It appears the “ Neighborhood First “ policy is facing fissures. But one can’t choose neighbors and it is the dilemma a big power faces in its vicinity when other hegemonistic neighbors with economic and military muscle tries to counter/contest its influence by crafting long term economic dependency of neighboring states.

Earlier this week Indian Foreign Secretary (Former High Commissioner to Bangladesh) was rushed to Dhaka to alleviate the concerns of the friendly Sheikh Hasina Government on account of India’s domestic citizenship legislations (CAA). India ensured continued Indian developmental support as China provided greater market access incentives to Bangladeshi products apart from strategic enhanced assistance.

Nepal recently has become India’s Achilles heel. Sri Lanka keeps India on tenterhooks. Bhutan wants to move beyond. Myanmar remains uncertain. The Maldives is back in the reckoning of close and strategic partners. China is a common factor in all these. It is trying to create a new NPC axis with ever so anti-India Pakistan and newly peeved Nepal.

It appears the “ Neighborhood First “ policy is facing fissures. But one can’t choose neighbours and it is the dilemma a big power faces in its vicinity when other hegemonistic neighbours with economic and military muscle tries to counter/contest its influence by crafting long term economic dependency of neighbouring states.

Filling the Void?

Geographical proximity hasn’t translated into intense/desired economic interaction for India. As of 2018, it is estimated that China’s trade by volume in the Indian subcontinent even after excluding Pakistan amounts to USD 40.84 billion compared to USD 27.98 billion of India. Besides Pakistan, Bangladesh is China’s major trade partner accounting for more than one -third of the latter’s trade volume in South Asia.

China’s decision to provide duty-free access to 97 percent of Bangladeshi products will further integrate its economy. China’s Shanghai and Shenzen stock exchanges have acquired a 25 per cent stake in Dhaka Stock Exchange enabling it a greater say in Bangladesh’s financial architecture.

It is pertinent to note that only landlocked countries of Nepal, Bhutan and Afghanistan have higher trade volumes with India. The salience of proactive diplomacy by Beijing to co-opt them esp. Nepal and Afghanistan, therefore, shouldn’t be lost. “ Of the 95 million USD FDI pledged to Nepal during the first quarter this year, 88 million USD was by China”. Additionally, Beijing is funding key infra and energy projects in Nepal.

Acute shortage of infrastructure financing makes Afghanistan an ideal candidate for Chinese investment. Significant initiatives comprise The Five Nation Railway Project (TFNRP), operationalization of Nantong-Hairatan Railway, Kunduz – Torkham Railway, Fiber Optic link through Wakhan corridor. China has also demonstrated an appetite to engage in the Afghan peace process. China’s grip over Pakistan makes it a de-facto player in the process.

Sri Lanka is another major recipient of Chinese funding. It is estimated that the Chinese investment in Sri Lanka is overall USD 1.2 bn. Noteworthy projects include Colombo port city, Lotus tower, Mattala international airport etc. Chinese loans to the Sri Lankan central government amounts to nine per cent of the total loans. This symbolizes the unfolding of intimate Sino-Sri Lankan economic interaction.

Myanmar’s trade with China is around USD 11.78 bn compared to USD 1.5 bn with India. Xi Jinping’s recent visit to Myanmar emphasized on China-Myanmar Economic Corridor. Myanmar offers China direct access to the Indian Ocean Region. The salience of Beijing’s economic diplomacy vis-a-vis Myanmar, therefore, need not be lost.

China’s overall investment in Pakistan under the aegis of the China-Pakistan Economic Corridor is around USD 62 billion. Other than the Infra and power sector, a substantial proportion of CPEC deals with agriculture.

It is estimated that thousands of acres of land would be leased to Chinese firms for setting up of “demonstration projects” ranging across seeds to irrigation. Further, an 820 km fibre optic project was made operational between Rawalpindi to Khunjerab pass last year. This is expected to be an important node in the overall internet traffic from China to the Middle East, Africa, and Europe.

China’s Charm Offensive?

Economic interdependence is an important means for fulfilling strategic objectives. This is especially true in Indian Subcontinent where institutions are underdeveloped and elite interests often decide national interest.

It is argued that China’s public diplomacy disproportionately targets political and military elites in these countries. The recent instance of China’s EXIM bank demanding Maldivian government to repay ‘private’ sovereign guarantee that was extended to the Sun group linked to parliamentarian Sun Ahmed Shyam is a point in case.

China is trying to leverage its economic clout for political influence in the region. Chinese ambassador’s consecutive meeting with the senior leaders of competing factions of Nepali communist party amidst the political turmoil is indicative of the same. Seen in this context their commitment to an autonomous domestic political sphere seems compromised. Chinese Communist Party (CCP) has entered into an agreement with ruling and mainstream political parties in Bangladesh and Sri Lanka to boost cooperation, training of legislatures, BRI, COVID-19 pandemic, governance etc.

All this demonstrates the will and ability to play an active role in the polity and politics of Indian subcontinent. This is not to deny the independent existence of their relationship. However, in international politics, absolute seeming bilateral relationships have ‘relative’ implications.

Strategy Begins at Home: Way Forward?

During 2014-18, India has invested approx. USD 1,461 million in regional connectivity projects. Further, India is actively upgrading infrastructure in its North Eastern Region (N.E.R) to complement its Act East policy. There are plans to extend the railway to Moreh on the Myanmar border and beyond to the proposed Trans-Asian Railways.

Operationalization of Haldia-Chittagong international riverine operations will boost trade and connectivity with Bangladesh and will be a boon for landlocked N.E.R states like Tripura.

As far as the northern border is concerned, the operationalization of Jogbani-Biratnagar integrated check-post will boost trade with Nepal. Jayanagar-Barbidas and Jogbani-Biratnagar railway projects are currently underway.

Preliminary survey on Raxaul-Kathmandu] railway line has been completed. Indo-Bhutan hydropower cooperation forms the backbone of the Bhutanese economy and both are working steadily towards the realization of 10,000 MW installed capacity.

India’s assistance in the neighbourhood is also symbolic of its democratic ideals. This gets reflected in projects such as Supreme Court building in Bhutan and Mauritius, the parliament building in Afghanistan etc. Small Development Projects (SDPs) are another hallmark of India’s development assistance aimed at high impact low cost crucial social infrastructure. India has by far successfully executed 2,535 SDPs in the neighbourhood.

However, chronic delays have become a feature of India’s overseas infrastructure projects. It is being suggested that India should concentrate on capacity building on the land, property rights, and digitization of land records in the neighbourhood, in partnership with USAID, ADB etc. This will help in standardization and transparency vis-a-vis land acquisition eliminating a crucial bottleneck.

As far as trade is concerned, it is important to note that Indian subcontinent by and large shares same comparative advantage- cheap labour and raw materials. Therefore, mismatch in trade complementarity impedes economic integration. To balance it out India needs to aggressively pursue Make in India initiative and transform itself into a manufacturing hub.

Notwithstanding aggressive Chinese penetration India would do well to take a nuanced view and focus on regional integration. Competition and cooperation will be the new norm with neighbours hedging their bet.

Author: Ambassador Anil Trigunayat, Distinguished Fellow at Vivekananda International Foundation, New Delhi. And Paras Ratna, Research Associate at Rashtram School of Public Leadership. 
Editor’s Note: The article reflects the author’s opinion only, and not necessarily the views of the editorial opinion of Belt & Road News.