Foreign aid has played a major role in Nepal's development. But despite the humanitarian element of aid, there's always a hidden agenda. China had a hidden agenda when it gave aid to Burma, the US when it gave aid to Pakistan, and the Soviet Union when it gave aid to India.
By the 1980s, India was Nepal's largest donor. By the end of the third five-year plan, Nepal received bilateral aid from numerous countries. Of the Rs 1.26 billion Nepal received in international aid by its fourth plan, 83 percent accounted for bilateral and 16 percent accounted for multilateral aid. By the late 1990s, international aid increased to Rs 16.18 billion (including loans), 75 percent of which came from multilateral donors. This shows the changing nature of the donor community and Nepal's increasing dependence on foreign aid.
Aid from India and China have had a great impact on Nepal. What were the differences in objectives and the way India and China dispensed aid to Nepal? Were the two countries competing? Some say they were giving with one hand and taking away with another. Both concentrated on infrastructure: building bridges, roads, power plants.
An unbiased and appropriate study of international aid to Nepal remains to be done. It's becoming clear how aid has been profitable for the influential classes of Nepal. Misuse has resulted in corruption, inefficiency and poverty.
By 1984-85, India provided 30 percent of bilateral aid to Nepal, US 18 percent, China 12 percent and the UK 11 percent. India and China competed in providing aid to Nepal. After India built the 116 km Tribhuvan Highway in 1956, China built the 104 km Arniko Highway, connecting Kathmandu to India and China respectively. Despite the professed aim of developing Nepal, people still talk about the hidden agenda of the two countries.
Later, India built the Siddhartha Highway, Kosi, Gandaki and Trisuli hydro-projects, industrial areas in Patan, Nepalganj and Dharan. China, on the other hand, built the Prithvi Highway, Sunkosi hydropower project, the Kathmandu Valley Ring Road, the trolley bus network, the Pokahra-Baglung road and paper, leather, shoe and brick factories in the public sector.
India prevented China from entering the Nepali tarai for its infrastructure projects. On the pretext of preventing China from spreading communism to Nepal, it did not allow China to carry out agricultural projects. China, on the other hand, kept Nepal happy by offering show-case programs.
China and India sparred over building sections of the Mahendra east-west highway. China won the contract to build the Kohalpur-Banbasa sector with a low bid, but was blocked by India which later built the section. But the Chinese did manage to build the critical Gorkha-Narayangadh highway corridor, reducing the use of the Tribhuban highway.
Earlier, the operational styles of the Chinese and the Indians were very different. The Indians would form settlements near their projects and would hire Indian labourers. But the Chinese would operate from a single hut and employ Nepali labour. Things have changed, today the Chinese are not as altruistic as they used to be.
While the Indians built highways that hugged the hills and connected strategic areas, the Chinese built highways along the rivers, probably seeing it as being safer from air attacks.
In time, India's threat perceptions have changed. In place of China, it now sees Pakistan's intelligence service as a bigger threat. The Chinese now have access to development projects in the Nepal tarai. There is no doubt that donors have helped develop Nepal, but they have also used aid as a strategic weapon and made the country a playground to forward their national interest.