India flexes its economic muscle


  • Focus
  • Wednesday, 30 Oct 2024

A shipment of aid from India in Colombo, Sri Lanka, in May 2022. India offered US$4bil in support after Sri Lanka’s economy collapsed. — ©2024 The New York Times Company

AS political turbulence grips South Asia, Prime Minister Narendra Modi’s government is leveraging India’s rapidly growing economy to expand its influence, competing directly with China in the region.

India’s financial strength has enabled it to provide critical aid to its neighbours, from bailing out Sri Lanka to shoring up alliances in Bhutan and the Maldives.

When Sri Lanka plunged into an economic crisis in 2022, India stepped in with over US$4bil in aid, becoming a lifeline for the island nation. This pattern has continued, with India offering increasing financial support to its neighbours.

In Bhutan, a country facing boundary disputes with China, Modi doubled India’s assistance to US$1bil over five years. And more recently, Modi pledged over US$750mil in aid to the Maldives, despite President Mohamed Muizzu’s previous calls to expel a small contingent of Indian military personnel from the archipelago.

“India is a key partner in the socioeconomic and infrastructure development of the Maldives and has stood by us during our times of need,” Muizzu acknowledged.

His remarks signal a significant shift, underscoring India’s growing influence, bolstered by its economic clout.

India’s economy is currently growing at around 7%, a stark contrast to the struggles faced by many of its neighbours and even China, which are still grappling with the effects of the pandemic.

This has enhanced India’s diplomatic leverage, allowing it to provide vital financial aid, while China, hampered by its own economic slowdown, has scaled back its previously robust regional investments.Political and business leaders are increasingly turning to India as a potential partner. Despite frustrations with India’s notoriously slow bureaucracy, its economy is seen as full of untapped potential.

While many poorer Indians have yet to see the benefits of this growth, the government’s increased financial resources have allowed it to wield significant diplomatic influence in the region.

China, by comparison, has been forced to pull back on some regional engagements, a development India is quick to capitalise on.Nirupama Menon Rao, a former Indian foreign secretary, notes the shift in India’s ability to assert itself in South Asia.

“India is able to deploy much more power now in the neighbourhood, and the economic clout is far stronger than it was,” she said. “But the political interests that bind us to the neighbourhood, I think they are constant.”

Even those leaders historically seen as “anti-India” now recognise the importance of aligning with New Delhi for long-term economic benefits, she added.

This new dynamic is evident in Bangladesh, a nation with deep ties to India.

Modi’s government had long been a staunch supporter of Sheikh Hasina, Bangladesh’s prime minister, offering both financial and diplomatic backing.

Hasina’s increasingly authoritarian rule, however, led to widespread protests. Her subsequent ousting in August after a violent crackdown on demonstrators created a new challenge for India.

While Hasina sought refuge in India, the country now faces the delicate task of balancing its past support for her regime with its need to engage the new political leadership in Dhaka.

According to Paul Staniland, a political scientist at the University of Chicago, this is a less critical challenge than it might have been in the past, largely due to India’s strengthened economic position.

“India’s neighbours are certainly interested in autonomy from India and engaging with China,” he explained, “but India is such a massive economic and political presence that all governments have to at least do business with.”

Construction workers near an India-funded housing project in Hulhumale, an artificial island built near Male, the capital of the Maldives, in January 2024. — ©2024 The New York Times CompanyConstruction workers near an India-funded housing project in Hulhumale, an artificial island built near Male, the capital of the Maldives, in January 2024. — ©2024 The New York Times Company

Sri Lanka offers another telling example of India’s evolving approach. After the country’s civil war ended in 2009, China made significant inroads, financing massive infrastructure projects, while India was criticised for its slow-moving, bureaucratic response to opportunities in Colombo.But when Sri Lanka’s economy collapsed in 2022, China was noticeably absent, hesitant to renegotiate its debt arrangements with the island nation.

India, seizing the moment, provided US$4bil in aid, transforming its role from a passive bystander to a vital economic ally.On the political front, India has also adapted. Rather than solely relying on traditional allies, Modi’s government has been pragmatic, warming up to opposition figures like Anura Kumara Dissanayake, leader of a small leftist party in Sri Lanka with a history of anti-India rhetoric.

Rao highlights how this pragmatic shift in India’s diplomacy, combined with its growing financial resources, has enhanced its influence in the region.

“China continues to flex a lot of economic muscle,” she said, “but when it comes to crisis situations, China has not demonstrated the same capacity to be a first responder that India has.”

India’s ability to swiftly provide financial and logistical aid to its neighbours in times of crisis has further cemented its position as a regional power.

As its economic muscle continues to grow, New Delhi is increasingly seen as a stabilising force in South Asia, offering both immediate support and long-term economic partnerships to its neighbours.

While the road ahead may not be without challenges – as seen in Bangladesh and Sri Lanka – India’s new approach, blending economic clout with diplomatic pragmatism, is reshaping its role in the region.For many of its neighbours, aligning with India is no longer just a matter of political expediency; it’s an economic necessity. — ©2024 The New York Times Company

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