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Nepal’s political shift opens a strategic window for India

March 24, 2026 6 min read International Relations GS Paper 2
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What Happened

  • Nepal's Rastriya Swatantra Party (RSP), led by Balendra Shah, swept the March 5, 2026 general elections, winning 182 of 275 seats in the Pratinidhi Sabha — the second-best electoral performance in Nepal's history.
  • RSP's proportional vote share of 47.8% was the highest recorded since proportional representation was introduced in Nepal in 2008.
  • Balendra Shah, a 35-year-old former civil engineer and hip-hop artist, is set to become Nepal's Prime Minister, having merged his independent political base with the RSP in December 2025.
  • The elections were called early in the wake of the 2025 Gen Z protest movement that toppled Nepal's previous government.
  • The victory ends a prolonged period of political instability marked by frequent government changes and dominated by established parties — the Nepali Congress, CPN-UML, and CPN (Maoist Centre).
  • India's Prime Minister congratulated the RSP on its victory and underscored the importance of strong bilateral relations, signalling New Delhi's readiness to engage the new leadership.
  • Nepal has signalled intent to seek a fourfold increase in hydropower exports to India, targeting 2.5 GW in the near term, up from approximately 0.6 GW currently.

Static Topic Bridges

India-Nepal Treaty of Peace and Friendship, 1950

Signed on July 31, 1950, the treaty forms the bedrock of India-Nepal relations. Key provisions include mutual consultation in adverse circumstances (Article 2), reciprocal national treatment for residents in trade, property, and movement (Articles 6 and 7), and cooperation on security matters. Nepal has long criticised the treaty as unequal, arguing it was signed by an undemocratic Rana regime and reflects an asymmetric relationship. Nepal's critics point out that, in practice, Indians can acquire property and conduct business in Nepal in ways that the treaty enables but that Nepalese law does not fully allow for Nepali citizens in India.

  • The Eminent Persons Group (EPG), constituted jointly by India and Nepal in early 2016, submitted a final report in 2018 recommending replacement of the 1950 treaty with a new framework suited to contemporary realities.
  • The EPG report has not been formally accepted by either government; India has refrained from publicly engaging with its contents.
  • Nepal's 2015 Constitution and subsequent political evolution have intensified calls for treaty renegotiation as a marker of sovereign equality.
  • Contested provisions include Articles 2, 5, 6, and 7, which Nepal argues embed an intrusive Indian role in Nepali security and economic affairs.

Connection to this news: The RSP's electoral mandate, built on anti-establishment and nationalist sentiment, is likely to renew pressure on India to engage with the EPG report and negotiate treaty revisions — something earlier governments raised but never concluded. A new government with a strong mandate represents a more credible interlocutor for India on this long-pending matter.

Nepal's Political Instability and Constitutional Framework

Nepal's political history since the abolition of the monarchy in 2008 has been defined by extreme instability: between 2008 and 2025, the country saw more than a dozen prime ministers. The 2015 Constitution established a federal democratic republic with a bicameral parliament, a President as constitutional head, and a Prime Minister as executive head. The Pratinidhi Sabha (House of Representatives) has 275 members — 165 elected from first-past-the-post constituencies and 110 through proportional representation. Coalition governments have been the norm, given that no single party had previously won a working majority.

  • Nepal's political parties have historically been grouped around the Nepali Congress (centrist), CPN-UML (left-nationalist), and CPN (Maoist Centre); frequent splits, mergers, and floor-crossing have made governments fragile.
  • The 2025 Gen Z protests, triggered by economic grievances, corruption allegations, and youth unemployment, catalysed early elections and created space for an entirely new political formation.
  • RSP was founded in June 2022 by Rabi Lamichhane, originally a television journalist-turned-politician; Balendra Shah, who had won Kathmandu's mayoral election as an independent in 2022, merged his political identity with RSP in December 2025.
  • With 182 seats — well above the 138-seat majority threshold — the RSP government will not depend on coalition partners, giving it unusual legislative stability by Nepal's standards.

