INDIA PLEDGES SIGNIFICANT SUPPORT TO NEPAL

C O N F I D E N T I A L KATHMANDU 001533 SIPDIS SIPDIS DEPT FOR SCA/INS MANILA FOR PSPELTZ E.O. 12958: DECL: 06/14/2016 TAGS: EAID ECON PREL PGOV NP SUBJECT: INDIA PLEDGES SIGNIFICANT SUPPORT TO NEPAL REF: A. 05 KATHMANDU 2952 ¶B. KATHMANDU 1511 (NOTAL) ¶C. KATHMANDU 1338 Classified By: Charge d' Affaires Larry Schwartz. Reasons 1.4 (b/d). SUMMARY -------------- ¶1. (C) Finance Minister Ram Sharan Mahat briefed Parliament on June 12 about the 12.6 billion Nepali Rupees (NRs) (USD 177 million) of financial pledges, including budgetary support (ref C),promised by the Government of India (GOI) during the Prime Minister's June 6-9 visit to New Delhi. The pledges provide immediate budgetary support and relief on outstanding payments for military goods, and provide for a new timetable to be agreed upon for payment of 4 billion NRs (USD 56.3 million) in debt owed to the Indian Oil Corporation (IOC). The Government of Nepal (GON) will have to adopt sound economic policies now for the GOI assistance to pay off in the mid- to long-term. End Summary. FINANCIAL PLEDGES FROM THE GOVERNMENT OF INDIA -------------- - ¶2. (U) Finance Minister Ram Sharan Mahat, who accompanied Prime Minister G.P. Koirala on his June 6-9 visit to India, briefed Parliament June 12 about the significant financial pledges received from the GOI. Mahat thanked the GOI and Indians for their support. The reported financial pledges include: --A one-time grant of 1.6 billion NRs (USD 22.5 million) for immediate budgetary support. --The termination of the four percent additional customs duty on exports of goods manufactured in Nepal to India. --A soft credit line of 7.1 billion NRs (USD 100 million) for infrastructure and development projects. --An increase in the GOI's "Aid to Nepal" budget for the current fiscal year from 1.04 billion NRs (USD 14.6 million) to 2.4 billion NRs (USD 33.8 million). --A waiver of 1.5 billion Nepali Rupees (USD 21.1 million) in outstanding dues owed on defense purchases made before June 6, 2006. --A GOI pledge to expedite plans to assist Nepal in long-term mega-infrastructure projects such as roads, railway linkages, border infrastructure, water resources, an oil pipeline from India to Nepal's largest commercial border town of Birgunj, and airport upgrades. Project development on these infrastructure projects has yet to be done and delivery will take time. Further details of specific projects and exact amount of GOI assistance will be agreed upon later by both governments. --A supply of 25,000 metric tons of fertilizer at subsidized prices. --The accelerated release of 1.5 billion NRs (21.1 million) due to Nepal under the Duty Refund Procedure Scheme. --Double the number of academic scholarships for Nepali students, including for females. --An agreement to mutually decide on a rescheduling of debts owed to the Indian Oil Corporation (IOC) by the Nepal Oil Corporation (NOC) (ref A). The NOC owes almost four billion NRs (USD 56.3 million) to the NOC. This agreement relieves the immediate pressure on the GON, but the money will eventually have to be paid. --The lifting of passenger seat quotas for Nepalese airlines flying between Nepal and India. There will be no restrictions on the number of passengers that can be carried between Nepali and Indian cities each week. A Memorandum of Understanding on this is expected to be signed soon. MEMBERS OF PARLIAMENT POSITIVE ON INDIAN ASSISTANCE -------------- -------------- ¶3. (C) Member of Parliament (MP) and Central Committee Member of Nepali Congress (NC) Chakra Prasad Bastola said the pledge of financial assistance from India was a "gesture of extreme goodwill." Bastola commented that the significant financial pledges exhibited the GOI's seriousness in providing "mutual cooperation to strengthen democracy in Nepal and to resolve the present political crisis." He stressed that this was the first time the GOI had requested a list of GON needs before deciding on the final aid package for Nepal. MP and Central Committee Member of NC Mahesh Acharya said the financial package pledged by India showed "India's commitment to Nepal's development and strengthening of its democracy." Acharya explained that there was an urgent need to generate hope in the marginalized people to gain their confidence in political change and the democratic parties. He stressed that the need of the hour was the quick delivery of resources to the people displaced by the insurgency. He cautioned that the GON should not become complacent after receiving the GOI's pledges, but rather reach out to the international community to develop a collective strategy. Acharya said there were "countless areas the government needs to deliver and for which, along with India, international support is indispensable." BUSINESSMEN: INDIAN ASSISTANCE RELIEF, BUT NEED MULTILATERAL SUPPORT -------------- -------------- ¶4. (C) Rajendra Khetan, Vice-President, Confederation of Nepalese Industry, commented that the Prime Minister's visit and GOI financial pledges created a "positive synergy" in the Indo-Nepal relationship. Khetan noted that the rescheduling of debt owed to the IOC, the waiver of outstanding defense debt, and the exemption of the four percent additional customs duty have come as "a great relief." He stressed, however, that too much dependence on India was not good and suggested that Nepal seek multilateral financial support. Chandi Raj Dhakal, President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI),who was a member of the GON delegation, said the financial assistance package was a positive step. He noted that implementation of all the pledges would require action plans and follow-up meetings at the ministerial or secretarial level. COMMENT -------------- ¶5. (C) Such a large financial assistance package from India, especially its budgetary support, is welcome news. MP Acharya is correct that the GON needs to act quickly to provide services to win the hearts and minds of the people. The GOI pledge is significant and addresses short-term needs like the budget shortfall and it also demonstrates in a tangible way the GOI's statement of support to this government. Now, the GON needs to develop sound economic policies that will ensure a healthy economy in the mid- to long-term future. SCHWARTZ