India–Nepal Relations (GS2: International relations)
History
As close neighbors, India and Nepal share a unique relationship of friendship and cooperation characterized by open borders and deep-rooted people–to–people contacts of kinship and culture.
India and Nepal share similar bonding in terms of Hinduism and Buddhism with Buddha’s birthplace Lumbini located in present day Nepal.
There has been a long tradition of free movement of people across the borders.
It shares a border of over 1850 Kms in the east, south and west with five Indian States – Sikkim, West Bengal, Bihar, Uttar Pradesh and Uttarakhand – and in the north with the Tibet Autonomous Region of the People’s Republic of China.
Approximately 6,00,000 Indians are living/domiciled in Nepal. These include businessmen and traders who have been living in Nepal for a long time, professionals (doctors, engineers, IT personnel) and labourers (including seasonal/migratory in the construction sector).
The India–Nepal Treaty of Peace and Friendship of 1950 forms the bedrock of the special relations that exist between India and Nepal. Under the provisions of this Treaty, the Nepalese citizens have enjoyed unparalleled advantages in India, availing facilities and opportunities at par with the Indian citizens.
The Treaty has allowed Nepal to overcome the disadvantages of being a land–locked country including access to weaponry from India.
The Gorkha Regiments of the Indian Army are raised partly by recruitment from hill districts of Nepal.
India has consistently responded with a sense of urgency to the needs of the people like during the devastating Nepal Earthquake of 2015 and Government of Nepal in ensuring the success of the peace process and institutionalization of multi-party democracy through the framing of a new Constitution by a duly elected Constituent Assembly.
The total imports from India during the Nepalese fiscal year 2017-18 amounted to INR.50613.3 Crore or US$7.39 billion and total exports to India from Nepal during the fiscal year 2017-18 amounted to INR.2912.8 Crore or US$0.42 billion.
Main items of exports from India to Nepal are petroleum products, vehicles and spare parts, mild-steel billets, machinery and parts, medicines, hot and cold rolled sheets, wires, rods, coils, bars, electrical equipments, cement, threads and chemicals.
Main items of exports from Nepal to India are polyester yarn, textiles, jute goods, threads, zinc sheet, juice, cardamom, wire, ms pipe, copper wire rod.
Nepal and India have concluded bilateral Treaty of Transit, Treaty of Trade and the Agreement of Cooperation to Control Unauthorized Trade which provide
⦁ Duty free access to each other’s primary products as per agreed list.
⦁ Nepalese manufactured products are allowed non-reciprocal access to the Indian market, free of basic customs duty.
⦁ MFN list of three items – cigarettes, alcohol (excluding beer) and cosmetics with non-Nepalese and non-Indian brands.
⦁ Goods manufactured by small scale units in Nepal enjoy the same benefits as SSIs in India with regard to tax exemption.
Indian firms are the biggest investors in Nepal, accounting for about 40% of total approved foreign direct investments in the fields of manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries.
Most of the other agreements reached were aimed at promoting Nepal´s international trade, including with India, the largest trading partner, at a time when Nepal has been suffering an ever-increasing trade deficit.
Multiple state level engagements at various global forums like SAARC, BIMSTEC has further cemented the relationship.
Recent challenges to the ties
Many small and medium Nepali businesses, now enjoy greater trade with China as the rules have made it harder to do business with India.
Despite open borders, complex regulatory requirements have complicated import-export between the two countries. This is disproportionately felt on small businesses. 
India has seen its position erode with growing Chinese investments as china accounted for approximately 40% of new FDIs against India’s 30% in 2019.
Long-standing territorial issue surrounding Kalapani, a patch of land near the India-Nepal border, close to the Lipulekh Pass on the India-China border has further complicated the political relations of two countries.
The relationship took a nosedive in 2015 when India was blamed for interfering in the Constitution-drafting in Nepal which denied constitutional rights to Madhesi people residing in Terrai region of Nepal and then for an “unofficial blockade” that generated widespread resentment against our country. 
The above issues have reinforced the notion that Nepali nationalism and anti-Indianism widening the mistrust between both the nations.
Conclusion:
There is urgent need today is to pause the rhetoric on territorial nationalism and lay the groundwork for a quiet dialogue where both sides need to display sensitivity as they explore the terms of a reset of the “special relationship”.
The two countries not only share an open, free border and unhindered movement of people, but they also have close bonds through marriages and familial ties, popularly known as Roti-Beti ka Rishta.
A normal relationship where India can be a generous partner will be a better foundation for “neighbourhood first” in the 21st century.

Sources:
https://www.mea.gov.in/Portal/ForeignRelation/Nepal_July_2014_.pdf
https://www.indembkathmandu.gov.in/page/about-trade-and-commerce/
https://theprint.in/opinion/for-nepal-its-getting-easier-to-trade-with-china-india-must-look-beyond-boundary-issues/458317/
https://www.thehindu.com/opinion/lead/for-a-reset-in-india-nepal-relations/article31697691.ece