India and Nepal share one of the most unique relationships in South Asia, defined as much by history, culture and religion as by contemporary economics and trade. The 1,751-kilometre open border cutting across Sikkim, West Bengal, Bihar, Uttar Pradesh and Uttarakhand is not merely a cartographic demarcation, but a lived reality for millions of people whose daily lives, kinship networks and livelihoods straddle both sides. Over time, this proximity and permeability has evolved into an intricate web of economic interdependence, with India emerging as Nepal’s largest trading partner and the principal gateway for its global commerce; and Nepal is increasingly supplying India with hydropower and select agricultural commodities. In contemporary times, this relationship is experiencing both opportunities and strains, shaped by promising new trade flows, institutional reforms and diplomatic overtures, as well as by lingering border disputes that occasionally test public sentiment.
The economic context is particularly instructive. Assessments highlight a strengthening of Nepal’s external position, driven by rising foreign exchange reserves; it reached US$18.65 billion[1] by mid-June 2025, sufficient to cover seventeen and a half months of prospective imports. These reserves were buoyed not only by remittances but increasingly by electricity exports to India, which provided Nepal with nearly NPR 17.5 billion[2] in revenues in 2024-25 alone. The Asian Development Bank’s Asian Economic Integration Report, 2025[3] similarly notes that cross-border energy trade in South Asia is becoming a crucial driver of integration, a reality clearly manifest in the India-Nepal dyad. For India, importing clean electricity from Nepal dovetails neatly with its own climate commitments and demand for flexible renewable power, while for Nepal it represents a structural shift towards a more sustainable, less remittance-dependent forex profile.
Trade flows illustrate this asymmetry yet also reveal complementarities. In 2024-25, India’s exports to Nepal stood at $7.32 billion, a modest rise from $7.01 billion the previous year, though below the record high of $9.48 billion in 2021-22. The composition of this trade displays Nepal’s reliance on India for industrial and infrastructural essentials; engineering goods worth $2.25 billion, petroleum products valued at $2.06 billion, organic and inorganic chemicals amounting to $326.57 million, plastic and linoleum exports worth $304.03 million and a residual basket of miscellaneous manufactured goods totalling $473.01 million. These exports affirm India’s role not just as a supplier of consumption goods but as the indispensable provider of critical intermediate products that enable Nepal’s industry and services to function. When placed alongside Nepal’s exports to India, which have surged by well over 70% year-on-year in the first 10-11 months of FY2024-25, thanks largely to electricity sales, what emerges is a bilateral dynamic that is unequal in absolute volumes but complementary in structure. Nepal provides India with clean energy and niche agro-industrial commodities such as cardamom and carpets, while India furnishes Nepal with petroleum, machinery and chemicals essential for development.
Institutional improvements this year have lent momentum to this trade. Earlier in April, customs authorities of both countries convened in Kathmandu to iron out protocols for data exchange, risk management and time-release studies[4]. This was followed in July by Home Secretary-level talks that sought to combat cross-border crime and strengthen border infrastructure, recognising that security and facilitation are two sides of the same coin[5]. Such apparently routine bureaucratic dialogues are in fact the sinews that enable goods to flow smoothly, particularly at crucial land ports like Raxaul-Birgunj, Jogbani-Biratnagar and Sunauli-Bhairahawa, which serve as arteries of Nepal’s trade.
The hydropower sector occupies pride of place in this economic relationship. A landmark understanding early last year committed India to importing up to 10,000 MW of power from Nepal over the next decade[6]. By 2025, implementation was already underway, with Nepalese electricity flowing into Indian grids under both seasonal spot sales and longer-term power purchase agreements. The World Bank noted that more than 500 MW of fresh hydropower capacity added in Nepal during FY2023-24 was already lifting GDP growth and strengthening the external account[7]. For India, whose renewable ambitions require flexible and non-carbon-intensive imports, Nepalese electricity serves as a hedge against fossil-based peaks. For Nepal, the revenue stream from power exports is proving far more predictable than earlier reliance on fluctuating remittances, heralding a structural transformation of its balance of payments.
Yet these positive trends exist alongside the unresolved issue of the border. Although the overwhelming majority of the 1,751 km frontier is uncontested and is traversed daily by traders, families and pilgrims without impediment, two pockets, namely, Kalapani-Limpiyadhura-Lipulekh in the west and Susta in the south, remain disputed. These disputes, while not insurmountable, carry symbolic weight in both domestic political discourses and can occasionally spill into public opinion. Addressing them requires pragmatic, depoliticised mechanisms. Continuous technical surveys using modern mapping, the publication of jointly certified large-scale maps as well as dispute-neutral facilitation for customs and logistics are measures that can maintain the openness of the border while the final settlement is worked out. Reviving the recommendations of the Eminent Persons’ Group (EPG), which had suggested modernising the 1950 India-Nepal Friendship Treaty and border regime, could also help restore a sense of equilibrium, ensuring that the frontier remains a space of connectivity rather than contestation.
