India and Nepal restored passenger rail services between them on Saturday, as Kathmandu is increasingly wooed by China.

Nepal has traditionally done a balancing act between New Delhi and Beijing, but analysts believe Indian influence over Kathmandu has been dwindling as China pours heavy investment into the landlocked Himalayan country.

But Nepalese prime minister Sher Bahadur Deuba made India his first foreign destination since he returned to power last year.

As part of a three-day visit, he met his Indian counterpart Narendra Modi on Saturday and they virtually flagged off a passenger train connecting the eastern Indian state of Bihar with Nepal.

It is the first such rail link between the neighbours since services were halted for upgrades in 2014.

Both leaders agreed to prioritise trade and cross-border connectivity initiatives, Modi said.

"Such schemes will make a wonderful contribution for smooth, hassle-free exchange of people between the two countries," he said.

The two countries also finalised agreements on the supply of petroleum products and released a joint vision statement on power sector cooperation.

Deuba's journey south comes just days after Chinese foreign minister Wang Yi visited Nepal and India.

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