India Played Catch-up With China in South Asia in 2022

For years, India has been playing catch-up with China’s unparalleled investment drive in South Asia, where Beijing has poured billions of dollars into strategically critical infrastructure projects. However, political tensions, mutual suspicion, and India’s own lack of resources have stymied New Delhi's efforts to build a more cohesive neighborhood and compete effectively with Beijing's influence.

Yet, in 2022, as China struggled to emerge belatedly from the pandemic, and debt crises abounded across South Asia and elsewhere, India managed to salvage some opportunities.

Nowhere was this more possible than in Sri Lanka. Buffeted by shortfalls in tourism revenue during the pandemic, the war in Ukraine, and sundry policy miscalculations, Sri Lanka declared bankruptcy in 2022 and defaulted on its loans. The protests that followed sent Beijing's close ally, the ruling Rajapaksa clan, out of power. Curiously, China struggled to provide much support, wary that concessions on Sri Lanka's crippling debt might set an unfavorable precedent for its loans to other countries.

India stepped into that vacuum, rapidly pledging some $4 billion in various forms of financial assistance and moving to help restructure Colombo's debt. Talks on the latter are especially vital to Sri Lanka because they could help its government secure a crucial loan from the International Monetary Fund to the tune of almost $3 billion. More importantly, China has remained a tough holdout so far, thereby helping India appear a more reliable partner.

As Sri Lanka hobbles back to normalcy, New Delhi now hopes to build on this momentum by expanding economic ties further. India has stepped up export of various engineering goods and services, initiated talks to secure rights in existing and upcoming ports, and pledged investment in various infrastructure projects.

Similar gains have been attempted in Bangladesh. In the aftermath of India’s controversial Citizenship Amendment Act (CAA) and communal violence against Bangladeshi Hindus in 2021, troubles emerged between New Delhi and Dhaka. These trends are unlikely to abate. In a firebrand speech in November, Giriraj Singh, a leader of India's ruling Hindu nationalist Bharatiya Janata Party (BJP), targeted Muslim voters in the state of Bihar by derisively invoking Bangladesh.

Yet, a desire to balance ties between India and China took Bangladesh’s Prime Minister Sheikh Hasina to New Delhi in September, where seven agreements were signed – ranging from water sharing and capacity building to scientific cooperation and space exploration. There is already a reasonably robust base to build on. In the last five years, bilateral trade between the two countries has doubled from $9 billion to $18 billion, making Bangladesh India’s biggest trade partner in the region and its fourth-largest destination for exports.

Both Bangladesh and Sri Lanka are likely to continue trying to balance ties between India and China heading into 2023. But the one country with which New Delhi continues to have intractable problems is Pakistan.

Despite a change of guard in Islamabad – with the ouster of former Prime Minister Imran Khan and the advent of a new chief of army staff – India and Pakistan have struggled to get past New Delhi’s revocation of Kashmir’s autonomy in 2019. Shortly after taking office in November, Pakistan’s new army chief, General Asim Munir, said that his armed forces are “ever ready, not only to defend every inch of our motherland, but to take the fight back to the enemy, if ever, war is imposed on us.”

Munir was himself only responding to jingoistic statements from multiple BJP leaders and senior Indian officials. In September, while Hasina was on her visit to India, the chief minister of Assam, Himanta Biswa Sarma, said, “Try to integrate Pakistan, Bangladesh and strive to create Akhand Bharat [undivided India].” The following month, Indian Defense Minister Rajnath Singh said that India was committed to “retrieving Kashmir under illegal occupation of Pakistan.”

Ties are unlikely to improve any time soon as India doubles down on Hindu nationalist causes and Pakistan responds to them. Yet, despite the bluster, the two countries are likely to avoid fighting on the border, owing to Pakistan’s preoccupation with domestic political strife and economic distress and India’s preoccupation with the border with China.

Tensions may also thaw in Afghanistan, as New Delhi makes peace with the apparent inevitability of continued Taliban rule. Despite its initial misgivings, India has begun reaching out to the Taliban regime in more recent times. New Delhi held its first talks with the Taliban in June; it also resumed basic operations in the Indian embassy in Kabul.

For their part, the Taliban have been keen to find common ground with New Delhi in an effort to restart Afghanistan’s moribund economy and slowly gain international legitimacy for their government. In early December, the Taliban’s Head of Political Office, Suhail Shaheen, said that “Afghanistan is open for Indian investment, including urban infrastructure.” Shaheen also stated that various investment projects had been discussed in a recent meeting between the Taliban’s Minister of Urban Development and India’s Charge d’Affaires in Kabul.

In a further effort to court New Delhi, the Taliban’s foreign ministry also declared that it was “ready to provide all necessary protection and facilities” for the operation of the strategic Chabahar port in Iran – a major project long promoted by India.

Heightened collaboration between India and the Taliban regime is unlikely to be popular with either Pakistan or Hindu nationalists in India. Yet, in the absence of alternative options, New Delhi might be tempted to gradually ramp up cooperation with the Taliban, especially with a view to countering China’s long-term presence.

That, in fact, is likely to be a recurring theme in India’s policy approach to much of South Asia in 2023: to find a way to work with difficult partners in a bid to counter China’s presence and influence.

Yet, despite Beijing’s sundry challenges – including unprecedented protests against President Xi Jinping and a tentative rollback of pandemic restrictions – New Delhi is unlikely to compete successfully in the long term unless it can find a way to build up its economic resources.