Nepal is the Himalayan Kingdom having close and deeply rooted cultural ties with India since ancient time. The ruling monarchs of Nepal are descendants of Rajput Kings from North India. Important Hindu pilgrim centers are located in Nepal. During British period, Indian army had a battalion called Gorkha regiment, which continues even today. After independence, Indian government helped restoration of Monarchy in Nepal, who enjoyed tremendous powers and ruled through a system called ‘Partyless Panchayat’. India helped Nepal mainly by granting transit facility to its trade by signing a treaty in 1952. India even managed postal and communication services of Nepal till 1959 and gave assistance to construction of highways and dams. Nepali students receive special scholarship to get higher education in Indian Universities. Major irritant between India and Nepal started after annexation of Tibet by China. This brought Chinese border very close to Nepal. China started wooing Nepali people & leaders by providing military assistance. Particularly Communist Party of Nepal became very active, which resorted to vigorous anti-India campaign and massive agitation was launched to bring democratic political system. A sudden and tragic massacre of Royal family including the King in 2001 turned the tide in favour of anti-India and anti-Monarchy groups. The charisma & aura surrounding the monarchy and popular support for them faded away throwing Nepal into political turmoil. Protest movements spread all over the country. The King was forced to gradually hand over the reins to peoples’ representatives. A Constituent Assembly of Nepal was formed in 2007 which abolished Monarchy and declared Nepal a Federal Democratic Republic in 2008. In spite of the success of the popular movement, political stability in Nepal is not ensured mainly because of differences between Nepali Congress and Communist Party of Nepal. India adopted a considered silence during this period, fearing shooting up of anti-India feelings and allegations of interference. Official level dialogue on the issues of border- demarcation, trade modalities and other non-political matters continued. Cross-border migration of people and smuggling of goods, illicit trade of drugs & arms and movement of terrorists etc. have been major issues of concern for India. For Nepal, it wants more liberal approach and magnanimous gestures from India and concession in trade & transit of commodities. Nepal also wants India to stop encroachment of Nepali territory by Indian farmers along the rivers borders. The above description explains the complex nature of bilateral relation in South Asia. It is mainly ‘Indo-centric’ and goes against any possibility of organised regional cooperation. All these countries believed in peaceful world, non-alignment, democratic polity, fundamental rights, etc. and they had relisation about their complimentary nature of economies, inter-mixing of cultures, geographical proximities and interdependent trade. Still lack of strong political will and mutual suspicion prevented them from coming together.