Multiple Political Economies Chapter 148 synthesises the cross-border argument developed throughout this volume. Mithila, Vajji and Anga cannot be reconstructed adequately by treating the India–Nepal boundary as either an impermeable line or an irrelevant modern interruption. The border separates two sovereign states with different constitutions, currencies, taxation systems, welfare regimes, regulatory institutions and macroeconomic structures. At the same time, households, languages, pilgrimage circuits, marriage networks, labour migration, rivers, trade routes and cultural markets repeatedly cross it. The result is one dense interaction zone containing multiple political economies rather than one unified economy or two socially disconnected national spaces. The distinction matters methodologically. A historian can trace movement across the border without assuming that the institutions on both sides are equivalent. Indian and Nepali census categories are not interchangeable; Bihar and Madhesh have different subnational powers; the Indian rupee and Nepali rupee are not two versions of one currency; customs procedures apply to goods even where people-to-people mobility is unusually open; and national trade statistics do not reveal the full geography of local border markets. Synthesis therefore requires a layered scale: household, market town, corridor, district, province or state, national government, and transboundary system. 148.1 An interaction zone is a field of repeated connection, not a claim of political unity The phrase ‘interaction zone’ describes recurring social and economic connections across a boundary. It does not deny sovereignty or imply that India and Nepal form a single political unit. A resident of Madhesh may have kin in Bihar, buy Indian goods, sell agricultural produce through a border market, receive remittances from the Gulf, use Nepali public services and vote in a Nepali municipality. A household in north Bihar may visit Janakpur, employ Nepali labour, trade with a border town and still operate entirely within Indian taxation and welfare systems. The analytical gain is to see overlapping circuits without collapsing the states that regulate them. 148.2 Long before the modern boundary, plains and foothills were linked by rivers, routes and settlement The historical foundations of the zone precede the contemporary states. Rivers descending from the Himalaya connect upper catchments to the alluvial plains; pilgrimage routes linked Janakpur and other sacred places to north Indian networks; traders moved salt, grain, livestock, cloth and manufactured goods; scholars and ritual specialists travelled; and marriage created durable ties between settlements. Political frontiers changed repeatedly, but ecological and social corridors persisted. This longue durée does not make the modern border historically unreal. It shows why a later international boundary was inserted into an already connected landscape and why cross-border practices cannot be understood as merely recent exceptions. HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II 148.3 The 1950 treaty framework institutionalised an unusually open field of movement The 1950 Treaty of Peace and Friendship became the best-known formal framework for the distinctive India–Nepal relationship. In practice, the contemporary border is characterised by extensive movement of citizens for work, residence, trade, pilgrimage and family purposes, subject to national law and security regulation. The openness of person-to-person movement is economically significant because labour can cross more easily than it can across most international borders. Yet openness should not be described as the absence of a border: goods, vehicles, regulated commodities, taxation, identity documents for particular transactions and state security functions continue to be governed by national institutions. 148.4 Economic asymmetry is structural, but dependence is not one-directional India’s economy and population are vastly larger than Nepal’s, and Nepal is landlocked with much of its external trade and transit historically depending on routes through India. This creates a strong structural asymmetry in bargaining power, market size, currency influence and logistics. But the relationship is not accurately described by one-way dependence. India also benefits from labour mobility, tourism, cultural connections, hydropower imports, river information, border commerce and political stability in Nepal. Local border economies can invert national scale: a Nepali town may be a major service centre for nearby Indian consumers, while an Indian market may anchor wholesale supply for several Nepali municipalities. 148.5 Nepal’s federalisation added new political-economic layers to an old cross- border landscape The Constitution of Nepal adopted in 2015 created a federal system with federal, provincial and local governments. For Madhesh, this changed the institutional geography through which roads, markets, schools, health services, language policy, local taxation and development priorities are negotiated. Cross-border relations remain primarily interstate matters where foreign policy, customs and treaties are concerned, but everyday economic conditions are increasingly shaped by provincial and local implementation. Bihar and Madhesh therefore cannot be treated as symmetrical subnational units: India’s state system and Nepal’s newer federal architecture distribute authority differently, even when neighbouring administrations face the same road, flood or market corridor. 