The Nepalese state, because of its dependence on foreign aid, has to take donor preferences and expectations into consideration and cannot act entirely on its own. In so far as these forces are beyond its control, foreign aid sets out structures that limit the Nepalese state’s space to manoeuvre. Aid thus constitutes the invisible ceiling, so to speak, beyond which the Nepalese state cannot go. Foreign aid, however, is not the only structural constraint faced by the Nepalese state. It has always had to contend with the constraints posed by whoever happens to be the hegemonic powers to the north and to the south: in China and India.1 From its earliest nation-building days, Nepal has had to reckon with this particular geopolitical constraint: ‘a yam between two boulders’, as Prithvi Narayan Shah, the King of Gorkha – who unified Nepal towards the end of the eighteenth century – so aptly put it.