Nepal Accepts USA Grant With Conditions What’s In It For India?

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The News

Nepal’s parliament has approved a contentious $500m US grant, despite street protests and opposition from the Communist parties.
Nepal signed the US government’s Millennium Challenge Corporation (MCC) pact in 2017 to fund infrastructure projects but its ratification had been in limbo.
However, now the parliament has approved the use of $500m infrastructure grant with some riders.

The MCC offers assistance in three forms.
1. MCC Compact: Large, five-year grants
2. Concurrent compacts: Grants that promote cross-border economic integration
3. Threshold programs: Smaller grants aimed at policy reform
The aid being offered to Nepal is in the form of a MCC compact. The MCC has so far approved about 37 compacts for 29 countries, worth a total of over $13 billion.

Nepal was the first South Asian country to qualify for an MCC contract by passing 16 of the 20 policy indicators used by the MCC.
The agreement was signed in Washington DC in September 2017 between then Finance Minister of Nepal, Gyanendra Bahadur Karki and then US deputy Secretary of State, John J. Sullivan.
The Deal
Under the compact, the U.S. government, would provide a grant of $500 million to Nepal for energy transmission and road development projects, with the latter also chipping in $130 million from its exchequer.
The power project proposed in the compact is a 300-400 km long energy transmission line with a capacity of 400 kilovolt, along a power corridor starting from the northeast of Kathmandu and ending near Nepal’s border with India.
The project also involves building three power substations along the line. Besides, the grant money is also intended for a ‘road maintenance project’ which will upgrade roads on the east-west highway, spread across 300 kms.

Nepal has been witnessing bouts of political instability after the 2017 national election, when the leader of the Communist Party of Nepal (UML), K.P Oli and Pushpa Kumar Dahal (Prachanda) of Communist Party of Nepal (Maoist) formed a coalition government.
Nepal parliament was dissolved twice , first, in December 2020 and then in May 2021, with fresh elections scheduled for November 2022.
In July 2021, the Supreme Court of Nepal, ordered that the parliament be reinstated with Oli’s rival Sher Bahadur Deuba of the Nepali Congress as the Prime Minister.
In this political backdrop, the MCC compact became politicised by parties as a device to strengthen their positions in the upcoming elections.

As per the initial agreement, the compact should have come into effect by 2019, but skepticism, politics and now protests, made its course rocky.
The U.S. had been increasing its pressure on Nepal to ratify the agreement, with the Biden administration calling the Nepal PM Sher Bahadur Deuba & giving a deadline to ratify the MCC compact in parliament by February 28, or the U.S. would have to “review its ties with Nepal.”

Nepali political parties have been divided on the MCC agreement over fears it would undermine Nepal’s sovereignty by pulling it into the US’s Indo-Pacific Strategy (IPS), which focuses on countering China.
After Nepal received the call from the White House about the deadline, China said it opposes “coercive diplomacy and actions that pursue selfish agendas at the expense of Nepal’s sovereignty and interests.”
The people of Nepal are also afraid that the MCC would make profits from the power project by exporting energy to India.

Nepal’s parliament has ratified MCC compact in February 2022 with a majority with certain “interpretive declaration” through understanding between all national parties.
This would be the largest single grant Nepal has ever received.

The declaration states that the “U.S. grant is not part of the Indo-Pacific strategy and Nepal’s Constitution would be above the provisions of the grant agreement.” It also mentions that the grant will solely be perceived as an economic assistance.