Trans-Himalayan railway from China to India via Nepal would be a win- win situation for all
Dr. Prakash Chandra Lohani, former foreign minister of Nepal
The improvement of transport infrastructure in Tibet including the road network and a rapid expansion in economic activities open up new opportunities for mutual cooperation between the two countries. For Nepal China’s development including that of Tibet should be viewed from three different angles. First, the expansion and improvement of road network in the border areas between the two countries presents new opportunities for Nepal to promote the development of Nepal’s northern region. . It is instructive to note here that many of the southern towns in Nepal grew rapidly once the railway network of India was expanded up to the Nepali border. The availability of new transportation system automatically encouraged production for exchange and also the development of border towns which over the years have continued to grow and have become home to many kinds of industries. The development of road network on the Tibetan side of the border including the extension of the national railway network to Lhasa can provide the same kind of stimulus to the border settlements in northern Nepal, ,albeit on a much smaller scale even when they may not have proper road connection with the rest of the country at the present.
There are eleven points in our northern border that are linked to road heads in Tibet or close to it. The economic potentials of these close links have not been properly explored. Thus, constructing roads from our northern border towns that have reasonable economic potentials to link with the expanding Tibetan road network so as to encourage production and exchange should be the new strategy that Nepal should pursue in a coordinated manner. In the past this strategy was often ignored both because of the complexities of regional diplomacy as well as the lack of a clear cut perspective on the Nepali side on the ways and means of developing links of our northern region with China.
During the last few years, both these elements are changing rapidly in favor of developing northern border towns and districts of Nepal with new investments in road infrastructure with the idea of linking them with the road network across the border in Tibet. Of course, the Kathmandu- Kodari road link has existed for many years but what is now being proposed is the idea of linking northern districts of Nepal with the Tibet Autonomous Region of China even when these new transit points are not properly connected at present with the commercial centers of the hills or the Terai inside Nepal. The idea is to encourage cross border trade and the gradual development of small market towns along the border that will be encouraged to grow into production centers with an eye towards the expanding market of Tibet and in other neighboring provinces.
Second, the proposal that Nepal could play the role of a transit state between India and China should be pursued in earnest. Both the Chinese and Indian governments have given a positive reaction to this proposal by His Majesty King Gyanendra some weeks ago. It is a proposal that would have been considered almost utopian a few years ago. Lately, however, the situation is changing rapidly. There is a marked relaxation in the relationship between India and China. There is a new willingness to solve contentious issues peacefully without damaging the new prospect of expanding trade relations. The mind set of political leadership in both countries is focused more than ever before on economic issues of trade and investments to sustain economic growth and help reduce regional economic imbalances in their respective economies. For China an overland route to the Indian market is perfectly in line with its objective of development of the western region of the country of which Tibet is an important part. In the past, the Nathu la pass via Sikkim was an important trading route and there are demands in India that it should be opened again both for trade and tourism. It is shorter than the Kathmandu-Lhasa route and it has generated considerable wealth both for central Tibet and north eastern India in the past. The drive and dynamism of the economies of both India and China and the potential of overland trade in the future, however, offers scope for other transit routes between these two nations even if the Nathu la pass is opened in the future and Nepal emerges as the logical choice. The new transit routes, however, must also become an organic part of the overall economic development of Nepal. Viewed in this perspective, the construction of a trans- Himalayan electrical railway all the way from the southern border of Nepal to its northern border to be linked with the railway network at appropriate Nepal-China border point needs to be considered seriously by all the three nations involved. At the moment this may seem somewhat far fetched but so was the idea of a railway from Beijing to Lhasa a decade and a half ago.
