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India’s Economic Generosity Can Transform South Asia – Analysis


By Chayanika Saxena*

It is often suggested that the only way out of an over-zealous competitive world order that is attended by threatening rivalries and lack of trust is to embed the countries in a relationship of economic interdependence. Appearing to be the best bet in a global order that is connected by boundary-transcending technologies, but where national rivalries are still rife, fostering of economic cooperation between countries can help pacify if not eliminate suspicion and mistrust that have often triggered conflicts between and within nations.

Attesting to the harms that unchecked rivalries have the potential of creating, India, which shares its territorial and maritime boundaries with almost all the other South Asian countries, it has realized that the dividends accruing out of economic cooperation can outweigh the ills of political animosity that pervades the region at different levels. Bound by its own economic, strategic and political compulsions, where India could not take on the challenge of integrating the South Asian region before, India on the back of its ‘neighborhood first’ policy has begun a campaign of pro-active outreach to the seven countries that it lists in its immediate neighborhood. It is with the intent of transforming its image of being a ‘bully big brother’ into a ‘benign elder brother’ that India has ramped up its efforts to deepen its engagement with each of the seven South Asian countries, including Pakistan. And, at the regional level as a whole as well, India’s efforts to be the catalyst of integration and interdependence has leased a breath of fresh air into an organization – the eight-nation South Asian Association for Regional Cooperation (SAARC) – which since its birth has been leading a quasi-conscious life.

In keeping with the Indian commitment to treat its immediate neighborhood as its foreign priority, the present government has been engaged in active outreach to the South Asian nations. Save for the state of Maldives that is yet to be visited by the Indian Prime Minister, the remaining seven South Asian nations have become the beneficiaries of India’s changing approach to South Asia, especially on the economic front.

Laying out the General Budget for the current fiscal year, the Indian Ministry of External Affairs (MEA) has been handed a sum of INR 14,622 crores for dealing with Indian engagements overseas. While there has been a dip of 2.5% in the finances at the disposal of MEA compared to what the figure stood the last year, it is significant to note that of the overlay that is available, South Asian countries – specifically Bhutan and Afghanistan- appear prominently on the roster of priority. Also, when compared trans-nationally, India’s economic contribution to South Asia among the other regional cohabitants – be it in the form of trade exchanges or financial aid – stands the tallest.

As an economic giant which boasts of the world’s third largest economy on the ‘Purchasing Power Parity’ terms, India has for reasons related to its mammoth, burgeoning economic might has been the biggest donor and creditor to the South Asian countries that make up this region. India has traditionally been a non-donor country; however lately, the country has begun investing in the rehabilitation and resuscitation of many South Asian economies that had suffered massive jolts either due to wars or for natural causes like earthquake.

For instance, India has been actively involved in the economic, social and political re-building of Afghanistan ever since the Taliban regime was toppled in 2001 and the commitment continues. A string of projects have been floated and concluded by the various Indian governments, with many of them still underway, taking the Indian economic assistance to Afghanistan to a massive figure of USD 2 Billion. Right from the Afghan National Assembly that sits in the heart of Kabul to the Salma Dam in Herat; the electricity transmission lines to Kabul, road and railway-line constructions (ex. Zaranj to Delaram) and other social and cultural assistance extended by India to Afghanistan (skills development programs, school feeding projects) places it as the fifth largest donor to this war-torn country much ahead of China.

It is also important to note that it was India that had been at the forefront of getting Afghanistan inducted into SAARC as a member-nation. India was also instrumental in connecting the economy of Afghanistan regionally by pushing for its inclusion in the South Asian Free Trade Agreement arrangement. Bilaterally too, India has signed a Preferential Trade Agreement (PTA) with Afghanistan that allows the latter to export its products like fruits, dry-fruits, gemstones, etc at a 50% less import cess.

Nepal too has been a beneficiary of India’s economic generosity that is spread over a sum of USD 2 Billion, of which half is being extended to it as financial aid, assisting in the post-earthquake reconstruction of this land-locked nation. Enjoying visa-free ties with this nascent democracy, relations between India and Nepal have assumed a sense of cordiality overall. While there have been major hiccups in the recent past, India continues to be Nepal’s largest trading partner. Among the major infrastructural tasks that India has up its sleeve in Nepal include: assistance in the complete construction of two hydroelectric power projects worth USD 1 billion; laying cross-border electric transmission lines; road-building in the Terai areas, construction of a second airport and a state-of-the-art hospital, technical education schools and a university.

As recently as a few days ago, India executed the commitment of extending a Line of Credit (which is among the three conduits India uses to provide development aid to foreign countries, with the other two being ‘Grants’ and Indian Technical & Economic Cooperation (ITEC) program) worth USD 2 Billion to Bangladesh in a bid to deepen India’s economic engagement in its east. This comes on the heels of many trade and political agreements that have been reached with Bangladesh in the last one year, creating greater economic inter-dependence in the otherwise volatile South Asian region. The annual trade between Bangladesh has been pegged at USD 6.5 billion in the year gone by, out of which India’s export has been around USD 6 billion while Bangladesh exports to India is around USD 0.5 billion.

The Bangladesh-Bhutan-India-Nepal (BBIN) corridor has been another project that has received considerable boost by India in a bid to integrate the countries in its East and create a sub-regional arrangement that is expected to be of economic significance to all the parties involved.

In the island nation that lies to its south, India is involved in a number of development projects, making it the second largest donor to Sri Lanka. Apart from an agreement on economic cooperation that is already underway (Economic and Technology Cooperation Agreement), India has demonstrated its moral and economic willingness to assist in the re-development of the civil-war ravaged Sri Lanka, having pledged USD 270 million project to build 50,000 houses for Tamils who were displaced from the Northern province of Jaffna as the war raged on.

India’s economic assistance package to Maldives is estimated to be a good 5% of the total sum that the country has reserved for the development projects it undertakes internationally. While Maldives is the only South Asian country that the incumbent Indian Prime Minister is yet to cover as a part of India’s ‘neighborhood first policy’, this has not cast any shadow on its India’s commitment to Maldives in keeping the latter’s tourist-economy afloat.

In keeping with India’s vision to create a stable, secure and prosperous South Asia, the country has been in the forefront of assisting smaller economies like that of Bhutan to attain and retain economic self-sufficiency. To this effect, India has played the role of a generous enabler vis-a-vis the tiny Bhutanese economy, contributing massively to all the five-year plans that this country has seen this far. From the provision of subsidized LPG for domestic and commercial usage by the people of Bhutan to the conscious creation of avenues of trade between the two countries – like promotion of hydroelectric power plants in Bhutan that then sell electricity to India – the South Asian giant has been a friendly elder brother to the country that measures it progress on the scale of happiness. India makes South Asia happy and prosperous we can say!

As India seeks to play a major role in international geopolitics – of the kind that befits its burgeoning economic might, respected political credibility and cultural currency that spans over centuries – having a stable, secure and successful neighborhood will be the best guarantee for the achievement of this national goal. While it would not be prudent to offer doles without securing any return on investment, but winning the hearts, minds (and now economic contracts) takes time, and it would be in India’s interest to maintain strategic patience and see its efforts transform the fate of South Asia.

*Chayanika Saxena is a Research Associate at the Society for Policy Studies, New Delhi. She can be contacted at: [email protected]

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