Political rivalry, distrust and discontent between neighbours are not exclusive to any region. However, it is common knowledge that such factors are of extra significance to the Indian neighbourhood.
Over the last decade, India was visibly active to bridge this gap with smaller neighbours through its development cooperation initiatives. The aim was to improve connectivity and facilitate trade and investments as a cushion against political instability.
The initiatives paid. Between 2010 and 2019, the share of South Asia in Indian exports increased from five to seven per cent. The share of imports increased from 0.6 to 0.8 per cent. While China walked away with a greater share of the export opportunity in the region, India was a preferred export destination for South Asia minus Pakistan.
The drive to free regional economic agendas from the stranglehold of India-Pakistan relations and give special focus on three eastern neighbours – Bhutan, Bangladesh and Nepal – also made an impact. As of March 2020, these three countries together contributed five per cent of Indian exports and 0.5 per cent of imports.
Economic, political realities are not static, and India is now facing a variety of fresh challenges, which, if not mitigated, might see an erosion in the country’s clout in the region. China factor remaining constant; the pandemic and the recent pull out of the United States from Afghanistan are on the top of this list.
Leaving aside the possible washout of India’s investments in public infrastructure in Afghanistan and the $1.3 billion Indo-Afghan trade (2020-21), the rise of the Taliban is primarily a security concern. Going by the past trends, it might fuel Islamic fundamentalism across the subcontinent.
In comparison, Covid is a bigger problem as it had wreaked havoc on regional economies and has every potential to create fresh regional instability.
Ban on vaccine exports
From the Indian context, there are a few primary concerns.
First, the ban on vaccine exports has created unprecedented bad blood in the neighbouring economies, so much so that even the most ardent supporters of India have become its detractors and for a reason.
The ban, imposed by India in mid-April, goes against the “Neighbourhood First” policy of the Narendra Modi government and directly impacted roughly 1.5 million Bangladeshis, who were awaiting the second shot of Covishield or AstraZeneca vaccine.
In November 2020, Bangladesh entered a contract with licensee manufacturer Serum Institute of India (SII) for delivery of five million doses a month, on an advance payment basis, for the January-June period. They got a total of seven million doses, including a gift of two million doses from India.
The situation is worse in Nepal, which shares an open border with India. In January, Nepal received a gift of one million doses from India. Kathmandu was quick to jab its people with the first dose and entered a contract with SII for another million doses, which never arrived. Meanwhile, the country suffered a terrible second wave of infections.
The neighbourhood is now living on vaccines donated by the US, Japan (through Covax) and is entering costly vaccine deals with China. India earned huge equity for standing by the neighbours during the first wave. The second wave left it with a sorry face.
It is time for Delhi to resume supplies to neighbours to stop further erosion in trust and confidence, which is the cornerstone of business.
Neighbours in trouble
The next big task pending is helping neighbours to minimise the socio-economic impact of Covid. The pandemic has impacted all, and everyone is looking inwards; India is no exception to that. And, that leaves smaller countries like Nepal or Bangladesh in the lurch.
The startling growth numbers presented by Dhaka notwithstanding, there are concerns over the status of the Bangladeshi economy.
Business financials are hard to find in Dhaka. Unofficial sources suggest construction material (steel rods, cement etc.) manufacturers are suffering from low volume sales and low margin.
In contrast, India’s cement and steel industry ended 2020-21 with volume growth and price rise. Over and above its impact on GDP, which is significant for Bangladesh, construction is a major employment churner.
Centre for Monitoring Indian Economy (CMIE) puts the aggregate profit after tax (PAT) margin of nearly 4,500 listed Indian companies (all sectors) at 8-9 per cent between September 2020 and March 2021 quarter. June margins are above 14 per cent.
According to the Bangladesh government, Covid has pushed an additional 9 per cent of the population below the poverty line. According to the Dhaka-based South Asian Network of Economic Modelling (SANEM), the ratio of poor doubled from 20 per cent to 40 per cent.
The economic desperation was exposed by a recent fire at a food factory in Dhaka, killing 52. A good number of the dead were minors, which was unheard of in Bangladesh’s organised sector in the recent past.
Remittances contribute nearly 6 per cent of Bangladesh’s GDP. While cash-inflow grew by 18 per cent in 2020, the outflow of labours became less than half in 2020 and 2021 (up to May) compared to 2019.
The concern is if it will increase to the earlier levels, once travel restrictions are withdrawn. The concern is way bigger for Nepal, where personally remittances contribute nearly a quarter (24 per cent) of the GDP, and growth suffered for two decades due to political instability.
Covid has impacted the global money trail. The full impact of the destruction will be clear once the pandemic subsides. The fear is it might open too many gaping holes in the smaller economies.
Any student of the neighbourhood studies will know government and corporates have a limited role behind the recent prosperity of Bangladesh and Nepal.
Leaving aside, hard-working cheap labour force who live with a dream to migrate overseas; non-governmental organisations (NGO) and army (for Bangladesh) are major facilitators of growth through their sprawling business operations.
Given their large population, any disruption in the chain may have a huge impact, to be felt in India. The concerns are particularly deep for Bangladesh, where politics is in a crunch situation.
Bangladesh Prime Minister, Sheikh Hasina’s Awami League, came back to power in a highly compromised election in 2018 and broke the back of the principal Opposition Bangladesh Nationalist Party (BNP). The void is now filled by hardline Islamists. This, coupled with the rise of the Taliban; the increasing influence of China, with Pakistan piggybacking it, are adding to the uncertainty.
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