A Trans-Himalayan railway from China to India via Kathmandu would be a win- win situation for all the three countries. China has adopted a “go west “ policy as a part of the national goal of sustaining a high growth rate, reducing regional inequalities and exploiting the rich resources of the western region. A rapid development of this region will naturally lead to a swift rise in both its exports and imports. The trans-Himalayan railway could easily be a part and parcel of this vision both for exports to and imports from India as well as using the Indian ports for trade with the rest of the world. For India the projected rapid growth in trade in the future with China plus the objective of reducing the economic imbalance between the northern, north eastern states and the rest of the country would make the new trade route to China highly attractive. For Nepal the railway would be more than a transit route mainly used by India and China. It will first connect the capital and the most advanced part of the country with the market of both countries and will have a vital role in reducing the cost of trade and encouraging the establishment of export orientated industries to both India and China. In essence, the railway will be more than a medium of transport between India and China via Nepal. It will also be an integral part of the development of tourism, trade and industries in Nepal. It is feasible because it is in the interest of all the three countries involved in the context of the development plans of each one of them and therefore represents a win-win situation for all. Alternatively, it may be useful to visualize the north and north-eastern states of India, the western part of China and the whole of Nepal as one big region that can gain economically from new connectivity in transport, trade and investments. The Trans-Himalayan railroad becomes an integral part of this new connectivity leading to increased trade and enhancement in the competitiveness of the whole region which will raise the income and wealth of the people, most of whom are below the poverty line in their respective countries. Viewed in this perspective, the proposed railway could be a part of the regional development plans and poverty alleviation strategy of each nation.
To operationalize this concept the major decision will have to come from China and India. On the part of China the decision involved is to extend the railway from Lhasa and Xigatse to appropriate China-Nepal border point within a certain time period. Similarly, India will have to make a decision on using this route for trade with China. For both countries the decision would be in line with their regional development strategies that would require not just an increase in trade between the coastal regions but with the interior as well which is what the overland route promises. Even if this understanding is not forthcoming soon, Nepal in any case should go on its own and start the construction of the railway from the border in the south to Kathmandu for its own internal development with the aim that it will be extended further north as soon as our two neighbours agree on the concept. Funding for this project up to Kathmandu which will probably cost anywhere from 12 to 15 billion rupees is entirely within the capability of private investors in Nepal and the Nepalese financial system with the need of a loan component up to 50 percent of the cost from international lending institutions.
In case the concept is accepted by both our neighbours, the equity capital necessary for the railway could be raised by the establishment of a new company with equal contribution by the private/state sector of all the three countries The new company would be the vehicle for constructing and running of the system. It will emerge as a powerful symbol and determination of all the three countries to work together for the benefit and welfare of the people. If this concept is agreed upon financing through international financing institutions should be forthcoming. Again, all this may sound a little far fetched but it is my contention that it is a realistic and feasible proposition and its time has come for three reasons. First, the general atmosphere of relaxation on the political front and a new focus on economics between China and India allows us to think big. Second, the Chinese have even proposed the establishment of a free trade area between China and India. There are of course many doubts about this proposition, given the fact that Indian exports to China still consist mainly of intermediate goods and raw material with iron ore topping the list. Furthermore, the tariff rates of China and India are still quite different.
However, given the new paradigm of economic liberalization that is the basis of policy making in both countries the trend is towards greater openness and cooperation in the future. There are strong arguments claiming that a China- India free market will benefit both countries and will go a long way as a counter weight to the bargaining position of the West. Third, the idea of a Tans-Himalayan railway involving Nepal is consistent with the economic goals and regional planning strategy of both our great neighbours. As a prelude to a more liberal trading structure between the two countries the Trans-Himalayan railway via Nepal could be the first major step in the great economic transformation of the region leading to an increase in connectivity, cooperation and competitiveness. These are the three variables linked with economic liberalization that have proved effective in the development of the Greater Mekong Sub regional project being assisted by the Asian Development Bank.
