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Trade-Centric Reboot Of India’s Neighbourhood Policy

Context
  • The article analyses changing political dynamics in South Asia and argues for a shift in India’s neighbourhood policy towards trade-led engagement.
  • It highlights structural issues in regional trade and emerging geopolitical opportunities for India.
  • Source: India must reboot neighbourhood policy — trade is the key, The Indian Express

Changing Political Landscape In Neighbourhood

  • Bangladesh Transition: BNP under Tarique Rahman with “Bangladesh First” approach enabling pragmatic ties
  • Nepal Shift: rise of Rastriya Swatantra Party and Balendra Shah signalling generational change
  • Sri Lanka Evolution: post-2024 leadership moving toward pragmatic engagement with India
  • Strategic Opportunity: simultaneous transitions create scope for policy reset

Limits Of Existing Neighbourhood Policy

  • Perception Crisis: earlier concerns about India “losing” the neighbourhood
  • Special Relationship Narrative: outdated approach lacking mutual respect and equality
  • Political Resentment: expectation of deference from neighbours generated distrust

Centrality Of Trade In Regional Policy

  • Trade As Core Instrument: economic interdependence as foundation of stable relations
  • Reform Opportunity: India’s recent openness to global trade agreements can extend to neighbourhood
  • Policy Reorientation: shift from rhetoric of cooperation to tangible economic integration

Structural Weaknesses In Regional Trade

  • Protectionist Approach: India’s trade policy marked by non-tariff barriers and restrictive practices
  • Underutilised Geography: proximity advantages not translated into trade gains
  • External Dependence: neighbours export to West and import from China despite geographic closeness to India
  • Infrastructure Gaps: poor border connectivity limiting trade potential

Trade Imbalance And Policy Contradictions

  • China Concern: India worried about trade deficit with China
  • Regional Surplus: India runs trade surpluses with Bangladesh, Nepal, Sri Lanka
  • Market Access Gap: reluctance to open domestic market to neighbours
  • Policy Inconsistency: demands openness globally but restricts regionally

Proposed Trade Strategy For Reboot

  • Increase Imports: encourage imports from neighbours rather than restricting trade
  • Investment Linkages: deepen cross-border investments
  • Trade Facilitation: simplify procedures and reduce barriers
  • Border Infrastructure: modernise connectivity and logistics
  • Rules Of Origin Safeguards: ensure fair trade while preventing misuse

Regional Development And Connectivity

  • Eastern Subcontinent Focus: enhanced India-Bangladesh-Nepal connectivity to boost poorest regions
  • Mutual Gains Approach: trade based on shared benefits, not unilateral generosity
  • Economic Integration: translate cooperation into jobs, exports, and growth

Global Context And Strategic Urgency

  • Fragmenting Global Trade: rise of tariffs, sanctions, and geopolitical competition
  • Export Uncertainty: smaller economies face declining reliability of global markets
  • Regional Logic: Indian market offers scale and proximity advantages

Energy And Economic Cooperation Dimension

  • Gulf Instability Impact: disruptions affecting South Asian economies
  • Hydrocarbon Support: India supplying energy resources to neighbours
  • Regional Energy Security: scope for deeper cooperation with Bangladesh, Bhutan, Nepal, Sri Lanka, Maldives
  • Stability Anchor: economic cooperation can mitigate political volatility

Reframing Neighbourhood Engagement

  • From Patronage To Partnership: shift from hierarchical to equal relationships
  • Sovereignty Respect: acknowledge independent political choices of neighbours
  • Political Ownership: agreements must be mutually beneficial and accepted

Institutional And Policy Approach

  • No Need For SAARC Revival: cooperation possible without new forums
  • Policy Innovation: emphasis on flexibility and pragmatic engagement
  • Institutional Agility: faster and adaptive policy implementation required

