Last week’s youth-led toppling of the elected government in Nepal completes the chain of political displacements around India. In the last three years following the Taliban’s capture of power in Afghanistan, the Aung San-headed government in Myanmar was pushed out by the Army. The wave of disappointment and despair with the status quo then widened first to the Maldives and soon thereafter to Sri Lanka. In the summer of 2024, student factions in Bangladesh came together to ease out the democratically elected two-term Premier Sheikh Hasina. The previous year, Pakistan’s government under cricketer-turned-politician Imran Khan was deposed in a well-orchestrated military coup.
Only in Bhutan did public dissatisfaction and dissent, so visible in other neighbouring countries, not come to the fore. The Wangchuk monarchy continues to rule for decades in what it tactfully calls the Land of Happiness.
The turbulence of such kind brings along both political and economic uncertainty. However, in most South Asian nations, the resultant political instability has settled fairly quickly, unless sustained by powerful domestic or external forces. The economic consequences, however, have not been as transient and have invariably worsened. Unfortunately, all eight nations in the region remain squarely in the category of developing nations. In fact, Myanmar, Afghanistan, Pakistan, and Nepal have been languishing for quite a while at the bottom of the pecking rung.
Geographically large, heavily populated, and with a high incidence of extreme poverty, these four least-developed nations have their primary vocations—agriculture, mining, fishing, or cattle-rearing—still largely in the primitive forms. Productivity per unit of labour, capital, as well as land remains abysmally low, with much headroom for marked enhancement. Low value-additions in most economic activities keep them out of all global and regional supply chains, and their focus of attention persists on inefficient internal markets.
INDIA AND ITS NEIGHBOURHOOD
India’s size, geographical location and historical connections make it the pivotal country in South Asia for trade, tourism, secondary medical treatment, higher education, and overseas investment. Without expectation of reciprocity, India has maintained a co-operative stance towards each of the seven nations and respected their strategic autonomy. India’s Neighbourhood First Policy, based on these elements—loosely called the Gujral Doctrine—seeks to maintain stability in the region.
As long as the actions of other nations do not adversely impact its security, India has been extending official aid for building their defences and supporting economic and social progress. India has demonstrated a genuine concern for the well-being of its neighbours and for almost six decades has encouraged bilateral trade, private investment and promoted people-to-people contacts through keeping open borders and relatively free movement of their citizens.
While prioritizing long-term relations over short-term gains, India has consciously avoided involvement in the internal affairs of all other SAARC (South Asian Association for Regional Co-operation) nations, even when the occasional anti-India elements became vocal and demanded distancing from the large neighbour. The Indian leadership remains cognizant that very often their objective is to forge a balance between India and China. By playing the China card, their governments too hope to get better deals for themselves. India has shown a high order of strategic maturity by deftly managing such situations and not getting riled.
THE CHINESE THRUST IN SOUTH ASIA
China, on the other hand, has not favourably viewed Indian attempts at influence-building, even in its own neighbourhood. Instead, it has deployed all available means—diplomatic, economic, and even military—to build allies in the region. This has gone on ever since it got hold of Tibet in the early Fifties. There are few signs that China would soften its stance in the near future, even if it re-establishes a “friendship” or working relationship with India.
In Pakistan, China has successfully built a strong ally through meaningful financial aid, the Belt and Road Initiative (BRI) for physical infrastructure projects, and the supply of advanced military equipment and training. In Myanmar, by openly backing the military junta and providing money, modern weapons, and bilateral trade opportunities, Beijing now controls abundant mining resources, including several rare earths.
In both the Maldives and Sri Lanka, huge infrastructure-building, loans and other monetary favours have enabled the Dragon-nation to create a noticeable domestic political constituency.
In Nepal, the Chinese game of checking India has been played through a myriad set of levers. It has backed a strong Maoist political party which, on several occasions, has won at the national hustings. Its nominees—Prachanda, Bhattarai, and Sharma-Oli, who was deposed last week—have all been Prime Ministers. China has also been focusing on Bangladesh and Afghanistan and it can expected to grow its role there in the not-too-distant future. In Bhutan, China has used both financial and military incentives. Its 2020-21 incursion into Doklam, at the tri-junction of Bhutan, India, and China, seemed aimed at securing a foothold at the door of Bhutan. Beijing has so far refused to de-escalate its military deployment there.
India must not reconcile itself to such inevitability. Instead, it should act decisively on all possible fronts. That would include significantly growing the regional trade, promoting the generation of hydro and other clean electricity, deploying its notable “soft power” and significantly step up its official aid.
