Nepal’s foreign policy has long been guided by its geographic and geopolitical situation. Nepal’s position, bordered by India to the south, east, and west, and by China to the north, has given it a unique strategic location in South Asia. Being situated between two rising powers has been both a source of opportunity and challenge for Nepal. However, Nepal’s diplomacy has often been influenced more by internal political instability, continuity of governance, and reactive responses to external pressures than by a long-term strategic outlook. As a result, Nepal’s main diplomatic weakness is not any single policy error, but rather its inability to transform its geopolitical significance into long-term national benefit.

Within the third month of the government led by Balen Shah, Foreign Minister Shishir Khanal’s visits to India and then China signaled an intention to revitalize and make relations with both neighbors more results-oriented, focusing on economic diplomacy and national interests. 

The visit to India demonstrated an aim to expand cooperation in trade, investment, energy, and connectivity. It also highlighted the potential to steer the relationship toward new dimensions. Similarly, the visit to China gave new momentum to bilateral relations. Nepal also reiterated its commitment to the One China policy. Both sides agreed to prioritize cooperation in cross-border infrastructure, energy, trade, investment, education, and people-to-people exchanges. They also expressed a commitment to deepen practical cooperation for shared prosperity and regional stability. These visits show that Nepal is following a policy of prioritizing close neighbors in its foreign diplomacy, and its strategic intent to maintain balanced, pragmatic, and national interest-centered relations with both neighbors is clear.

Against this backdrop, Nepal’s main strategic question today is how to learn from past missed opportunities in relations with India and China and address weaknesses in a way that serves long-term national interests.

Lack of Strategic Continuity

Nepal’s greatest diplomatic weakness is not about choosing between India or China, but rather the lack of a clear strategic vision that can rise above political changes and ensure continuity of national interests. Various governments have operated foreign policy reactively rather than with a long-term strategy. As a result, priorities kept shifting, implementation was weak, and important opportunities were lost.

The geopolitical landscape of 21st-century South Asia is developing in a way that, to some extent, recalls the power rivalries of the 18th century. In the past, regional states faced the expansionist Qing Empire, Maratha power, and British rule in India, which lasted for nearly two centuries and is historically divided into two phases: British East India Company rule (1757–1858) and the British Raj (1858–1947). The competing ambitions of the British East India Company forced it to defend its existence and interests. Similarly, today, South Asian nations are seeking their strategic space amid India–China rivalry and the emerging new Cold War between the US and China.

Prithvi Narayan Shah’s description of Nepal as “a yam between two boulders” was not just a depiction of geographic reality, but also a farsighted strategic warning. Today, that challenge has become even more complex. Nepal must maintain a balance in its national interest amid Indian security sensitivities, Chinese economic ambitions, and increasing American and Western engagement. However, Nepal has often been reactive to the influence of external powers due to its inability to transform its geopolitical situation into long-term statecraft.

Although nuclear deterrence and global supply chains have reduced the likelihood of direct territorial conquest, the fundamental principles of power politics have not changed. Today, major powers are expanding their influence through debt, trade, technology, investment, infrastructure, and maritime routes. In such an environment, strategic clarity has become even more important for small nations.

In Nepal, there have been periods of excessive tilt toward India, attempts to use China as a balancing power, and at times, the creation of nationalist narratives for internal political gain. This has increased distrust with both neighbors. India has come to view Nepal as an unstable and opportunistic partner, while China sees it as an institutionally weak and strategically uncertain country.

History shows that small nations situated between great powers secure their national interests not through emotional nationalism or momentary balancing policies, but through predictable diplomacy, economic relevance, internal stability, capable institutions, and strategic patience. Geography provides opportunities, but the foundation for transforming them into long-term national power is strategic continuity and institutional capacity.

