Modi betting on South Asia

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.

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