Third, to maximize the benefits of the Trans-Himalayan railways to the Nepali economy the government must launch an investment program in cooperation with the private sector to cater to the Chinese market in the north. For this the government has two major instruments at its disposal. First, there is already the China-Nepal Non governmental Cooperation Forum established since 1996. The forum was recognition of the fact by both our governments that the Chinese economy is being increasingly privatized and that investment cooperation between the two countries will have to take cognizance of this new trend in the future. Unfortunately, this forum has not been as effective as it was visualized when it was first established. Pro-active measures on the part of the government and even the private sector have been lacking. Effective and outcome orientated public –private partnership to make this forum effective is necessary. Second, special economic zones to cater to the Chinese market offering fiscal, financial and labor flexibilities need to be promoted seriously as a way of attracting investments from China and other countries. This policy was announced in the budget two years ago but in our typical Nepali style we have assumed that the task is done once the policy pronouncement is made. This lackluster style has to change.
At this point it could be questioned whether the idea of promoting a Trans-Himalayan railway means abandoning the possibility of new road connection for India- China trade via Nepal. The answer would be: not necessarily. The transfer cost differs from one mode of transport to another depending upon the type, volume and size of the products as well as distance. What this means is that railways and roadways have their own special characteristic leading to the concept of an integrated transport system where all different modes of transport have a role.
Assuming that trade liberalization between our two neighbours continues to gain momentum the development of a new road link via Nepal remains an attractive option for both tourism and trade. Nevertheless, from the point of view of maximizing value for Nepal as a transit state, a Trans-Himalayan railway through the country’s biggest market, the Bagmati Anchal should be pursued in earnest.
Our Future: New Challenges and Opportunities
In view of the economic dynamism of both our neighbors in the north and the south, the strategy of cooperation that I have outlined above could also be labeled as a “piggy-back” model of growth. The country following this strategy anchors its links with the more dynamic and bigger neighboring economies in a manner that allows it to take advantage of the new developmental opportunities that are being created in an increasingly liberalized trading environment. Situated between the two dynamic economies of this world, Nepal can adopt this strategy and the new program of connectivity and investments comes handy in this process. This was not possible, say, two decades ago when economic policy making paradigm between our two great neighbors was different but now the basic assumptions regarding development are undergoing rapid changes.
The leadership in both China and India are gradually converging on the same wave length regarding the necessity of these changes. Their vision and values are no longer as divergent as in the past. In view of this fact, China can help Nepal in the path that I have outlined, but the effort has to be conscious and deliberate on both sides. The crucial catch in this process is strategic clarity of our own government regarding the kind of economic links that we would like to see evolve with China in the decades to come.
For the last fifty years China-Nepal relationship has been characterized by a high level of mutual trust and deep appreciation of each other’s vital national interest of strengthening national sovereignty, peace and stability. In this process China has helped Nepal in the economic arena through a project approach which means carrying out specific development projects that His Majesty’s Government has considered as being of high priority. It is a strategy that has been of great help to Nepal. However, in view of the emerging new paradigm of economic decision making in China the old approach needs to be supplemented in a facilitating manner by new innovation and boldness that allows Nepal to benefit from the great transformation in progress. Surely, we need stability in our relationship as in the past but, at the same time, there is also the necessity of renewal and renaissance in our relationship so that we are able to think of the new practices and assumptions necessary to face the future. Our policies and perceptions have served us well for the last fifty years.
What we must think now are new approaches that both our countries need to consider so that we in Nepal can be an active participant in the “Asian century”- the 21 st century" and establish ourselves as a moderately affluent developed nation within the next fifty years. It should be noted, however, that even a piggyback model does not work automatically simply because a country borders a dynamic and a large economy. The end result will depend not just on the opportunities and advantages offered by our friends but also on our ability to seek and make use of these potentials for the welfare of our people. There is, therefore, no guarantee that the piggyback model is always successful. In practical terms, what this means is that as a nation we must be able to maintain a functional democratic system where people are supreme and establish a policy environment that is pro growth, pro-entrepreneurship and pro-poor. It is vital that we in Nepal think over these questions because they are crucial for enlarging the scope of our friendship with China in the future while strengthening our freedom and sovereignty as an independent nation.
The Telegraph.
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