The Nepal Government has declined to extend Small Development Project Agreement with India. According to report, Small Development Projects has been undertaken by the government of India since 2003. Since 2003, the agreement was extended in June 2006, August 2008, August 2011 and August 2014.
The terms of the agreement between the two countries expired. It comes ahead of India’s Foreign Minister Sushma Swaraj’s visit to Kathmandu for the BIMSTEC’s Foreign Ministers’ summit on 10th -11th August. Prime Minister Sher Bahadur Deuba is expected to visit India.
“If India is hoping to court Nepal during the visit of Sushma Swaraj, Nepal has set the tone,” writes another Indian Media.
Under the Small Development Projects, India has been extending assistance to various projects at the local level, including schools, colleges and hospital buildings. The Indian embassy in Kathmandu can directly fund projects less than Indian Rs.3 crore (over $500,000) for a single project on its own without any approval from the Government of Nepal. India is the only country to have been given such special privilege.
The political leadership of Nepal has been divided over giving exclusive rights to India to directly disburse projects to the local bodies and often raised the bogey of the Government of China seeking similar privileges.
Though the new constitution of Nepal only allows the local units to receive direct grants from the central government or the provincial government, the agreement has been extended several times.
According to media report, Ministry of Finance, while declining to give an extension to the projects, is preparing to write to the Indian Embassy conveying that due to some constitutional provisions, the new political dispensation after the local elections, formation of the local federal units and a lack of institutional arrangements, the agreement is not extended now, but once the institutional arrangements are made, the two sides can discuss how to move ahead, The Economic Times reported.
Finance Ministry official said the ministry had concluded after an internal discussion that the modality of India-funded projects should be modified. "This is not only due to constitutional compulsion or the lack of institutional arrangements. It is about aid effectiveness. We need aid and assistance from India but its modality should be changed."
The issue came to the fore ahead of Prime Minister Deuba's upcoming visit to India. New Delhi is concerned over the expiring agreement given the volume of investment from the southern neighbor writes The Economic Times.