Foreign affairs experts, however, have taken strong exception to the decision. They have maintained that it is against the constitution for foreign governments to support Nepal's provinces and localities directly. A section of people in Nepal have argued that such direct support should be stopped altogether.

Despite public concerns and controversy, Nepal and India have reached an agreement to pave the way for the Indian government to provide direct grants to projects worth up to Rs 200 million in Nepal.

The limit for India's direct investment in a project has been increased from existing Rs 50 million to Rs 200 million as per the agreement on Indian Grant Assistance for High Impact Community Development Projects (HICDP) through government organizations or any other organizations.

In the Nepal-India Joint Commission meeting on Thursday, attended by Nepal's Foreign Minister NP Saud and India's Foreign Minister S. Jaishankar, officials from both countries exchanged the letter of agreement to this effect.

A cabinet meeting held on December 7, 2023 had decided to accept grant aid for the implementation of the HICDPs funded by the Government of India.

The requirement for India to obtain approval from the Ministry of Finance of the Federal Government of Nepal before undertaking any development project remains unchanged.

The program, initially known as the Small Development Project (SDP), allowed the Indian Embassy in Kathmandu to select and invest in projects independently. The then Prime Minister Surya Bahadur Thapa first approved such a project in 2003, allowing direct investment in projects worth up to Rs 30 million.

Subsequently, during Baburam Bhattarai's tenure as the prime minister, the amount was increased to Rs 50 million. A cabinet meeting held on December 23, 2019, changed the name of the Small Development Project Program to High Impact Community Development Project.

Originally contracted until August 5, 2023, the HICDP's deadline was extended for another three years during a cabinet meeting on August 1, 2023. Consequently, India can continue the program until August 5, 2026 as per the agreement signed between the Ministry of Finance and the Indian Embassy in November 2003.

While the KP Oli government extended the program's deadline, it stipulated that projects should proceed through the central budget system. Any development project proposed by the embassy for grant funding now requires prior approval from the Government of Nepal.

Despite India's commitment to investing 200 million in infrastructure projects, Finance Ministry Spokesperson Dhani Ram Sharma clarified that the provision for approval from the Federal Government of Nepal is explicitly stated. Such funding must be first endorsed by the sectoral ministry concerned and then by the Finance Ministry and Social Welfare Council.

Similarly, rural municipalities and municipalities concerned are supposed to contribute 5 percent and 10 percent counterpart fund, respectively, to executive such projects, according to Spokesperson Sharma.

Foreign affairs experts, however, have taken strong exception to the decision. They have maintained that it is against the constitution for foreign governments to support Nepal's provinces and localities directly. A section of people in Nepal have argued that such direct support should be stopped altogether.

During the JC meeting, there was also an agreement between Nepal Academy of Science and Technology (NAST) and NewSpace India Limited, a Central Public Sector Enterprise (CPSE) under the Department of Space of India’s Indian Space Research Organization for the launch services for Munal Satellite on Polar Satellite Launch Vehicle. As per the agreement, the Indian side will help Nepal to launch its own satellite.

Additionally, the Indian side also agreed to provide Rs 10 billion to help carry out reconstruction works in earthquake-affected areas in Jajarkot and Rukum East during the JC meeting, according to Spokesperson at the Ministry of Foreign Affairs Amrit Rai.