauguration accompanied religious and imperial motifs. The building contains a mural depicting what is widely portrayed as Akhand Bharat, or undivided India. This mural-map included territories that form almost all of present-day Pakistan, large areas of present-day Nepal, and parts of present-day Bangladesh.

All three countries sought clarifications with varying degrees of insistence. India’s foreign ministry spokesperson at the time publicly explained the mural away as depicting ‘the spread of the Ashokan Empire and the idea of responsible and people-oriented governance that he adopted and propagated.’

TENSE TIES Prime Minister Narendra Modi with his Nepalese counterpart Sher Bahadur Deuba

The spin was aimed at arresting fallout. It did not work. As The Telegraph of Kolkata wrote at the time: “The reason the controversy is not dying down even a week after this explanation is a tweet by parliamentary affairs minister Pralhad Joshi in Kannada, which translates into: ‘The resolve is clear: Akhand Bharat.’”

Nepal’s prime minister at the time, Pushpa Kamal Dahal, visited New Delhi right after the inauguration. Dahal downplayed the mural, opting instead to talk up crucial trade, connectivity, and electricity transmission and export deals—not just between Nepal and India, but also tri-laterally with Bangladesh.

Where Dahal was tame, Balendra Shah was not. Kathmandu’s young and combative mayor—the 35-year-old former hip-hop star and trained engineer who won his post as mayor in 2022 as an independent candidate—was in Bengaluru at the time. Shah sent word to place a map of Greater Nepal in his mayoral office.

This history predates 1816. That year marked the end of a two-year Anglo-Nepalese war with the Treaty of Sugauli. The treaty ceded to the British East India Company the Garhwal and Kumaon regions of present-day Uttarakhand state of India, large strips of territory in present-day Uttar Pradesh and Bihar, Sikkim, and even the control of Darjeeling, among other areas.

If ‘Balen,’ as many call him, was being irredentist, then by extension so was India’s establishment.

India has also evidently chosen to forget the developments in 2015, when India showed great interest in the exercise to promulgate Nepal’s new constitution, ostensibly to aid those of ‘Indian origin’ in the low-lying Madhes area to the south. There were also imminent assembly elections across the border in Bihar that November.

In any event India’s political economy equations triggered a month-long economic blockade along Nepal’s southern border from September 2015. It brought Nepal, already shattered by a devastating earthquake that April, to its bleeding knees.

Besides creating bad blood with Nepal, such things create opportunities for China—or Pakistan, or for that matter anyone leveraging chinks in India’s armour.

If India spoke of raising India-Nepal relations to ‘Himalayan heights’ and promised to increase India’s current offtake of 450MW of Nepal-made power to 10,000MW within a decade—as India did in 2023, then China too had its play. Besides red-carpet bilateral bonhomie for visiting Nepali heads of government, China offered a slew of deals ranging from edu-tech and agriculture to cross-border transmission lines across the nearly 1,400km border with TAR; north-to-south roads between TAR including a tunnel north of Kathmandu to facilitate travel to the Resuwagadhi-Kerung border point with China; and upgrading of major trade-and-transit hubs.

India and China routinely look for openings in the other’s Nepal playbook—mirroring their regional playbook.

In the past two decades the speed, complexity, and aggression of the play have ratcheted up. Top Indian and Chinese diplomats have been known to criss-cross Kathmandu and, less frequently, the country to stitch and un-stitch political alliances, and intervene in the making of the constitution. Sometimes, those from Nepal’s creamy layer are called to durbar with a ranking ambassador, visiting foreign secretary, even a visiting foreign minister.

It can get intense. At one stage India’s establishment media took to reporting on the actions of China’s envoys in Nepal as being typical of the so-called wolf warrior diplomats of the Xi Jinping era who play hard. This was famously evidenced in 2023 with outrageous Ukraine-related comments by China’s envoy in France—he questioned the sovereignty of former Soviet republics. And, of course, China’s routine sabre-rattling over Taiwan, Arunachal Pradesh, and its relentless pressure on Doklam, the Galwan area and the entire Indian Ocean region.

There are other curious—even confounding—aspects in India and Nepal’s relationship. These endure despite the enduring visa-free travel regime between India and Nepal, freedom for Nepali citizens to live and work in India, preferential access to Nepali goods, defence ties, and the increasing acquiescence to Nepal’s requests to use Indian territory for all manner of transhipment and regional connectivity.

There is the estimation that Nepal remains a waystation for, among other things, smuggling and black-market goods, and for insertion into India of both counterfeit currency and dubious folks from third countries across the porous India-Nepal border.

India has formally banned the carriage of notes of higher denomination than one hundred rupees to and from Nepal. Although Nepal now discourages higher denomination notes on account of what it sees as India’s damaging re-monetisation and demonetisation: It happened with denominations of five hundred Indian rupees and 1,000 Indian rupees in 2016.

If Indians fly to a third country from Nepal instead of returning to India, they must produce a no-objection certificate from the Indian embassy in Kathmandu. Only Indian citizens who travel to Nepal from a third country, and return there, are exempt.

Those flying to India on Indian carriers from Tribhuvan International Airport in Kathmandu undergo extra frisking just before boarding the aircraft. As there are no jetways, this happens on a raised platform placed by the stairs, as if to ensure that while this demand by India was acceded to by Nepal, face was saved with this additional frisking several inches above Nepali soil.

This last action has its roots in lax security at Kathmandu and the resultant hijacking of an Indian Airlines Airbus A300 aircraft in Kathmandu in 1999—the infamous episode of flight IC-814 from Kathmandu to Delhi that ultimately experienced a forced rerouting: Kathmandu-Amritsar-Lahore-Dubai-Kandahar-Delhi. An Indian passenger was killed during the hijacking and, to free hostages that concluded in Taliban-controlled Kandahar of the time, three top-tier Islamist terrorists, including Masood Azhar, chief of Jaish-e-Mohammad, were released from Indian jails. It happened during the tenure of a previous BJP-led government. Leaders of India’s current national security apparatus were integral to those hostage negotiations.

One could go on with inflections in Nepal that are made in India, made in China, made in USA, and made in the European Union. Direct interference in Nepal’s politics. Literally playing kingmaker. Propping up dictators and dilettantes, cossetting leftwing rebels as well as encouraging the extreme religious right. The made in China and designed in Nepal NPR 100 banknotes are a mere spot in the face of Nepal’s real strategic currency as a buffer.

(The writer works in the policy-and-practice space in South Asia and the Indian Ocean Region. His column, ‘Compass,’ will focus on South Asian affairs and often-overlooked South Asian flashpoints)