India is Shackled by its Neighborhood

Self-inflicted wounds – whether in the form of poor domestic governance, decrepit infrastructure, a hostile business climate, and the absence of a unified national market – continue to hobble India’s ambitions in Asia and on the larger world stage.  Prime Minister Narendra Modi’s forthcoming budget offers a good chance to make some progress here.  But New Delhi is also held back by its tumultuous neighborhood and, as recent events demonstrate, the prospects for headway on this front are far less promising.  This, in turn, creates a striking paradox: India yearns for a place in the first ranks of world power – Mr. Modi proclaims that he wants “to make the 21st century India’s century” – and yet it remains unable to purposefully shape events in its immediate environs.

The most prominent case in point is the long-running India-Pakistan rivalry, which saps precious Indian resources (including the armed forces) and diverts the energy of those leaders who prefer to look to bigger arenas.  As a consequence, India has missed out on the important economic gains that would accrue if normal trade ties were allowed to take hold between South Asia’s largest economies. According to a slew of recent studies (good examples here, here and here), a more liberalized trade regime would increase bilateral exchange as much as 20 times above current figures, along with boosting general prosperity in both countries.  A 2012 report by the Confederation of Indian Industry, for instance, found that cross-border trade could easily quadruple in just a few years if both governments moved to increase economic linkages.

The vexatious relationship between New Delhi and Islamabad also means that, despite the common civilizational and historical links permeating South Asia, India has been unable to integrate the region in the same way that China has economically stitched together the much more culturally diverse and geographically disperse East Asian area.  Indeed, South Asian remains one of the world’s least integrated areas, with intra-regional trade amounting to less than two percent of aggregate GDP compared to over 20 percent in East Asia.  Likewise, Indian access to the markets and valuable energy resources in Central Asia are blocked by Pakistan, creating a geopolitical and economic opening that China is quickly filling (here and here).

As Islamabad’s obstructionism at a regional summit last November illustrates, New Delhi’s efforts at promoting cross-border economic cooperation via the South Asian Association for Regional Cooperation (SAARC) – a forum largely created by India – remain blocked.  In fact, Beijing rather than New Delhi has a more powerful claim to being the engine of South Asian economic integration (see here and here).

In the face of Pakistani recalcitrance, Mr. Modi has signaled that he is willing to go outside the SAARC framework and cut bilateral arrangements with more cooperative neighbors.  But this strategy is also problematic.  For instance, New Delhi has ambitious plans to connect with Southeast Asia’s markets via major infrastructure corridors that run through Myanmar and Thailand.  But much of these efforts are impeded by the rocky relationship with Bangladesh, which controls the most viable land routes eastward.  The Indian prime minister is making a concerted attempt to build a better equation, but the current political instability in Dhaka (see here and here for background) makes that more difficult.

[UPDATE, February 27: For more on Bangladesh’s deepening political chaos, see here and here.]

As a result, India is forced is to use its much neglected northeastern region, a geographic and economic cul de sac that is tenuously connected to the rest of the country, as a “gateway of Southeast Asia in future” as Mr. Modi put it a few months ago.   Yet this initiative is likewise burdened by a concatenation of factors, including the lack of robust infrastructure linking the northeast with the rest of India as well as the rugged terrain and presence of ethnic insurgencies in both the northeast and Myanmar.  (For more on the deteriorating security situation in Myanmar, see here and here).  Thus, ballyhooed connectivity projects like the Trilateral Highway and the Kaladan multi-modal transit transportation project, initially slated for completion in 2013, have fallen drastically behind schedule.  Despite Modi’s recent pledge, New Delhi has once again quietly pushed back the deadline for completing these projects to 2019, a clear indication according to a report this month that “despite tall claims it just cannot deliver on the ground.”

The failure to normalize Indian relations with Bangladesh, a country whose creation four decades ago was due almost entirely to New Delhi’s support, has also imposed significant domestic economic costs.  The subcontinent’s partition in 1947 cut off West Bengal and the northeastern region from their traditional commercial links with what is now Bangladesh.  Kolkata (formerly Calcutta) was once India’s leading city as well as the headquarters of the British East India Company, one of the mightiest agents for economic globalization in world history.  Yet over the past six decades it has become a relative backwater not only in the global economy but also the Indian economy.  As The Economist noted a few years back, “Kolkata evokes Havana, beautiful but shabby, the last city to remain largely untouched by India’s 20-year boom.”

Along the Himalayan frontier, political instability in Nepal has constrained long-standing joint plans to leverage that country’s vast hydropower potential to alleviate India’s acute energy security problems.  Prime Minister Modi’s trip to Nepal last August kicked these plans into higher gear but renewed political turmoil there (here and here) have once again put them in limbo.  The turbulence also opens the door to greater Chinese influence at India’s expense.

New Delhi will need to climb out of its South Asian box if it is to achieve global power status.  But that’s much harder to do when the local environs keep hemming it in.  The contrast with China – whose more stable neighbors desire vibrant economic engagement even if they are wary of its strategic intentions – is striking.

