Modi betting on South Asia

Foreign policy expert Leslie Gelb argued in 2010 that "gross domestic product now matters more than force".

Early indications from India's new government suggest Prime Minister Narendra Modi agrees.

The Bharatiya Janata Party's decisive win in India's national elections has infused new energy and spirit into discussions of India's future - especially economic. As many have noted, Mr Modi's priorities appear focused foremost on a pragmatic growth strategy to get the Indian economy back on track.

To achieve that, he has indicated that international economics will acquire greater prominence in Indian foreign policy. A muscular foreign policy, Mr Modi seems to have concluded, can only follow when economic strength can be translated into political and military muscle.

Thus, contrary to earlier speculation about his Look East policy, he has been looking at the neighbourhood to strengthen India's economy and by the same token, reduce China's appeal to these countries.

Potential in South Asia

MR MODI has already surprised the world with his unprecedented inauguration outreach to all seven heads of government from the South Asian Association of Regional Cooperation (Saarc) countries, plus the Mauritius Indian Ocean neighbourhood.

Within South Asia, economics plays an enormous role in some of New Delhi's most important relationships - the border with Nepal is fully open; India has a free trade agreement in place with Sri Lanka and an agreement with Maldives; and three years ago, India offered duty-free trade concessions to all Saarc's least-developed countries like Afghanistan, Bangladesh, Nepal and Bhutan.

Cementing strong economic ties among the Saarc countries has a ways to go - regional trade is under 2 per cent of regional GDP, contrasted with East Asia's 20 per cent - and the Modi government now has the chance to double down on the effort.

Curbing China's influence

GIVEN that over the years, New Delhi's rival Beijing has developed close economic ties with India's neighbours - becoming an increasingly important foreign investor as well as provider of infrastructure loans to countries across South Asia - building closer integration with these countries serves as a geopolitical objective.

So it is fitting, albeit unexpected, that his first visit abroad would be to Bhutan, as the government of India just announced.

Bhutan has a particularly close relationship with India, relying on New Delhi exclusively until recently for foreign policy guidance and defence. India is overwhelmingly Bhutan's major trading partner, especially for electricity generated from hydropower resources. India has assisted with three completed hydropower projects, 10 more are under agreement, and three of those are currently under construction. India and Bhutan have a trade and commerce agreement dating back to 1972, renewed for another 10 years in 2006, and India is also Bhutan's leading development partner.

Of course, India is also closely watching China's border talks with Bhutan and Beijing's recent efforts to establish stronger ties with Thimphu.

Nepal, the current host of the Saarc meeting slated for November, has similar potential to benefit from India's large market and Nepal's own hydropower potential - something long discussed but unrealised due to about a decade of political instability.

Now that Nepal has a government in place after a year and a half of drift, it can more proactively pursue its ties with India, and press reports indicate that Mr Modi has signalled readiness to visit Nepal in November. With the Nepali Congress back in power in Kathmandu, relations with New Delhi should be smoother than during periods of Maoist rule - and it is certainly the case that the Modi government will see strong cultural linkages with Nepal, a Hindu kingdom until 2006 and now a majority-Hindu democratic republic.

As with Bhutan, India is Nepal's largest trading partner, source of transit and source of investment.

Looking to the east, trade and regional connectivity with Bangladesh - a country of 155 million people - promise some of the greatest rewards should the Modi government surmount domestic objections that have delayed realisation of a river-water sharing agreement across West Bengal and Bangladesh, and the finalisation of land borders that would at last regularise the patchy enclaves that demarcate the border.

Strengthening ties with Bangladesh would help Dhaka in fighting Islamist extremism, which threatens India and would curb China's appeal.

The most enticing opening would be stronger infrastructure connectivity to help link India's north-eastern states through Bangladesh and to develop more intensive linkages. Only about 20km remain without rail linkages, and an agreement signed last year between both countries should result in tracks laid from Agartala in Tripura, India, to Akhaura in Bangladesh.

That link, coupled with the existing rail line between Dhaka and Kolkata - the Maitree Express - would substantially increase the ability for India to have transshipment access to its north-east along major routes - access now is through a tiny swathe of land called the "chicken neck" - and would develop regional economic connectivity throughout the Indo-Pacific Economic Corridor.

Pakistan the big challenge

IT IS in Pakistan where Mr Modi faces the greatest challenges with a trade-led regional policy but one that could deliver huge regional transformation if realised.

Trade has been at the leading edge of India-Pakistan normalisation but the ball is in Pakistan's court at this point, to reciprocate and offer India "non-discriminatory market access", otherwise known as "most favoured nation" status under World Trade Organisation rules, which India accorded to Pakistan in 1996.

Estimates of trade volume that could result from Indo-Pakistan trade normalisation run as high as US$40 billion (S$50 billion), up from US$3 billion.

Should India and Pakistan finally overcome their barriers to trade, Pakistan could truly serve as a trade corridor linking Afghanistan and Central Asia to India's huge market and vice versa - part of the New Silk Road vision better linking Afghanistan to its region.

At present, and even through non-contiguous access provided via Iran, India is the fifth-largest bilateral donor to Afghanistan. Its private companies have invested in mining consortia, led trade delegations, and provided infrastructure support as well as connectivity among regional chambers of commerce. With eased trade between India and Pakistan, and transit access linking India to Afghanistan via the Pakistan land route, increased economic opportunities could result for all.

The Modi doctrine will soon fully reveal itself. Advance speculation about Mr Modi's regional priorities had conjectured he would prioritise East Asia - particularly Japan and China, which he had visited as Gujarat chief minister - among his first foreign visits. Instead, he's first looking to consolidate India's ties throughout South Asia.

It's a strategic bet. The World Bank has called South Asia one of the "least integrated" regions of the world. But that just means there's everything to gain.

The writer is senior fellow for India, Pakistan and South Asia at the Council on Foreign Relations, based in Washington. Copyright: The Whitney and Betty MacMillan Centre for International and Area Studies at Yale.

This article was first published on June 13, 2014.
Get a copy of The Straits Times or go to straitstimes.com for more stories.