148.6 A layered model prevents the border from disappearing analytically A useful synthesis distinguishes three layers. The first is sovereign regulation: treaties, customs, currencies, national law and security. The second is corridor infrastructure: roads, railways, integrated check posts, transmission lines, pipelines, bridges and payment rails. The third is everyday social exchange: kinship, labour, pilgrimage, shopping, schooling, health care and cultural consumption. The layers interact but are not interchangeable. A new railway can reduce freight time without changing citizenship law; an open social border can coexist with customs documentation; a payment link can formalise remittances without eliminating exchange-rate risk. This layered approach provides the basic architecture for the rest of the chapter. 15231523 GAJENDRA THAKUR Figure 588 — One interaction zone can contain dense mobility and exchange while India and Nepal retain distinct political-economic institutions. 148.7 The border functions simultaneously as corridor, filter and administrative interface A border crossing is not only a gate. It sorts flows according to legal category. A pedestrian visiting relatives, a truck carrying commercial goods, a petroleum tanker, a tourist vehicle, a remittance transfer and a high-voltage electricity flow each pass through different institutional systems. Integrated check posts attempt to reduce transaction costs by bringing customs, immigration or related functions and logistics into coordinated facilities. Informal crossings, local roads and traditional movement remain important in many places, but the growth of formal infrastructure increasingly concentrates high-value and bulk flows at selected nodes. The political economy of the border therefore depends on who can use which channel and at what cost. 148.8 Kinship and marriage create economic relations that trade statistics cannot capture Cross-border marriage and extended-family ties move people, gifts, care, ceremonial expenditure and information. These transfers rarely appear as exports or imports, yet they affect household budgets and mobility. A family may cross the border for a wedding, medical treatment, ritual obligation or funeral and purchase transport, food, clothing and accommodation along the way. Kinship also provides informal credit, job information and temporary residence for migrants. Because these networks are socially selective, they can reduce transaction costs for some households while others remain dependent on commercial brokers. The social border is thus economically productive without being measurable through customs data alone. 148.9 Labour mobility links unequal wage structures and employment opportunities Employment in India has long been one of the accessible options for Nepali workers, while Indians also work and operate businesses in Nepal under the broader bilateral relationship and national rules. The significance of this labour corridor lies partly in its low entry cost compared with overseas recruitment to the Gulf or East Asia. Workers may move seasonally or for long periods, and earnings can circulate through cash, banking channels or household purchases. Labour mobility also changes local bargaining power, skill availability and gendered household responsibilities. Because official migration statistics capture different HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II concepts—residence, permits, destination or border crossings—the India corridor is especially difficult to measure precisely. 148.10 Formal bilateral trade is large, but the border economy is larger than formal trade India remains Nepal’s largest trading partner, and bilateral merchandise trade is central to Nepal’s import supply and export market. Yet national totals can mislead a regional history. They include flows through border points far from Mithila or Anga and do not show which districts consume the goods. They also omit informal exchange, household shopping, services and labour income. The correct approach is to combine national customs data with commodity composition, crossing-point data where available, wholesale-market evidence and local fieldwork. Formal trade is the measurable spine of the relationship, not the whole body of the border economy. 148.11 Nepal’s trade deficit must be separated from the welfare effects of individual imports Nepal typically imports far more goods from India than it exports to India, contributing to a persistent merchandise trade deficit. At the macroeconomic level that imbalance matters for foreign exchange and domestic production. At the household or firm level, however, an imported medicine, machine, fertiliser, food item or intermediate input may raise welfare or productivity. Historical analysis should therefore avoid treating every import as economic failure. The key questions are what Nepal imports, whether domestic alternatives are feasible, how imports affect producers and consumers, and whether export, hydropower, tourism or service earnings can finance the wider external account sustainably. 148.12 Transit through India gives logistics a constitutional-scale economic importance for Nepal As a landlocked country, Nepal depends on access through neighbouring territories for much of its third- country trade. The revised India–Nepal Treaty of Transit signed in 2023 explicitly recognises Nepal’s need for permanent access to and from the sea and provides a framework for road, rail and inland-waterway transit routes. This means that ports, customs procedures, rail terminals, container handling and corridor reliability in India become part of Nepal’s effective trade infrastructure. Delays far from the political border can raise prices in Madhesh. Conversely, better multimodal transit can lower costs without changing geography. Transit policy is therefore a core component of Nepal’s political economy, not a technical appendix to bilateral relations. 