India’s Neighbourhood Policy Reset: Trade, Connectivity & Regional Integration

Recent political transitions in Bangladesh, Nepal, and Sri Lanka present India with an opportunity to recalibrate its neighbourhood policy by prioritising trade integration, connectivity, and mutually beneficial economic cooperation.

Shifting Political Landscapes in India’s Neighbourhood

• Bangladesh: The emergence of a new government under Tariq Rahman with a “Bangladesh First” approach presents an opportunity for India to build a pragmatic, interest-based partnership rather than viewing it as a strategic setback.
• Nepal: The rise of a new political generation, including leaders from the Rashtriya Swatantra Party (RSP) and figures like Balendra Shah, signals the need for India to engage Nepal on the basis of equality and respect for sovereignty.
• Sri Lanka: Following the 2024 elections, Sri Lanka’s new leadership has adopted a pragmatic and constructive stance toward India, seeking cooperation beyond past political grievances. 

UPSC Online Courses

Economic Contradictions in India’s Regional Trade Policy

• Protectionism Toward Neighbours: Despite pursuing Free Trade Agreements (FTAs) with major economies like the US, UK, and EU, India maintains relatively protectionist trade practices with neighbouring countries.
• Non-Tariff Barriers: Measures such as extensive paperwork, quality checks, and licensing requirements act as barriers, restricting imports from Bangladesh, Nepal, and Sri Lanka.
• China’s Growing Economic Role: Despite geographic proximity to India, many South Asian neighbours export mainly to Western markets and rely heavily on China for imports.
• Policy Double Standard: While India criticises its trade deficit with China, it simultaneously maintains trade surpluses with smaller neighbours, highlighting the need to expand market access and imports from neighbouring economies to promote balanced regional integration. 

Measures to Strengthen Regional Economic Integration

• Increase Imports from Neighbours: Expand imports from neighbouring countries to give them a greater stake in regional trade and economic interdependence, without reducing India’s exports.
• Promote Investment in Neighbouring Economies: Encourage Indian investments, factories, supply chains, and joint ventures in countries such as Bangladesh, Nepal, and Sri Lanka to deepen economic linkages.
• Modernise Border Infrastructure: Develop efficient border crossings, logistics networks, and trade facilitation mechanisms to support smoother regional commerce.
• Enforce Rules of Origin: Implement strict rules of origin provisions to prevent third-country goods, particularly from China, from entering India through neighbouring countries to bypass trade regulations. 

Global Shift & Energy Security Cooperation

• A World Order Fragmenting: The post–Cold War open global trading system is weakening, with the US and Europe increasingly imposing tariffs and sanctions.
• Impact on Neighbours: Export-driven economies such as Bangladesh, Nepal, and Sri Lanka face heightened risks and require access to a large, stable market—India.
• Gulf Instability: South Asian neighbours depend heavily on the Gulf region for oil and energy.
  • Ongoing conflicts in the Middle East have made energy supply chains fragile.
• India as an Energy Hub: India can act as a regional energy hub, supplying essential hydrocarbons and stabilising the energy security of neighbouring countries such as Bangladesh, Nepal, Sri Lanka, Bhutan, and the Maldives.

Click to Know UPSC OnlyIAS Coaching Centres

Mindset Shift in India’s Neighbourhood Policy

• Old ‘Big Brother’ Approach: India often treated neighbours as junior partners, where assistance was linked to political compliance, reflecting a form of clientelism that generated resentment and movements such as the “India Out” campaign in the Maldives.
• Need for a New Partnership Model: Emerging governments in the neighbourhood seek equal sovereign respect, tangible economic outcomes, and mutual benefit, rather than one-sided political expectations.
• Shift from Patron to Partner: India’s neighbourhood policy must move from a top-down, favour-based approach to an interest-based partnership founded on mutual gains, cooperation, and shared development.
• Gujral Doctrine as Guiding Principle: As the larger power, India should adopt asymmetric responsibilities, extending support to neighbours without expecting immediate reciprocity or political deference, thereby strengthening regional trust and stability. 

Check Out UPSC CSE Books

Visit PW Store

Conclusion

Geography as Destiny: As Atal Bihari Vajpayee famously noted, “You can change your friends but not your neighbours.” While geography is fixed, policy is what determines whether that geography leads to shared prosperity.

DOWNLOAD PDF