During the past two decades, significant developments have taken place in Nepal and Bhutan which have put Indian diplomacy to test. First, internal; Nepal has become a full-fledged democracy, having squeezed-out the monarchy. In Bhutan, King Jigme SingeWangchuk, stunned the nation in 2005, by deciding to cede executive power to a Parliamentary democracy. Second, external; China has made rapid inroads in Nepal and Bhutan as also in South Asia, noticeably impacting intra-regional dynamics.

Historically India has had robust and multi-faceted engagements with both countries and maintains open borders with them under the bilateral treaties of 1949 and 1950 respectively. However, bilateral ties are as similar as chalk and cheese; with Bhutan they are anchored on mutual trust, and with Nepal, constricted by mutual suspicion, despite the roti-beti ka rishta.

By utilizing a mere portion of its hydropower potential, Bhutan has prospered with Indian assistance and its per capita income has overtaken India’s. Nepal, endowed with a richer potential, has remained the poorest among the South Asian nations, excluding Afghanistan, by politicising Indian offers to set up hydropower plants and suspecting her intentions.

The seeds of mutual suspicion were sown as early as December 1960 after King Mahendra sacked the democratically elected Prime Minister Koirala which had upset Indian leaders. The apprehensive monarchy began looking over its shoulder and periodically playing the China card against India. Willy-nilly India too acted tough on occasions, reinforcing the perception of being a bully. Yet Nepalese complaints are not totally unfounded. India may have interfered in her internal affairs at times.

Nepal has always bemoaned being ‘India locked’. It has encountered trade and transit difficulties at Indian ports, especially Kolkata. Naturally Kathmandu has been exploring alternatives. India did its image little favour by condoning the 132-day blockade in 2015, by the Madhesis in Terai, on entry of Indian products into Nepal. The Madhesis did so to press Kathmandu for a fair deal, under the draft new Constitution. It caused a serious fuel and essential-goods crisis in Nepal. Anti-India sentiment soared across the country as a result.

China grabbed the opportunity and in 2016 concluded a trade and transit treaty which inter alia grants Nepal access to four Chinese ports. Both sides also agreed to speed up a feasibility study on FTA. Furthermore, China has scaled up developmental assistance to Nepal.

In the past, China had accepted India’s special relations with Nepal and Bhutan. During a visit to Beijing in 1960, PM Koirala had asked Premier Zhou Enlai to match India’s economic aid. Zhou discouraged it saying that India and the world would be concerned if China was seen competing with her in South Asia. Beijing has long shed these self-imposed restraints.

Kathmandu joined the Chinese Belt and Road Initiative in June 2018 and Prime Minister Oli signed agreements worth $2.4 billion for infrastructure development. There are plans to construct a rail-road link between Kathmandu and Lhasa. It would give Nepal an alternative as also greater bargaining power with India, even though the distant Chinese sea ports may not be economically viable for Nepal’s international trade.

India also has serious security vulnerabilities along its porous border with Nepal. Yet Kathmandu has allowed the setting up of China Study Centres in Terai, which indulge in anti-India propaganda. In the past, Nepalese territory was used by the ISI. Mosques and madrassas had mushroomed along India’s borders.

Unlike Nepal, India's ties with Bhutan have flourished. The 35-year reign of the fourth King was marked by sensitivity towards each other’s socio-economic needs and strategic concerns. Bhutan remains the largest recipient of Indian assistance, which has been utilized for setting up of a hydel power generation capacity of 1,615 MW. A number of other projects are under construction and would enhance Bhutan's capacity by 2940 MW. Most of the power is bought by India at a fair price. On the other hand, Nepal manages to generate merely600 MW of power and imports some 400 MW from India.

Since the advent of democracy in 2008, Thimphu has been rapidly forging diplomatic relations with other nations. However, it has refrained thus far, from doing so with China, a sore point with the latter.

Like India, Bhutan has a border dispute with China which claims 4,500 square kilometres or 10% of its territory. Since 1984, twenty-five rounds of Sino-Bhutanese boundary negotiations (without Indian participation) have taken place. So far, the tacit agreement between India and Bhutan to settle their boundary disputes with China together has held.

However, a section of Bhutanese polity now wants to settle the issue independent of India. This is due to Chinese inducements. Bhutan’s first PM Jigme Y. Thinley had quietly met Premier Wen Jiabao in Brazil in June 2012, and apparently conveyed that Thimphu was ready for formal ties with China. He even accepted China's offer to exchange 495 square kilometres of Bhutanese northern territory for 269 kilometres in the west. It could have compromised India's security by giving China better access to the sensitive Chicken’s neck area. In response, in July 2013, India withdrew all subsidies on cooking gas and kerosene being provided to Bhutan which created a huge crisis. It is moot if India should have avoided coercive diplomacy?

India is alert to the possibility of Bhutan ceding to China the Doklam Plateau which overlooks the aforementioned Chicken’s neck. The 73-day long Doklam standoff in June-August 2017 did test Bhutan’s resolve. It is inevitable that Bhutan, sooner rather than later, will establish ties with China. India's interests may be better served by clearly drawing security red lines and letting the engagement evolve. The relationship has entered a delicate phase, which calls for skilful handling and greater accommodation, on New Delhi's part.

Nepal poses a similar challenge and India must take the lead in rebuilding trust. New Delhi should forthwith accept Nepalese request to amend the 1950 treaty, as was done with Bhutan. It will be useful to invest liberally and non-reciprocally in the growth of our neighbours, but without expecting gratitude. Chinese money-power and expanding footprint in South Asia is a reality and India should play to its strengths – soft power, plurality and democracy – without trying to block China or getting into a bidding game.

Vishnu Prakash was India's High Commissioner to Canada, Ambassador to South Korea, Official Spokesperson of the Ministry of External Affairs and Consul General to Shanghai. Presently he is a regular columnist, panellist, author and speaker on foreign affairs.