148.13 Infrastructure has progressively changed the cost structure of cross- border exchange The contemporary interaction zone is being remade by infrastructure that converts proximity into usable connectivity. Integrated check posts reduce fragmentation of border procedures; railway links can move passengers or bulk freight more efficiently than road-only systems; pipelines reduce the cost and leakage risk of petroleum transport; transmission lines turn seasonal hydropower into a tradable commodity; and digital- payment links reduce the friction of small-value transactions. These projects do not automatically create balanced development. Their gains depend on complementary roads, warehouses, reliable procedures, competition among logistics providers and the capacity of small firms and households to access the new systems. 15251525 GAJENDRA THAKUR Figure 589 — Selected institutional and infrastructure milestones have progressively changed the cost and form of India–Nepal exchange. 148.14 Integrated check posts convert border management into logistics infrastructure Integrated check posts at major crossings are designed to concentrate customs processing, warehousing, inspection and vehicle movement in purpose-built facilities. Their economic value is measured not by architecture but by clearance time, predictability, queue length, operating hours and the cost of compliance. For perishable food, a few hours of delay can matter more than a small tariff. For small traders, documentation and broker fees can determine whether formal trade is viable. The distributional question is therefore important: infrastructure that works well for containerised freight may not automatically serve pedestrians, cyclists, local market vendors or small consignments. 148.15 Cross-border railways change the geography of passenger and freight catchments Rail links can reorganise border towns by expanding the radius from which passengers, pilgrims and goods reach a crossing. The Jayanagar–Kurtha–Bijalpura corridor demonstrates how a historical rail connection can be rebuilt as contemporary cross-border infrastructure, while freight rail connections elsewhere in the bilateral network show the potential for bulk movement. Railways shift economic activity toward stations, logistics yards and feeder roads and can alter the relative importance of older market streets. Their long-term effect depends on service frequency, last-mile transport, ticketing, customs arrangements for freight and integration with national rail networks on both sides. 148.16 Roads remain the dominant everyday connective tissue of the border economy Even where railways and pipelines expand, roads carry most local passengers, buses, farm produce, retail supplies and short-haul freight. Road quality therefore determines the practical size of a border market. A paved feeder road can connect a village to a crossing; a damaged bridge can isolate the same village despite open-border rules. Road investment also has social effects: it changes school and hospital access, land values, migration frequency and the feasibility of daily commuting. Because roads interact with floodplains, embankments and drainage, transport planning in Mithila and Madhesh is inseparable from riverine ecology. HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II 148.17 Petroleum illustrates how physical dependence can be reduced in cost without being eliminated Nepal depends heavily on imported petroleum products, historically supplied through India. The Motihari–Amlekhgunj petroleum pipeline changed the logistics of this dependence by replacing part of tanker transport with a dedicated cross-border pipeline. Similar proposed or expanded pipeline infrastructure extends the same logic. Pipelines can lower transport cost, congestion, leakage and handling risk, but they do not remove exposure to global oil prices or upstream supply conditions. The World Bank’s 2026 Nepal update highlights how international energy shocks can still transmit through imported fuel. Infrastructure therefore changes the mode of dependence more readily than the underlying commodity dependence. 148.18 Electricity is transforming the relationship from one-way supply toward seasonal interdependence Power trade has become one of the most important structural changes in the bilateral economy. Nepal’s hydropower expansion creates wet-season export potential, while Nepal can still require imports during dry periods or peak demand. The 2022 Joint Vision Statement framed cooperation around generation, transmission, grid operation and bi-directional trade, and the long-term power-trade agreement finalised in 2024 envisages Nepal exporting up to 10,000 MW to India over ten years. This does not guarantee that capacity will be built or sold. It establishes a market horizon around which generation and transmission investment can be planned. 148.19 Hydropower turns rivers into fiscal, industrial and diplomatic assets as well as ecological systems Hydropower projects generate electricity, construction demand, royalties, taxes and potential export revenue, but they also redistribute environmental risk and land use. A dam or transmission line may benefit the national grid while imposing local costs on affected communities. Cross-border power trade therefore sits at the intersection of energy economics, river governance, finance and diplomacy. The key economic transformation is that water falling through Nepal’s topography can be monetised in a much larger neighbouring market. The key governance challenge is to ensure that the resulting gains are not measured only in megawatts but also in local compensation, ecological sustainability and reliable domestic supply. 