The union cabinet Wednesday approved a landmark power grid connectivity agreement with Nepal, which will strengthen energy ties between the two energy-starved nations.
A cabinet communique said it approved the India-Nepal agreement on "Electric Power Trade, Cross-Border Transmission Interconnection and Grid Connectivity", the document for which was earlier initialled Sep 4.
"New cross-border transmission lines are under construction, which will more than double the transmission capacity, over the next two years," the statement said.
"The agreement will also provide a framework for imports, by Indian entities, of surplus power generated from future hydroelectric plants in Nepal, on mutually acceptable terms and conditions," it added.
Nepal is currently importing about 200 MW electricity from India annually.
During the visit of Prime Minister Narendra Modi to Nepal in the first week of August, both countries had agreed to complete negotiations on the agreement within 45 days.
It has paved the way for a bilateral power trade, whereby energy produced in Nepal by any of the parties will be sold in India.
The agreement is crucial for both sides to export and import electricity, fix the price and explore the market as Nepal and India need to do business over the long term.
India had sent a draft Power Cooperation Agreement (PCA) to Nepal May 9, which provided for power generation, production and trade, and offered full Indian cooperation in generation and production of hydro-electricity in Nepal.
Before the visit of External Affairs Minister Sushma Swaraj to Nepal in July, the Indian draft was leaked to the Nepali media and some political sections in Kathmandu, sparking a huge uproar.
A panel of three major political parties of Nepal - the Nepali Congress, the CPN-UML and the UCPN (Maoist) - had suggested not including power development and generation in the draft and restricting the agreement to power trade only.