Seeking to balance ties

61-year-old Dahal, who still goes by his nom de guerre Prachanda ("the fierce one"), is on Thursday kickstarting his first foreign trip since he took over the reins of Nepal's government last month.

He will hold discussions with his Indian counterpart Narendra Modi and other senior government officials on a host of bilateral issues.

Bolstering trade and investment ties, including talks over the construction of a major railway line as well as a hydroelectric power plant, are expected to be high on the agenda.

The visit presents a "challenging opportunity," the premier said recently in the country's parliament. "I am confident that the visit would not only normalize the relations that went through some bitter experience in the recent past, but also build a strong foundation for mutual trust," he added.

Under Dahal's predecessor K. P. Oli, relations between the two countries soured due to discord over Nepal's new constitution and increasingly closer partnership with China.

Political instability

Nepal has been afflicted by political instability over the past several years following the abolition of its monarchy nearly a decade ago. Dahal is Nepal's eighth prime minister in eight years and the 24th since the country introduced multi-party democracy in 1990.

And following the adoption of a new constitution last September, the landlocked Himalayan nation witnessed massive unrest, with several ethnic minorities such as the Madhesis - a community that has close economic, social and cultural ties with India - raising objections to the charter. They demanded amendments ensuring the communities had adequate government representation and more local autonomy.

The protests and an ensuing economic blockade disrupted trade between India and Nepal, which as a result had to face crippling shortages of essential items ranging from fuel and cooking gas to medicines.

The unrest came as the country of 28 million people was reeling from a devastating earthquake that had struck earlier in the year, killing over 8,000 people and destroying around half a million homes.

While Kathmandu accused New Delhi of imposing an "unofficial blockade" on Nepal to support the Madhesis, the Indian government rejected the allegations and blamed it instead on Indian truck drivers refusing to drive through areas plagued by violent protests.

Nevertheless, the episode damaged mutual trust and caused resentment in Kathmandu over New Delhi's actions, which were seen as meddling in the country's internal affairs.

Chinese clout

Another worrying development for India is the strengthening of ties between Nepal and China in recent years. This comes at a time when New Delhi is increasingly concerned about Beijing's growing influence in South Asia, a region in which India has traditionally been the dominant actor.

Sino-Nepali commerce has grown rapidly over the past several years, with investment from China pouring into Nepal and Chinese goods flooding Nepali markets. China is currently Nepal's top foreign direct investment partner.

Furthermore, Beijing has pledged support for a slew of infrastructure and development projects in the country, which have helped increase China's clout in Kathmandu.

Under the previous government, Nepal even agreed to a deal to extend China's Tibet rail network to the Nepali capital and inked a long-term agreement for the import of petroleum products.

In contrast, commerce with India has struggled under the burden of political quagmires between the two sides. As a source of foreign investment to Nepal, India lags far behind China. However, India continues to be Nepal's top trading partner. Nepal's total commerce with India accounted for 66 percent of the country's total external trade by the end of July 2013, according to government data.

Still, bilateral trade is heavily skewed in India's favor, with Nepal's deficit amounting to over $3.5 billion a year. Moreover, over 90 percent of Nepal's trade with third countries still passes through India, giving New Delhi a key leverage over its northern neighbor.

Mending ties

Against this backdrop, Nepali businesses urge Dahal to raise the issue with the Indian government and work towards facilitating free access for Nepali goods to the Indian market and eliminating non-tariff barriers.

Observers say the challenge facing PM Dahal is to balance Nepal's relations with both India and China, unlike his predecessor Oli who pursued a closer partnership with Beijing ignoring India's concerns.

After Dahal was elected as PM last month, George Varughese, Nepal country representative for The Asia Foundation, said that he expected the leader to work to "repair" Nepal's relationship with India while at the same time balancing Kathmandu's ties with both New Delhi and Beijing.

"Unlike the previous prime minister, he is more willing to sit and discuss and work towards reducing tensions and seeking practical solutions for various problems afflicting Nepal," Varughese told DW.