Missed Opportunity for Economic Transformation
Another major weakness of Nepal is its failure to make its economic interdependence with India the basis for national economic transformation. The supply disruptions following political tensions between India and Nepal exposed the excessive dependence on a single transit route. However, despite learning from this, and even though trade, labor migration, alternative infrastructure, transit, and energy exchanges are naturally linked to India, Nepal has not been able to transform this into industrialization, export expansion, and the creation of a productive economy.

Nepal had the potential to develop as a hydropower exporter, a transit hub between India and China, and as a limited industrial corridor. The lack of political will, policy continuity, and effective institutional management prevented these opportunities from being fully realized. Nevertheless, increasing cooperation in energy trade, transmission lines, regional connectivity, and cross-border infrastructure still offers opportunities for improvement.

In its relationship with China as well, Nepal has harbored expectations beyond reality. The tendency to view China more as a balancing power against India than as a development partner has created unrealistic expectations. China can make significant contributions in infrastructure, technology, tourism, and investment, but it cannot replace India’s structural role in Nepal’s economy. Nepal’s trade, labor market, and geographic access are still primarily oriented southward.

In some cases, Nepal has used its relationship with China more as a political tool to create leverage in negotiations with India than as a development partnership. However, Nepal’s long-term national interest lies in expanding practical cooperation with China in infrastructure, cross-border connectivity, dry ports, technology, and tourism.

In the coming days, Nepal should advance cooperation with China based on its commitment to the One China policy, economic pragmatism, debt awareness, and alignment with national development priorities. Only if Nepal can manage its relations with both India and China as complementary, not competitive, economic partnerships, can it transform its geopolitical situation into long-term prosperity.

The US-led Western Alliance: Opportunity for Development and Strategic Diversification

Nepal should view its relations with the US and broader Western partners not as a means to balance India or China, but as sources of development, institutional strengthening, and strategic diversification. In the past, Western partnerships were often viewed through the lens of geopolitical competition, which obscured their real development potential.

The US and Western countries can make significant contributions in development assistance, investment, technology transfer, higher education, good governance, clean energy, climate finance, and expanding access to global markets. However, they cannot be an alternative to Nepal’s geographic reality or its economic interdependence with India. Therefore, Western partnerships should not be seen as competitive alternatives to neighbors, but as complementary partners to strengthen Nepal’s development capacity.

In Nepal, Western relations have often become entangled in internal political disputes and geopolitical debates, which has weakened opportunities for economic modernization and institutional reform. In fact, Western cooperation can play a unique role in Nepal’s transformation toward advanced technology, private sector development, integration into global value chains, and a knowledge-based economy.

Diversification of economic, technical, and diplomatic relations increases Nepal’s strategic flexibility and strengthens its capacity to pursue an independent foreign policy. For this, Western partnerships should neither be exaggerated nor rejected as tools of geopolitical competition. Their value should be assessed based on national interest, economic utility, institutional benefit, and contribution to long-term development.

The meaning of a balanced foreign policy is not to align with any power center, but to cooperate with all major partners in ways that serve national interests. This approach can move Nepal forward toward development, strategic autonomy, and multidimensional international partnerships.

Middle Power Nations: Opportunity for Strategic Diversification

Nepal’s foreign policy has long been focused on India–China relations, and in recent years, attention has also increased toward the US and the Western community. However, this has not given due importance to the potential for cooperation with middle power nations such as Japan, South Korea, Australia, Canada, the UK, Germany, Scandinavian countries, and Russia.

Nepal’s greatest diplomatic weakness is not about choosing between India or China, but rather the lack of a clear strategic vision that can rise above political changes and ensure continuity of national interests.These countries can offer Nepal complementary opportunities in trade, investment, technology, education, energy, green transformation, infrastructure, and institutional development. Japan has been a useful partner in infrastructure and human resource development, South Korea in employment, technology, and investment, and Russia in energy, higher education, and multilateral diplomacy. Nepal’s objective is not to replace relations with its neighbors, but to diversify economic opportunities, expand diplomatic reach, and mobilize new sources of development by expanding cooperation with middle power nations.

