Relations between India and Nepal are close yet fraught with difficulties stemming from geography, economics, the problems inherent in big power-small power relations, and common ethnic, linguistic and cultural identities that overlap the two countries' borders. New Delhi and Kathmandu initiated their intertwined relationship with the 1950 Indo-Nepal Treaty of Peace and Friendshipâ€Ž and accompanying letters that defined security relations between the two countries, and an agreement governing both bilateral trade and trade transiting Indian soil. The 1950 treaty and letters stated that "neither government shall tolerate any threat to the security of the other by a foreign aggressor" and obligated both sides "to inform each other of any serious friction or misunderstanding with any neighboring state likely to cause any breach in the friendly relations subsisting between the two governments." These accords cemented a "special relationship" between India and Nepal that granted Nepal preferential economic treatment and provided Nepalese in India the same economic and educational opportunities as Indian citizens.
In the 1950s, Nepal welcomed close relations with India, but as the number of Nepalese living and working in India increased and the involvement of India in Nepal's economy deepened in the 1960s and after, so too did Nepalese discomfort with the special relationship. Tensions came to a head in the mid-1970s, when Nepal pressed for substantial amendments in its favor in the trade and transit treaty and openly criticized India's 1975 annexation of Sikkim which was considered as part of Greater Nepal. In 1975 King Birendra Bir Bikram Shah Dev proposed that Nepal be recognized internationally as a zone of peace; he received support from China and Pakistan. In New Delhi's view, if the king's proposal did not contradict the 1950 treaty and was merely an extension of nonalignment, it was unnecessary; if it was a repudiation of the special relationship, it represented a possible threat to India's security and could not be endorsed. In 1984 Nepal repeated the proposal, but there was no reaction from India. Nepal continually promoted the proposal in international forums, with Chinese support; by 1990 it had won the support of 112 countries.
In 1978 India agreed to separate trade and transit treaties, satisfying a long-term Nepalese demand. In 1988, when the two treaties were up for renewal, Nepal's refusal to accommodate India's wishes on the transit treaty caused India to call for a single trade and transit treaty. Thereafter, Nepal took a hard-line position that led to a serious crisis in India-Nepal relations. After two extensions, the two treaties expired on March 23, 1989, resulting in a virtual Indian economic blockade of Nepal that lasted until late April 1990. Although economic issues were a major factor in the two countries' confrontation, Indian dissatisfaction with Nepal's 1988 acquisition of Chinese weaponry played an important role. treaty and letters exchanged in 1959 and 1965, which included Nepal in India's security zone and precluded arms purchases without India's approval. India linked security with economic relations and insisted on reviewing India-Nepal relations as a whole. Nepal had to back down after worsening economic conditions led to a change in Nepal's political system, in which the king was forced to institute a parliamentary democracy. The new government sought quick restoration of amicable relations with India.
The special security relationship between New Delhi and Kathmandu was reestablished during the June 1990 New Delhi meeting of Nepal's prime minister Krishna Prasad Bhattarai and Indian prime minister V.P. Singh. During the December 1991 visit to India by Nepalese prime minister Girija Prasad Koirala, the two countries signed new, separate trade and transit treaties and other economic agreements designed to accord Nepal additional economic benefits.
Indian-Nepali relations appeared to be undergoing still more reassessment when Nepal's prime minister Man Mohan Adhikary visited New Delhi in April 1995 and insisted on a major review of the 1950 peace and friendship treaty. In the face of benign statements by his Indian hosts relating to the treaty, Adhikary sought greater economic independence for his landlocked nation while simultaneously striving to improve ties with China.
In 2005, after King Gyanendra took over, Nepalese relations with India soured. However, after the restoration of democracy, in 2008, Prachanda, the Prime Minister of Nepal, visited India, in September 2008. He spoke about a new dawn, in the bilateral relations, between the two countries. He said, "I am going back to Nepal as a satisfied person. I will tell Nepali citizens back home that a new era has dawned. Time has come to effect a revolutionary change in bilateral relations. On behalf of the new government, I assure you that we are committed to make a fresh start." He met Indian Prime minister, Manmohan Singh, and Foreign Minister, Pranab Mukherjee. He asked India to help Nepal frame a new constitution, and to invest in Nepal's infrastructure, and its tourism industry.
In 2008, Indo-Nepali ties got a further boost with an agreement to resume water talks after a 4 year hiatus. The Nepalese Water Resources Secretary Shanker Prasad Koirala said the Nepal-India Joint Committee on Water Resources meet decided to start the reconstruction of breached Kosi embankment after the water level goes down. During the Nepal PM's visit to New Delhi in September the two Prime Ministers expressed satisfaction at the age-old close, cordial and extensive relationships between their states and expressed their support and cooperation to further consolidate the relationship.
The two issued a 22-point statement highlighting the need to
review, adjust and update the 1950 Treaty of Peace and
Friendship, amongst other agreements. India would also provide
a credit line of up to 150 crore
rupees to Nepal to ensure uninterrupted supplies of petroleum
products, as well as lift bans on the export of rice, wheat, maize,
sugar and sucrose for quantities agreed to with Nepal. India would
also provide 20 crore as immediate flood relief.
In return, Nepal will take measures for the "promotion of investor friendly, enabling business environment to encourage Indian...investments in Nepal."
Furthermore, a three-tier mechanism at the level of ministerial, secretary and technical levels will be built to push forward discussions on the development of water resources between the two sides. Politically, India acknowledged a willingness to promote efforts towards peace in Nepal. Indian External affairs minister Pranab Mukherjee promised the Nepali Prime Minister Prachanda that he would "extend all possible help for peace and development."
In 2008, the Bollywood film Chandni Chowk to China was banned in Nepal, because of a scene suggesting the Gautama Buddha was born in India. Some protesters called for commercial boycott of all Indian films.