Mint Explainer: India’s diplomatic, trade challenges in a stormy neighbourhood

Following the turmoil in Bangladesh, India needs to adopt a multifaceted diplomatic approach to balance its strategic interests while promoting regional stability and cooperation with its other neighbours, including Bhutan, Nepal, Sri Lanka, and Myanmar.

The reasons for India’s strained relations with some of these countries in the past decade go beyond regional concerns or disputes, including economic disagreements, diplomatic missteps, and even non-regional factors.

Trade is a vital contributor to the strained relations. Several of these neighbours import daily essentials such as wheat, rice, fruits and vegetables, and electronic products from India. 

India has a surplus trade balance with all these countries. But if the relations worsen or remain strained for long, trade may be affected, say analysts.

Mint explores the potential impact of regional instability on not just India’s trade but also internal security.

What are the immediate challenges for India?

Let’s begin with the political crisis and civil unrest in Bangladesh, with which India shares a 4,096 km border, its longest with any of its neighbours. Although Bangladesh has announced an interim government headed by Nobel Laureate Muhammad Yunus, the riots haven’t abated.

If the situation continues, India may face the challenge of illegal migration from Bangladesh. As a developing nation and the most advanced among its neighbours, India might be able to create resources for such migrants. But it will be a significant challenge to identify antisocial elements who may enter in large numbers under the guise of migrants.

Also read | Look east: New threats from the Bangladesh coup

In its report on ‘India’s Neighbourhood First Policy’, the Union government’s Standing Committee on External Affairs has stressed the need for improved security infrastructure at India’s borders to address the challenges of illegal migration and smuggling of weapons and drugs into the country. 

The committee submitted its report in Parliament in July 2023.

What is India’s Neighbourhood First Policy?

India’s Neighbourhood First Policy is a strategic initiative aimed at enhancing relations with its immediate neighbours, including Bangladesh, Bhutan, Myanmar, Nepal, Pakistan, and Sri Lanka, as well as Afghanistan and Maldives. The policy doesn’t include China.

This policy was formally articulated shortly after Indian Prime Minister Narendra Modi took office two months earlier for a third successive term. It underscores India’s commitment to being a proactive regional partner, striving for a stable, prosperous, and interconnected South Asia.

The policy emphasises improving political, economic, and cultural ties to foster regional stability and economic integration. Key elements include enhancing trade and investment through bilateral agreements, collaborating on security matters to combat terrorism and cross-border crimes, and providing development assistance and humanitarian aid.

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It also promotes people-to-people contacts through cultural exchanges, tourism, and educational ties, while facilitating easier visa processes and improving connectivity through infrastructure projects like roads, railways, and ports.

Initiatives such as the India-Myanmar-Thailand Trilateral Highway and the Bangladesh-Bhutan-India-Nepal initiative aim to enhance regional connectivity.

Energy cooperation is also a focus, with joint projects in renewable energy and hydropower.

But key challenges in ensuring the effectiveness of the policy include managing complex geopolitical tensions with Pakistan and China, and ensuring that India’s actions are perceived as mutually beneficial.

What’s the trade situation with India’s neighbours?

India’s trade with its seven immediate neighbours under the South Asian Free Trade Area (SAFTA) in 2023-24 presents a mixed yet insightful picture. India’s exports to these countries declined significantly from $28.03 billion in 2022-23 to $25.62 billion in 2023-24.

Imports also decreased, from $5.45 billion in FY2023 to $5.17 billion in FY2024.

The total trade value, combining both exports and imports, fell from $33.47 billion in FY2023 to $30.79 billion in FY2024. India’s trade surplus reduced from $22.58 billion to $20.45 billion.

Addressing trade barriers, strengthening bilateral relations, and enhancing competitive advantages are thus crucial to reversing the contraction in overall trade.

What other neighbourly challenges does India face?

After the Taliban’s takeover of Afghanistan in August 2021, India has had to adopt a more cautious approach in its dealings with that government, which was not the case earlier. 

Also, Nepal, traditionally a close associate of India, has recently voiced strong objections regarding several disputed areas, including Kalapani, Lipulekh, and Limpiyadhura. Despite ongoing discussions through diplomatic channels, Nepal has claimed these territories as its own, leading to heightened tensions between the two countries.

Also read | Why India continues to aid Afghanistan despite Taliban rule

Another major worry is Bhutan’s approach to engaging China in settling its border disputes, which will have significant implications for regional security.

The geopolitical landscape of South Asia should not be viewed solely through the lens of the neighbouring countries’ internal political crises. It must also be considered in the light of India’s significantly enhanced global status in recent years.

The change in dynamics should also be seen from the perspective of India being consulted on many major world issues, as the global perception of India as a consequential power has grown. This is due to India’s astute and cautious foreign policy, its burgeoning economy, and its role in balancing power in Asia, particularly in relation to China.

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