Is India following a hegemonic economic policy in South Asia?

In human history, a strong economy has always shaped and accompanied political power, and countries have used their financial superiority to establish political domination over others. 

India, where the world’s second-biggest population resides, is full of rich resources spread across its vast swathes of land. 

Although 68 percent of the Indian population live below $2 a day, New Delhi hasn't shied away from exerting its influence in the region, using its economic power to overpower its relatively small neighbours like Nepal and Sri Lanka, according to several experts who last week spoke at a webinar on India’s economic policies across South Asia, organised by Nordic Institute of Stability Studies (NISS), a Copenhagen-based think-tank.

New Delhi is the world’s six-biggest economy in terms of its nominal GDP and the third-largest by purchasing power parity (PPP). 

According to Robert Gallimore, an educationist and security expert, India follows an "imperial policy" to exert its power and influence across South Asia. 

“India is a great power in the region and many of its neighbours are dependent on her,” Gallimore said in the webinar. 

India aims to play a major political role across the Indo-Pacific region, using its economic power and developing partnerships with its neighbours like Nepal, according to Anil Sigdel, founder of Nepal Matters for America, a Washington DC-based think-tank. 

“India was in a historical economic transformation, and its interests seemed to have converged with Nepal’s economic development,” said Sigdel during the same webinar, which was moderated by Muhammad Athar Javed, director-general of the NISS. 

“However, that presumed partnership of development and growth as pledged or expected never took off the ground, and I don’t believe it will,” Sigdel said in the online conference, expressing his disappointment over India’s approach to Nepal. 

Nepal in the crosshairs 

The main reason behind the failed partnership is India’s veiled political interests over Nepal, Sigdel sees. “India’s willingness to partner only goes to the extent that Nepal aligns with India’s economic and strategic interests and goals, which is not an easy task for Nepal – in fact, runs counter to the legitimate and autonomous decision making of a sovereign nation.” 

Even the relationship between Nepal and India can not be described as a partnership because India's "underlying motive is economic subjugation,” according to Sigdel. 

Despite Indian Prime Minister Narendra Modi’s rhetoric regarding his neighbourhood first policy, New Delhi’s relations with Nepal and other neighbours appear to show an India first policy, where Kathmandu can only be “on the losing side”, Sigdel said. 

Other Nepali observers think similarly to Sigdel. Rajani Thapa, a researcher of international relations and diplomacy at Tribhuvan University, Nepal, finds strong similarities between India’s colonisation period under Great Britain, which is called the British Raj, and its current aggressive economic posture toward its neighbours. 

“Like the British Raj, which had conducted economic subjugation and influenced and controlled the political order of India for more than two centuries, the Republic of India has shown a similar attitude toward Nepal, (controlling its economy and politics) since its independence in 1947,” said Thapa in the webinar. “India is like becoming heir of the British Raj.” 

As strong evidence of India’s hardball with Nepal, she reminds the South Asia giant’s economic blockade of 2015 over Nepal due to New Delhi’s dislike of Kathmandu's new constitution. But the Indian pressure over Nepal has backlashed as Kathmandu began approaching toward the West, she added. 

While Modi has visited Nepal several times as India's prime minister and both countries share common cultural traditions, political tensions between the countries have not appeared to yield to a real rapprochement, Thapa viewed. 

“The Indian RAW chief, its army chief, and foreign secretary visited Nepal between October and December 2020 and they indirectly suppressed Nepal through political power and economic subjugation since Nepal depends so much for its exports on India. Still to this day we experience their kindness which is secretly economic subjugation,” she said. 

India is the biggest foreign economic power in Nepal, accounting for more than 30% of the total approved foreign direct investments. There are about 150 Indian ventures operating in Nepal engaged in manufacturing, services (banking, insurance, dry port, education and telecom), power sector and tourism industries, according to Saurav Raj Pant, another researcher of international relations and diplomacy at Tribhuvan University, Nepal.

“India is the sole supplier of energy to Nepal. Indian exports to Nepal are higher than the exports to Russia that mean Indian exports are very much dependent on Nepal,” Sigdel also pointed out.  

Like Nepal, Sri Lanka is also under Indian economic pressure over various issues despite having strong ties with New Delhi, according to Shakthi De Silva, an assistant lecturer of International Relations at University of Colombo, Sri Lanka. 

Various studies point to “the importance of remembering that major powers such as India do not invest in small countries out of some sense of altruism,” Silva said in the webinar. “Whenever we negotiate bilateral agreements, South Asian countries must ensure that our national interest is promoted and that policymakers are in no way the worst to accept bad deals,” he added.  

Can China counterbalance India?

Pant draws attention to another factor, China’s increasing presence in South Asia, as one of the motives of India’s aggressive economic policies toward its neighbours. But the Indian pressure tactics have appeared to increase China’s involvement in the region further. 

“Indian blockade on Nepal in 2015 had forced Nepal to sign an agreement with China securing transit rights for importing goods in 2016. In 2019, Nepal signed a Protocol on Implementing Agreement on Transit and Transport and six other agreements with China,” Pant said, during the webinar. 

Sigdel also sees an increasing Chinese presence in Nepal to counterbalance Indian power. “As a nature of politics, Nepal looks towards China as an option,” he said. 

Despite India’s pressure tactics, Beijing’s increased involvement in South Asia “poses a challenge to India as the regional economic and diplomatic heavyweight”, said Javed, the webinar’s organiser. 

“A lot of South Asian countries are welcoming regional and extra regional great powers in the Indian Ocean region. Despite India's phenomenal economic growth, China's rise and growing hold on South Asia is providing the region with much-needed balance of power,” Javed viewed. 

But small countries in South Asia have been more hesitant to form strong links with China, fearing India’s wrath, he added.  

Javed hopes for a more active role of SAARC (South Asian Association for Regional Cooperation) to ensure regional economic and political stability by increasing dialogue on common issues. 

“Lack of regional cooperation suggests that India's excessively imbalanced economic power and antagonistic interactions with periphery countries have hampered the SAARC's effectiveness. It is just happening due to India’s extensive and coercive economic diplomacy,” he concluded.