India’s Neighbourhood Trade, Connectivity, and Geoeconomic Strategy

Trade Performance with Neighbours

  • Regional Trade Surplus: India maintains a consistent trade surplus with most neighbouring countries, reflecting strong export dominance in the region.
  • Key Export Destinations: Bangladesh and Nepal rank among India’s top 15 global export markets, highlighting the importance of the neighbourhood in India’s trade strategy.
  • Bangladesh Trade Dynamics: Bangladesh remains India’s largest South Asian trading partner, with bilateral trade at approximately $12.91 billion; exports include refined petroleum, cotton, and electricity, while imports are dominated by garments and processed food.
  • Nepal Trade Linkages: India’s exports to Nepal increased in early FY 2025–26, supported by the Raxaul-Birgunj rail corridor, a critical route for Nepal’s third-country transit trade.
  • Sri Lanka Trade Recovery: Trade relations are improving post-economic crisis, with India exporting pharmaceuticals and cereals; ongoing ETCA discussions aim to deepen economic ties.

Connectivity Infrastructure Projects

  • Strategic Objective: India is investing in both “hard” (physical) and “soft” (institutional/digital) infrastructure to bypass the Siliguri Corridor (“Chicken’s Neck”) and integrate the North East with regional markets.

Rail & Road Links

  • Agartala-Akhaura Rail Link: A 15.6 km operational link connecting Tripura to Bangladesh’s railway network, significantly reducing transit time to Kolkata.
  • Alternative North East Corridors: Over 210 km of new rail routes are planned through Bangladesh, including the Balurghat–Hili–Mahendraganj–Tura stretch, enhancing regional connectivity.
  • Integrated Check Posts (ICPs): New ICPs at Dawki (Meghalaya) and Rupaidiha (Uttar Pradesh) provide single-window customs and immigration clearance, improving trade efficiency.

Digital & Energy Connectivity

  • UPI Cross-Border Expansion: UPI is operational in Sri Lanka, Mauritius, and Bhutan (as of early 2026), enabling seamless real-time digital payments.
  • Energy Transit Cooperation: India has signed agreements with Bangladesh for transit of LPG and petroleum products to the North Eastern region.
  • Digital Infrastructure in NE: Over 6,355 Gram Panchayats in the North East have high-speed internet (Dec 2025), strengthening digital trade and connectivity.

Regional Maritime Integration

  • Kolkata Port Role: Functions as a key maritime gateway for landlocked neighbours like Nepal and Bhutan, facilitating their global trade access.
  • Colombo Port Development: India (through Adani Ports) is developing the West Container Terminal (WCT) in Sri Lanka to enhance regional transshipment capacity.

Neighbourhood First Policy

  • Policy Framework: A core pillar of India’s foreign policy since 2014, prioritising engagement with immediate neighbours for regional stability and prosperity.
  • Crisis Response Role: India has acted as a “first responder,” providing over $4 billion assistance to Sri Lanka during the 2022 crisis and supplying food and fuel to Maldives during 2024–25.
  • Strategic Linkage: Closely aligned with the Act East Policy, aiming to connect India’s North East with Southeast Asia.

Geoeconomics

  • Conceptual Framework: Use of economic tools—trade, investment, and financial aid—to achieve geopolitical objectives and expand strategic influence.
  • India’s Approach: Deployment of Lines of Credit (LoC) and development projects in countries like Mauritius and Maldives to strengthen regional partnerships.
  • Strategic Objective: Offering sustainable alternatives to debt-driven financing models through better terms and faster project execution.

Subregional Cooperation (BBIN Initiative)

  • Rationale: Smaller groupings within South Asia to bypass larger regional deadlocks, such as SAARC stagnation, and enable faster implementation of projects.
  • BBIN Framework: Comprising Bangladesh, Bhutan, India, and Nepal, focusing on connectivity, water resource management, and power integration.
  • Motor Vehicles Agreement (MVA): Aims to facilitate seamless cross-border movement of cargo and passengers across member countries.
  • Implementation Challenge: Bhutan’s full participation remains pending due to environmental ratification concerns.

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