BUILD REGIONAL TRADE & INVESTMENTS
Furthering bilateral trade within the region is imperative. At about $35 billion, it forms a bare 6-7% of India’s external trade. The goal should be to triple it by 2030 to over $100 billion and raise the share in aggregate trade to around 15%. The large countries—the USA, China, Russia, and Brazil—have systematically built economic interdependence with their neighbours: the US with Canada, Mexico, and Central America; Russia with Central Asia and Europe; and China with East Asia—including both Koreas, Japan, Taiwan, and much of ASEAN. Varied preferences and priorities are accorded by the bigger economic partners to the smaller ones. Legally enforceable pacts have been entered into amongst the partners to bring about certainty amongst the stakeholders. Political, social, and economic stability in neighbouring countries is of far more value than the higher financial costs such arrangements may involve in some cases.
There is little reason for India not to enter into such arrangements with SAARC nations. Trade is built on the basis of comparative, not absolute, advantage. It has long been established that, in the longer run, it results in a win-win situation for all. For instance, if Bangladesh can produce garments more efficiently than any other product, there is a case to recognize it and let the country specialize and trade more in that industry. With greater employment being created and higher incomes accruing down the line, a favourable view of India is bound to emerge with such an approach. In course of time, promoting a Customs Union among the eight South Asian nations, along the lines of NAFTA in North America, Mercosur in South America, and the 27-nation European Union, would bring a high degree of permanence in both physical and non-material benefits of trade.
Once a Customs Union has been established, facilitation of free movement of capital among the South Asian nations could follow. Incoming foreign capital from other parts of the world would serve a gigantic unified market of about 1.9 billion, or about a quarter of the world’s population. With population still growing in each of the eight nations, and the demography not necessarily a burden, the region can turn itself into a robust engine of growth similar to ASEAN.
EXPLOITATION OF HYDRO POWER POTENTIAL
Besides growing regional trade and investments, India could focus on setting up additional hydro-power generation in Bhutan and Nepal, both of which have considerable untapped potential.
A few years ago, India had agreed with Bhutan to help establish 10,000 MW of generation capacity by 2031. So far, only 2,300 MW has been installed, with about the same quantum under construction. Given establishing generation facilities and transmission systems in mountainous terrain takes long and at times even about 10 years, prompter action is required. Identifying project sites, readying detailed project reports, mobilizing the sizeable resources required, and awarding contracts for construction have proven to be time-consuming processes. India can help by investing fully or partially, assisting with construction, and buying surplus power at pre-agreed prices. This model has worked for several projects in Bhutan, and should be extended to Nepal and any other regional producer of clean energy.
MAKING USE OF THE INDIAN SOFT POWER
Widening medical tourism into India can be another attractive proposition to improve people-to-people ties. The existing fee for treatment in India and the applicable regulations primarily attract only economically well-off overseas patients. To ensure that SAARC nationals are not overly disadvantaged vis-à-vis local patients in terms of medical fees, procedures, staying charges, and drug costs, India could establish official facilitation desk in large private hospitals for visiting regional patients.
Such “soft assistance” may also be extended to college education and vocational training. Enlarging the quota for admission in sought-after courses, in both public and private educational institutions, for SAARC students should significantly increase their numbers. No dilution in eligibility conditions, except priority in boarding facilities, need be made. The Indian Foreign Office may consider granting financial assistance to deserving and needy applicants, besides coordinating the quotas for admission with the States and educational institutions.
GROW AND DIVERSIFY THE OFFICIAL AID
Finally, the official Indian aid must be significantly scaled up, since there is a tendency among most South Asian nations to turn to China, who is more than happy to show off its deep pockets. Alongside, the use of aid should become more efficient. Rather than leaving it to recipient nations to design and implement a diverse set of assisted projects, aid and assistance should be channelled into areas of proven prowess for India such as healthcare, education, vocational training, IT, and digitalization. Also, there is apparent need to set up more than one assisted centre in such fields especially in the larger nations like Nepal and Bangladesh.
Besides the host governments, nominated implementing agencies should be involved in the establishment of such projects so that, inter alia, their relevance over time subsists. The aid packages must include not only capital costs but also sufficient operational funding for a defined period. Otherwise, stalled projects risk becoming embarrassing symbols of wasteful assistance from India. To expand the network of desirable and well-implemented aid projects, India could a support the beneficiary governments in securing funds from multilateral institutions, alongside financing from its own commercial and development banks.
Dr Ajay Dua, a development economist, is a former Union Secretary, Commerce & Industry.