148.20 Different cross-border flows encounter different institutional boundaries The interaction zone should be analysed as a flow matrix rather than as a single openness index. Labour is shaped by mobility arrangements and employment conditions; merchandise by customs and standards; electricity by grid codes and power-purchase rules; fuel by state-linked supply chains and pipelines; payments by banking, foreign-exchange and anti-money-laundering rules; tourism by transport and service capacity. A change in one channel does not automatically liberalise another. This is why apparently contradictory descriptions—‘open border’ and ‘regulated border’—can both be correct when they refer to different flows. 15271527 GAJENDRA THAKUR Figure 590 — Labour, goods, energy and money cross the same border through different institutional channels. 148.21 Nepal’s currency peg to the Indian rupee transmits stability and constraint across the border The Nepali rupee is pegged to the Indian rupee, making Indian monetary conditions and price movements especially important for Nepal. The peg reduces exchange-rate uncertainty in the largest bilateral trade relationship and simplifies household calculations in border markets, but it also limits independent exchange-rate adjustment. Inflation in India can transmit into Nepal through both the peg and imported goods. Border households often think in more than one currency even when formal accounting remains national. Monetary integration is therefore substantial without monetary union: Nepal retains its own central bank and currency while anchoring the exchange rate to its much larger neighbour. 148.22 Remittances and digital payments are moving part of the border economy from cash to interoperable rails Cash has historically been central to small cross-border transactions, labour earnings and family transfers. Digital systems are now changing that infrastructure. UPI merchant acceptance in Nepal was launched in 2024 through collaboration between NPCI International and Fonepay and passed 100,000 merchant transactions within months. In June 2026, NPCI International and Nepal Clearing House launched a UPI– NPI linkage for real-time person-to-person remittances through participating banks. These developments reduce transaction friction and create better records, but they do not eliminate bank access, KYC, foreign- exchange, fraud or interoperability constraints. Digitalisation formalises some flows while leaving others cash-based. 148.23 Border markets reveal the everyday coexistence of price arbitrage and social familiarity Consumers in border districts compare prices, quality, taxes, availability and exchange rates across two markets that may be only kilometres apart. A small change in fuel tax, food prices or currency conditions can redirect shopping. Traders respond by sourcing goods from whichever side offers a legal and profitable margin. Social familiarity lowers information costs because buyers understand language, brands and bargaining practices across the border. Yet price arbitrage can also encourage undeclared movement when formal procedures are costly. Effective border governance therefore requires enforcement that is HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II proportionate enough to protect revenue and standards without making legitimate small trade unnecessarily expensive. 148.24 Agriculture is cross-border even when farm statistics remain national Madhesh and north Bihar share an alluvial agro-ecological zone, and farmers on both sides face similar monsoon timing, flood, drought, seed, fertiliser, irrigation and market problems. Inputs, livestock, farm machinery, labour and produce can move through formal or informal channels. Yet agricultural policy is national: procurement rules, subsidies, fertiliser distribution, crop insurance, land law and extension systems differ. A price or policy change on one side can therefore affect farmers on the other through markets rather than formal coordination. Comparative agricultural history must distinguish ecological similarity from institutional similarity. 148.25 Tourism and pilgrimage convert cultural geography into a cross-border service economy Janakpur, the Ramayana circuit, Buddhist and Jain sites, river pilgrimages, festivals and family visits generate transport, accommodation, food, retail and guide services. These flows are economically different from merchandise trade because the consumer often crosses the border rather than the product. Improved roads, rail and digital payments can therefore increase tourism receipts without changing customs volumes. Cultural familiarity is an asset, but service quality, sanitation, congestion, heritage management and safety determine whether visitor numbers translate into local income. Pilgrimage also redistributes demand seasonally, creating short intense peaks that require temporary transport and public-space management. 148.26 Language and cultural familiarity reduce transaction costs but do not remove institutional difference Maithili and related regional speech networks allow many residents of Madhesh and Bihar to communicate across the border without translation. Shared ritual repertoires, food, kinship forms and media further reduce the social distance of travel and trade. This cultural infrastructure helps explain why the interaction zone can remain dense even when formal economic policies diverge. But cultural familiarity should not be romanticised into institutional sameness. A person may speak the same language on both sides and still encounter different school curricula, property rules, citizenship documents, taxes, welfare entitlements and political representation. Culture connects; states classify and allocate differently. 