The transformation of the Communist Party of Nepal-Maoist (CPN-M) from an insurgent group to a critical stakeholder in the political process is one of the most significant recent developments in South Asia. On 15 January 2007, legislators in the House of Representatives (HoR) adopted the interim constitution and dissolved the legislature. The HoR is now a provisional legislature and it is extremely important to note that out of the 330 members in the interim parliament, 83 have been nominated by the CPN-M. The next major landmarks in the transition in Nepal would thus be the elections to the Constituent Assembly (CA) and the creation of a new constitution by the CA.

The interim constitution is a unique legislation as it is both - a source of law and a peace treaty between the CPN-M and the government. The adoption of the interim constitution marks a culmination of peace initiatives that began with the re-establishment of the House of Representatives in April 2006 (as a response by the monarchy to the Loktantra movement), the ceasefire of May 2006 and the subsequent peace treaty of 21 November 2006. The positive results of CPN-M's participation are still being assessed, but preliminary developments include the disbanding of the system of dual government; withdrawl of armed cadres to demobilization centers; registration of the demobilized fighters by the United Nations; and the confinement of weapons to armouries. Similarly, the army and the police have withdrawn to the barracks and are also in the process of demobilization.

The effects of the recent political developments in Nepal are indicative of an extremely important shift in the structure of Nepal's political order, the implications of which are still being experienced. One of the most important shifts concerns what were considered the two most powerful institutions in the polity - the monarchy and the army. In May 2006, the HoR passed legislation that transformed relations between the monarchy and parliament. The legislation ended important executive prerogatives of the monarchy and included measures such as - taxing the assets of the royal family; discontinuing the royal advisory council or Raj Parishad; transferring control of the military to the legislature and renaming the RNA (Royal Nepal Army); removing the title "Royal" from all government institutions and; declaring Nepal a secular state. However, it is rather puzzling that both the monarchy and the army accepted a curtailment of their powers and this makes further research regarding the nature of the internal negotiations important.

The peace process in Nepal holds several lessons for the study of the role of democratic institutions and peace-building in South Asia. Firstly, negotiations with the CPN-M revolved around the creation of viable democratic institutions for the effective representation of marginalized groups in the political process including landless peasants, workers, women, indigenous people and lower castes. Secondly, negotiations were based on mutually agreed upon procedures between the Seven Party Alliance (SPA) and the CPN-M. A high degree of restraint was maintained by the new Nepal Army (NA) , the police forces and the CPN-M combatants once procedures were accepted. Lastly, along with these institutional incentives was an extremely important normative or symbolic component. The interim government of Nepal agreed to reclassify the CPN-M as a political party and abandoned the rhetoric of "Maoist terrorism" (which was used by the monarchy and the former RNA to maintain executive control). However, mere possession of democratic institutions is insufficient to construct a stable post-conflict order. It is important that there exists a normative structure and ideological consensus among the warring factions on the desirability of peace.

The peace process in Nepal also provides a template to address the Naxal problem in India. An important basis for comparison is the fact that Naxal groups and the CPN-M share similarities in their ideological and organizational structures. Moreover, both insurgencies evolved endogenously. The use of armed force has been the overarching response to Naxal violence in India and there remains a lack of initiative to create institutional mechanisms for negotiations. Currently there are very few incentives for either the insurgents or the paramilitary forces to reduce the level of violence. The situation becomes more complex when insurgents are fighting for ideological purposes as well as to establish control over natural resources. The experience with the CPN-M shows that insurgent groups do respond if institutional incentives are offered.

In conclusion, peace in Nepal is still at a nascent stage and the onus is now on the transitional government and institutions such as the Election Commission, the National Human Rights Commission and the soon to be established Truth and Reconciliation Commission to steer the peace process. The rise of agitation in the Terai region is however, proving to be a major challenge to the reintegration and reconciliation process. It has put to test the viability of democracy in Nepal and its implications must therefore be further explored.