Breaking the stagnation that marked bilateral relations over the past two years, India and Nepal signed major economic agreements, aimed at enhancing Indian investment and developmental aid, on Friday.
In a meeting, Prime Minister Manmohan Singh and his Nepali counterpart Baburam Bhattarai arrived at a broad political understanding, whereby India expressed its firm support to the peace and constitutional process underway in Nepal.
The two sides formalised the long pending Bilateral Investment Promotion and Protection Agreement (BIPPA), which commits one State to providing compensation to commercial entities, whose country of origin is the other. This applies particularly in cases of wars, national emergency, and armed conflict. Investments from either country in the territory of the other country are to be accorded ‘National Treatment' and ‘Most Favoured Nation' treatment. It also provides for elaborate dispute resolution mechanisms between investors and the government concerned, and between governments, including international arbitration. Finance Minister Pranab Mukherjee and Nepal's Industries Minister Anil Jha, signed the pact in the presence of the two PMs. The agreement's overall objective is to promote investment flows between the two countries.
While Nepal had asked for soft loans of $1 billion, the final pact provided a $250-million line of credit to Nepal to finance infrastructure projects, at the concessional rate of interest of 1.75 per cent annually. An MoU in this regard was signed by India's Exim Bank and Nepal's Finance Ministry. India also provided grant assistance for a goitre control programme in Nepal. Despite extensive negotiations, the two sides failed to agree on a double taxation avoidance agreement which was on the agenda.
Pitch for investment
Earlier in the day, Mr. Bhattarai told the Indian business community that the agreements showed Nepal's ‘sincerity and seriousness' in ensuring protection to investment.
Making a strong pitch to investors about Nepal's potentialities, he said: “There is scope in infrastructure, hydropower, tourism, agro and food processing, mining, finance, education, health, and information, communication and technology sectors. Nepal also has human resources with the skills and positive attitude towards work.” Mr. Bhattarai added that Nepal had simplified tax structures, and got preferential treatment in international trade due to its status as a Least Developed Country.
Responding to complaints about frequent strikes, Mr. Bhattarai said the business community should keep in mind that labour would revolt if there was a threat to income security. “Social security for workers is essential for labour flexibility.”
India has also extended its support to the peace and constitutional process. After his meeting with Mr. Bhattarai, External Affairs Minister S.M. Krishna told journalists that it was for Nepal to sort out the issues related to the peace process and Constitution writing.
“India will be willing to do everything within its powers to help, depending on the comfort level of Nepali political actors.”
A senior Indian official, who wished to remain anonymous, said Mr. Bhattarai's visit was an ‘unqualified success.' “It shows firm Indian political support for Bhattarai's government, and we are banking on him to complete the political transition. There is also recognition on both sides that our relations need to have a strong economic content.”
A member of the Nepali delegation confirmed to The Hindu that India did not push security-related issues that Nepal finds politically uncomfortable to deal with, namely extradition and mutual legal assistance treaties.