148.27 The interaction zone is also a shared risk corridor Rivers, floods, drought, epidemics, commodity-price shocks and transport disruptions do not respect the political boundary. A flood forecast generated upstream can be valuable downstream; a damaged bridge can disrupt markets on both sides; fuel or fertiliser shortages can raise farm costs across the plains; a pandemic can abruptly transform an open mobility regime. Resilience therefore depends on the speed with which information, infrastructure and alternative routes cross the border. Household diversification—migration, multiple income sources, savings and kin networks—often provides the first line of adaptation, while states supply forecasting, public health, transport restoration and financial stability. 15291529 GAJENDRA THAKUR Figure 591 — Cross-border resilience depends on whether information, infrastructure and household adaptation outrun the transmission of shocks. 148.28 River and climate cooperation is a test of whether the interaction zone can govern shared ecology The Kosi, Gandak, Bagmati, Kamla and other river systems link Nepal’s catchments to Bihar’s floodplains. Engineering agreements, embankments, barrages, forecasting and maintenance therefore have consequences across the border. The hardest problems are not only technical. Benefits and risks are distributed unevenly by location, while national agencies may use different priorities and data systems. Climate change adds uncertainty to rainfall, heat and extreme events without making every flood attributable to climate change. Durable cooperation requires routine data exchange, joint maintenance, transparent hydrological evidence and local warning systems rather than reliance on crisis diplomacy after damage has occurred. 148.29 Federalism increases the number of actors whose coordination determines local outcomes Nepal’s federal system means that a cross-border corridor can involve federal ministries, Madhesh Province, municipalities and rural municipalities, while the Indian side may involve the Union government, Bihar departments, districts, municipalities and specialised agencies. More layers can improve responsiveness because local governments know specific roads, markets and service gaps. They can also create coordination costs when mandates overlap or financing is unclear. The institutional task is therefore not to bypass federalism but to design interfaces: data-sharing protocols, corridor committees, disaster contacts, compatible infrastructure planning and clear escalation paths for issues that local governments cannot resolve. 148.30 Conclusion: connected history requires comparison without collapse India and Nepal form one of South Asia’s most intensively connected border regions, but the connection operates through multiple political economies. Households can be socially transborder while citizenship remains national; markets can be integrated while taxation differs; electricity can flow through a synchronised grid while currencies remain separate; rivers can be shared while engineering authority is HISTORY OF MITHILA, VAJJI & ANGA — VOLUME II divided; and a language community can cross the border while education and welfare institutions diverge. The central methodological lesson is comparison without collapse. The historian should follow flows across the border and then ask which institution governs each stage. That approach reveals both the depth of regional connectedness and the continuing power of the modern state. Table 148.1 — Evidence architecture for reconstructing the India–Nepal interaction zone Evidence source What it can establish Main caution Bilateral treaties & legal framework for transit, formal text does not measure agreements trade, mobility, power and implementation or local cooperation experience Customs statistics commodity values, partners national totals omit informal and formal crossing flows exchange and may not map to the study region Central-bank & payment exchange-rate regime, cash and informal transfers data remittances, digital payments remain partly invisible and financial formalisation Power-system records approved electricity trade, contracted or approved capacity and transmission capacity is not the same as infrastructure actual annual flow Transport & ICP records rail, road, pipeline and border- infrastructure presence does processing infrastructure not establish service quality or distributional gain Census & migration residence, language, household India and Nepal use different evidence structure and selected mobility categories; open-border labour patterns is hard to enumerate Provincial/state/local subnational services, roads, competences differ across the records markets, language and two federal systems development programmes Household & market kinship, shopping, informal local evidence is not fieldwork credit, small trade and lived automatically representative of border practices the entire border Hydrology & disaster data shared river hazards, forecasts hazard does not equal damage; and infrastructure exposure vulnerability varies socially and spatially Historical maps & changing routes, settlements later borders and identities archives and political boundaries must not be projected backward 15311531