The diplomatic engagements thus far this year reveal that both sides are cognisant of this balance between opportunities and irritants. The presence of Nepal’s Foreign Minister Dr. Arzu Rana Deuba at the Raisina Dialogue in New Delhi signalled Kathmandu’s willingness to situate its economic engagement with India within a broader discourse of regional connectivity, resilience and clean energy transitions. India’s Foreign Secretary Vikram Misri’s recent August visit to Nepal, in turn, reiterated New Delhi’s determination to keep bilateral projects moving, particularly in the realms of customs cooperation, infrastructure investment and hydropower commerce. Together, these visits testify to the fact that India-Nepal relations are dynamic and continue to evolve, with diplomacy seeking to provide the bureaucratic and political torque required to keep economics on an upward trajectory.
When placed in the longer arc of history, these contemporary developments suggest that India and Nepal are moving from a relationship of mere proximity to one of shared prosperity. India’s exports to Nepal, amounting to $7.32 billion in 2024-25, supply essential goods for Nepal’s growth, while Nepal’s rising electricity exports provide India with clean energy at precisely the moment its climate commitments demand such diversification. The open border, undergirded by civilisational commonalities, ensures resilience even in the face of episodic disputes. To sustain this momentum, both sides must continue professionalising facilitation at the border, entrenching dispute management in a low-heat technical lane and scaling up hydropower cooperation into the backbone of integration. Done with foresight, these steps will not only raise the numbers on trade ledgers but also elevate the quality of bilateral exchange, thereby, delivering cleaner electrons, faster clearances and denser value chains. In a region where borders have too often been seen as barriers, the Indo-Nepalese frontier could, in 2025 and beyond, stand as a model of connectivity, complementarity and mutual prosperity.
References
[1] Sharma, P. & National University of Singapore. (2025, July 30). Nepal’s rising exports are no cause for celebration. East Asia Forum. https://eastasiaforum.org/2025/07/30/nepals-rising-exports-are-no-cause-for-celebration/
[2]Nepal-India power trade: Rs 17.47 billion income, Rs 12.9 billion expense. (2025, August 17). https://myrepublica.nagariknetwork.com/news/nepal-india-power-trade-rs-1747-billion-income-rs-129-billion-expense-52-65.html
[3] Asian Development Bank. (2025). ASIAN ECONOMIC INTEGRATION REPORT 2025: HARNESSING THE BENEFITS OF REGIONAL COOPERATION AND INTEGRATION. In adb.org. https://www.adb.org/sites/default/files/publication/1042516/asian-economic-integration-report-2025.pdf
[4]India and Nepal hold 21st Director – General level talks on Customs cooperation in Kathmandu, Nepal, on 10th-11th April, 2025. (2025, April 13). https://www.pib.gov.in/PressReleasePage.aspx?PRID=2121393
[5] India and Nepal holds Home Secretary Level Talks in New Delhi. (2025, July 23). https://www.pib.gov.in/PressReleasePage.aspx?PRID=2147422#:~:text=The%20Home%20Secretary%20Level%20Talks,Home%20Secretary%2C%20Government%20of%20Nepal.
[6]India’s foreign minister signs a deal to increase imports of electricity from Nepal | AP News. (2024, January 5). AP News. https://apnews.com/article/nepal-india-electricity-agreement-de856a7512cf656c8ab5a16095e7ef59
[7]Open Knowledge Repository, World Bank. (2023, October 10). https://openknowledge.worldbank.org/entities/publication/d6a360ae-936c-4b3c-b883-4b000ac02c73
Citations :
[1] Sharma, P. (2025)
[2] Nepal-India Power Trade: Rs 17.47 Billion Income, Rs 12.9 Billion Expense (2025)
[3] Asian Development Bank (2025)
[4] India and Nepal Hold 21st Director – General Level Talks on Customs Cooperation in Kathmandu, Nepal, on 10th-11th April (2025)
[5] India and Nepal Holds Home Secretary Level Talks in New Delhi (2025)
[6] India’s Foreign Minister Signs a Deal to Increase Imports of Electricity From Nepal , AP News. (2024)
[7] Nepal Development Update, World Bank. (2023)