Connection to this news: India has historically found it difficult to pursue long-term bilateral projects with Nepal because coalition governments lacked the political capital to make concessions or sustain commitments. A strong, stable RSP government changes this calculus and offers a genuine window for durable agreements.

India-Nepal Energy and Connectivity Cooperation

Nepal is one of the world's most hydropower-rich countries, with an estimated potential of over 83,000 MW, of which less than 3,000 MW is currently developed. India is Nepal's primary energy trade partner and market for surplus hydropower. The two countries are governed by a 2014 MoU on Electric Power Trade, Cross-Border Transmission Interconnection and Grid Connectivity, supported by joint steering committees and working groups. Key transmission infrastructure includes the 400 kV Dhalkebar–Muzaffarpur interconnection (1,000 MW capacity) and proposed new lines including Inaruwa–New Purnea and Lamki–Bareilly corridors.

  • Nepal aims to supply 1.1 GW to India's grid in summer 2026 and approximately 2.5 GW within two years as modern grid infrastructure comes online.
  • SJVN Limited is developing the 900 MW Arun-3 run-of-river hydroelectric project in Nepal, with free power provisions for Nepal.
  • India has also facilitated the first export of Liquefied Natural Gas (LNG) from India to Nepal via IOCL's cryogenic storage and regasification facility at Simara.
  • Connectivity projects under India's development cooperation include cross-border rail links, road upgrades under the Mahakali Integrated Development Project, and inland waterways access agreements.

Connection to this news: Energy interdependence has emerged as the most productive pillar of India-Nepal ties. Nepal's new government — with its own anti-corruption and development credentials — may be better positioned to conclude stalled hydropower agreements and transmission projects that previous governments could not sustain politically.

India's Neighbourhood First Policy and Strategic Calculus

India's Neighbourhood First Policy, enunciated as a cornerstone of Indian foreign policy since 2014, prioritises connectivity, development cooperation, and people-to-people ties with immediate neighbours. Nepal occupies particular importance given its open border with India, the presence of Nepali citizens in India's armed forces (Gorkha regiments), and China's growing economic and infrastructural footprint in Nepal under BRI frameworks.

  • China has expanded its presence in Nepal through BRI infrastructure projects, including the Kathmandu–Pokhara expressway, and has offered connectivity through Tibetan rail extensions.
  • Nepal's strategic geography — landlocked between India and China — gives India significant leverage but also creates vulnerabilities if bilateral ties deteriorate.
  • India extended a $1 billion credit line to Nepal in 2016 and has provided development assistance across education, health, and disaster relief.
  • The RSP's platform emphasises economic reform, anti-corruption, and youth development — areas where India's developmental cooperation model, rather than China's debt-financed infrastructure approach, may find more resonance.

Connection to this news: The RSP's victory, driven by young voters demanding accountability and change, creates conditions where India can reframe its bilateral relationship on equal footing rather than the paternalistic register that has historically bred resentment in Kathmandu. Proactive engagement early in the RSP government's tenure could shape the trajectory of India-Nepal ties for the decade ahead.

Key Facts & Data

  • RSP seats won: 182 of 275 (majority threshold: 138); proportional vote share 47.8%
  • Balendra Shah: born April 27, 1990; civil engineering degree from Kathmandu, structural engineering masters from Bengaluru; Kathmandu Mayor 2022–2026
  • RSP founded: June 2022 by Rabi Lamichhane; Shah's merger with RSP: December 2025
  • India-Nepal Treaty of Peace and Friendship: signed July 31, 1950 in Kathmandu
  • EPG constituted: early 2016; EPG report submitted: 2018; status: not formally accepted
  • Nepal hydropower potential: 83,000+ MW; current development: ~3,000 MW
  • Current Nepal-India power export: ~0.6 GW; near-term target: 1.1 GW (summer 2026), 2.5 GW within two years
  • Nepal 2015 Constitution: 275-seat Pratinidhi Sabha (165 FPTP + 110 PR)
  • Nepal's GSDP growth: approximately 4–5% per year; remittances account for ~25% of GDP