The main strategic lesson is clear—by rising above binary geopolitical thinking and building diversified partnerships, Nepal can strengthen both its diplomatic flexibility and strategic autonomy. Nepal’s goal is not to seek new patrons, but to expand complementary partnerships that strengthen national interests, economic modernization, and long-term development.

Politicization of Foreign Policy

Nepal’s foreign policy has become excessively politicized. Party competition has prevented it from becoming a matter of national consensus. Accusations such as “pro-India” or “pro-China” have weakened strategic debate. With each change of government, diplomatic priorities shift, making long-term policy formulation nearly impossible. This has given Nepal an image internationally as an unstable and uncertain partner.

Economic Diplomacy: Still an Unfinished Project

For a long time, Nepal’s diplomacy was focused on security and political balance. Economic diplomacy was not a priority. But in today’s world, influence is determined not just by political status, but by economic relevance.

Countries like Bangladesh, Vietnam, and Singapore have made economic diplomacy the center of their national strategy. Nepal has great potential in hydropower, tourism, the digital economy, and its strategic geographic location. However, these potentials have yet to be structurally utilized.

Geography: From Obstacle to Strategic Opportunity

Nepal’s geography has long been described as “a yam between two boulders,” and in the changing geopolitical context of the 21st century, the competition between China and India makes this seem relevant. However, in today’s circumstances, Nepal needs to redefine itself as a “bridge economy” and pursue a long-term policy of neutrality. Switzerland is often described as a “bridge economy nation” because it plays a connecting role—linking the global economy through finance, diplomacy, technology, and institutional stability, rather than projecting power.

Nepal also has ample potential to transform its unique geopolitical and geographic position into a “bridge economy” by linking it with a long-term policy of neutrality. But for this, it is necessary to build structural foundations based on clear strategy, strong institutional structures, quality infrastructure, economic diplomacy, and policy continuity, in order to transform this potential into national prosperity.

Increasing economic competition, connectivity projects, and energy cooperation between India and China offer Nepal the opportunity to become a “bridge state.” But this potential can only become a reality through strategic clarity, policy stability, and infrastructure development.

Strategic Conclusion: Where is the Solution?

Nepal’s national objective is not to balance one power against another, but to develop balanced, autonomous, and mutually beneficial relations with all major powers based on national interests. Therefore, Nepal’s diplomatic challenge is not about choosing between India, China, the US, or other powers. The real challenge is the lack of a long-term strategic vision, policy continuity, capable institutional structures, clear economic vision, and effective policy coordination. Small nations do not secure their sovereignty and strategic autonomy through emotional balancing, symbolic nationalism, or reactive policies. They succeed in protecting and promoting their national interests through predictable diplomacy, economic relevance, internal stability, strong institutional capacity, and strategic patience.

The positive aspect is that opportunities have not yet run out for Nepal. With new strategic thinking and visionary leadership, Nepal’s geographic position offers a unique possibility to establish itself as a bridge between two rising Asian powers. Additionally, new opportunities for expanding regional trade, energy, investment, connectivity, and economic cooperation are gradually opening up. But these opportunities will not remain open forever. If Nepal fails to demonstrate clear strategy, effective implementation, and capable diplomatic leadership in time, it risks losing important opportunities once again, as in the past.

For the coming decade, Nepal needs to base its grand strategy on an active non-alignment policy. For this, foreign policy should be conducted within four strategic circles. First, relations with India and China should be based on trust, mutual interest, and economic cooperation through a smart neighborhood policy. Second, strategic regional engagement with South Asia, Southeast Asia, and West Asia should be used to expand trade, connectivity, and economic partnerships. Third, multidimensional partnerships with middle power nations should be strengthened in technology, investment, education, innovation, and institutional development. And fourth, relations with major powers should be advanced not from the perspective of ideological polarization or power competition, but on the basis of national interest, strategic autonomy, and mutual benefit.