India treads fine line in Nepal's political crisis

By Krittivas Mukherjee

KATHMANDU (Reuters) - India is walking a diplomatic tightrope as Nepal tries to form a new government, aware that excessive meddling in its traditional "backyard" could risk pushing the fragile Himalayan democracy closer to China.

India has always seen Nepal as part of its strategic sphere of influence, but that has been challenged in the past year since the election of Maoist Prime Minister Prachanda, who before he resigned last week had edged closer to Beijing.

Former guerrilla leader Prachanda quit on Monday after his dismissal of the army chief was blocked, sparking a political crisis and dealing a blow to Nepal's peace process after a decade-long civil war that saw the Maoists lay down their arms.

Prachanda blamed "external forces" for his downfall, a likely reference to India and a sign of a growing backlash against its bigger and more powerful neighbour.

As Nepal's parties bicker over a new government, China could back the Maoists to keep their influence.

India, aware the former rebels are still the main political force with 40 percent of seats in parliament, could look for a counterweight to any pro-China tilt in a ruling coalition.

"India has to do business with the Maoists, so they will have to do a nice balancing act -- not anger the Maoists while backing the forces it thinks are favourable to it," said Lok Raj Baral, head of the Nepal Centre for Strategic Studies think tank.

"The Maoists know anti-India rhetoric now has quite a bit of appeal among the Nepali people. If India is perceived by the Maoists as too intruding it could push them more towards China."