The United States Millennium Challenge Corporation (MCC) grant suspension to Nepal recently has generated some substantial concerns about the nation's infrastructural development, economic growth, and regional stability. Comprising $500 million, the MCC award was meant to help important energy and transport projects, including road network enhancements in Nepal and the building of a 320-kilometre electrical transmission line. Nepal suffers losses in attempts at economic integration and infrastructural development when the funding ceases to exist. It is still unclear what will happen to the financing, which was initially sanctioned during Trump’s first tenure. Given the global geopolitical clout and great power politics hovering around since the beginning of Trump’s second tenure as the President of the USA, it provides an ample instance for neighbours like India and Nepal to come closer for bilateral cooperation. One of the main ways to do this is to provide aid and grants. India, with its Neighbourhood First policy, has provided developmental assistance to its neighbours for quite some time. Other than Bhutan, Nepal has been a significant beneficiary of this aid. In this article, we will explore how the suspension of MCC will impact Nepal, and we will delve into how India’s cooperation on aid-related matters has spawned over the years and why closer collaboration is needed now.

The MCC grant's suspension directly compromises Nepal's capacity to modernise its infrastructure and energy sector, both of which are very vital for the nation's long-term development and stability of the economy. For example, the transmission line project was meant to improve Nepal's capacity to export more power to India, therefore generating a sustainable income stream. With an estimated 83,000 megawatts of capacity, Nepal has excellent hydropower potential, but inadequate transmission infrastructure still causes the nation to import electricity. The sudden stop of MCC funds might delay Nepal's shift into a significant regional energy provider.Likewise, the grant's help with Nepal's road system was expected to boost internal connectivity and ease commerce. Long-standing obstacles to Nepal's economic development have been insufficient transit systems and bad road conditions. Delays in these projects may restrict economic possibilities even further, particularly for isolated areas depending on access to metropolitan markets. These losses also add to investor uncertainty, which could deter further foreign investment in Nepal's energy and infrastructure sectors.

Apart from the financial consequences, MCC funding withdrawal raises geopolitical issues. Under initiatives under its Belt and Road Initiative (BRI), China has been progressively increasing its political and economic impact on Nepal. The hole created by the U.S. suspension might encourage Nepal to further rely on Chinese investments, which can carry strategic dependencies and high-interest loan commitments. India has to intervene with more developmental help to offset this and guarantee Nepal has a varied and durable range of economic alliances.

For Nepal, India has always been a major developmental partner assisting in many areas, including infrastructure, education, healthcare, and hydropower. India has sponsored and carried out several vital initiatives in Nepal during the last twenty years. These include the building of bridges and highways, lines of power, and cross-border pipelines of petroleum. Launched in 2019, the Motihari-Amlekhgunj petroleum pipeline has been essential in maintaining Nepal's energy security by lowering fuel imports from India's transportation expenses.Regarding financial support, India set aside ₹700 crore (about $95 million) for Nepal for the fiscal years 2024–25. In the last ten years, India has sent around 971 million US$ for developmental assistance. Although this help has been appreciated, today's geopolitical and financial situation calls for India to do more. The suspension of MCC assistance offers India a chance to re-establish its position as a dependable friend and strengthen its leadership in the development of Nepal.

India is the most suitable nation to intervene and give the required developmental help because it has significant geopolitical, economic, and historical links to Nepal. India should improve its assistance to Nepal for a number of main reasons after the MCC suspension.By funding hydropower dams and transmission systems, among other energy projects, India can guarantee more imports of clean energy from Nepal. This fits India's aims of lowering its dependence on fossil fuels and reaching its objectives for renewable energy. Improved trade flows made possible by better road connectivity between India and Nepal also help companies and consumers in both nations.

India's increasing participation in Nepal's development assists in countering expanding Chinese influence. Under its Belt and Road Initiative, China has actively pushed infrastructure projects in Nepal, including airports, hydropower facilities, and roadways. However, Chinese investments can carry political influence and cause long-term debt loads. India's aid strategy, on the other hand, emphasises grants and low-interest financial assistance, which do not cause Nepal a tremendouseconomic burden. By strengthening India's involvement in Nepal's growth, Kathmandu has a workable substitute for too depending only on Chinese money.

Improved assistance fits India's more expansive view of South Asian cooperation and connectivity. India has often argued for more thorough economic and infrastructure integration within the area via programs such as the South Asian Association for Regional Cooperation (SAARC) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). More help for Nepal would show India's will to achieve these regional goals.

The near future of global politics is going to be filled with great powers manoeuvring realpolitik and trade wars. In this case, emerging great powers such as India need to uphold liberal internationalism and enable their neighbours for mutual benefit. The suspension of MCC should not leave Nepal in limbo, but its other developmental partners need to take a step forward.

Pandey is a PhD student of Jawahalal Nehru University.

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