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4 thoughts on “India is Shackled by its Neighborhood

  1. A well-written piece. You have correctly pointed out that India is beset with ‘self-inflicted wounds’. Relationships are important but to my mind biggest inhibiting factors are ‘Corruption’ and ‘Discipline’. India has the potential of growth,by leaps and bounds, only if corruption is rooted out and people start following the ‘rule of law’.
    Surinder

  2. India needs to solve self-created problems for Bangladesh through dams/barrages on the major rivers upstream which historically flowed to Bangladesh from the Himalaya’s river system. 2.New Delhi could not honour it signed the Agreements on demarcation of land boundary,transfer of enclaves in each other’s country, 3. For fair share of Teesta river water could not reach after 40 years. 4.Farakka Barrage agreement made effective nearly after 30 years of the signing the agreement.5. Bangladesh met almost all of India’s concerns regrettably India failed miserably.To get full cooperation of Bangladesh ,in India’s own interest, at least , it should address Bangladesh’s problems without further waste of time.

  3. The concerned raised by author is very valid as population of rest of the members except India in SAARC country is about 25%, and it is a good opportunity for India as well as other countries of SAARC region to increase trade among themselves. There is very good scope for trade in food items, vegetables and fruits as each country has distinct comparative advantage in some item or others. About a few months or a year back, tomatoes were being thrown and crushed on roads of Kathmandu as it was not able to fetch the desired price, and at the same time price of tomatoes in India were soaring like any thing. A vibrant trade relation would have benefited farmers in Nepal as well as consumers in India. India has always put an effort to integrate trade and commerce in SAARC, but Pakistan has most of the time a spoiler. However, on bilateral basis India can enhance in business ties with most of the SAARC countries for their mutual advantage, and things are moving in that direction. Apart from this, India is not an export led economy and it has good domestic market for its goods and services produced. So , situation is not as bleak as it is projected.

  4. I have read this article with great interest. I have only a few glosses to add:

    Quite evidently, the Indian aspiration is to seek a regional security role and this reflects India’s social and economic engagement with the countries in the region.

    India’s preoccupation appears to be at the outset both linked to internal as well as external security issues, which are reflected in India’s growing regional interests.

    The political context including the broader questions of infrastructures, governance, foibles of politicians, etc. do not provide reassuring data without any coverage of broad ground realities.
    Yet there is a difference in economic risk analysis and political risk in that they address different questions.

    To business communities both are important issues, yet it depends on the context of investment decisions.

    Example: The constant pounding of mortar shelling at the Indo-Pak line of control (LoC) and constant Chinese incursions at the Sino-Indian border are pre-occupying risks but not so much for the economic markets.

    It is easy to talk purely of economic policies but it is a less-known fact that given the increasing number of incidents of piracy in the Indian Ocean since the beginning of 2002, this situation caused a significant risk to both the Indian trade as 60 per cent of Indian trade transits the regions affected by piracy.

    A reflection of how the immediate Asian natiosn perceive regional giants such as Pakistan, India and China can be assessed somewhat from the role of the SAARC and SAPTA. China merely holds an observer status in the SAARC. According to Dinesh Bhattarai, foreign relations adviser to Prime Minister Sushil Koirala, has said there was no official proposal from SAARC member states to elevate China as a SAARC member. How is this position to be understood?

    Take the foibles of politicians for instance and it becomes increasingly difficult to gauge their behavior, actions and policies. Thus even with cultures, it becomes harder to assess and quantify. Human behavior is complex.

    Take specifics of Chinese President Xi Linping’s speech at the CICA meeting. He stated that, “it is for the people of Asia to run the affairs of Asia, solve the problems of Asia and uphold the security of Asia. The people of Asia have the capability and wisdom to achieve peace and stability in the region through enhanced cooperation”. Does this enhance true regional security too?

    Now place it in the context of China’s South China Seas Policy. It can be seen that Xi’s remarks nearly resemble a certain idea of Asia for Asians. Recent clashes with Chinese fishermen and warships in the South China Sea saw the burning of Chinese held enterprises in Vietnam. The Chinese acquisition of its aircraft carrier Shi Lang is interesting; it was bought from the Ukraine on the pretext of apparently to building a floating casino. When this aircraft carrier heads along to the Hambantota port how would this be perceived?

    President Xi excludes any role played by any external power, i.e. the United States or Australia, as a balancer or a security provider in Asia. President Xi also said Asia needs to “focus on development, actively improve people’s lives and narrow down the wealth gap to cement the foundation of security China’s regional engagement and extra-regional exclusion of external powers like the US are the two pillars of China’s new Asia strategy under the leadership of President Xi Jinping. Here political risks analyses would help pinpoint Chinese ambitions better than economic analyses alone.

    Having said this, the competition is rife between China and India. The competition for the Chabahar port development in Iran is obvious.

    With geographically close-countries like India and Pakistan, the media focuses on their border security issues. The sources in paragraph two focus mainly on the trade potential which reveals unfortunately of somewhat of missed opportunities between India and Pakistan.

    Therefore, any accurate and complete country risk analysis becomes more difficult unless specific socio-economic and political trends are covered with frameworks that could be used to evaluate the independent risks.

    Consider globalization for instance. Quite obviously Globalization means greater connectedness.
    This can also spell positive as well as negative variations. Fitzpatrick (2003) suggests that political risk can be viewed as a process that changes over time.

    Countries like China and India have rapidly growing economies but politics is quite rightly inseparable from trade and development.

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