Love-Hate Relations: India and its Neighbors

In the face of rivals China and Pakistan, India must play the role of ‘mother’ to her smaller neighbors — even if her ‘sons’ are troublesome.

Northern India and neighboring countries with disputed borders shown overlapping.

Two broad trends have developed in the last decade as India has sought to strengthen its relationships with neighbors and back up the initiative with fast-changing international policies.

One trend is that with its growing economic clout, India is spending internationally to assist with mutually beneficial projects and is thus investing in global development. The other is that this clout and India’s rising profile are raising tensions and rivalries with the larger neighbors China and Pakistan.

The world is taking note of India on both these counts.

The twin objectives behind these trends are to gain a prospective permanent place in the United Nations Security Council and to emerge as a regional leader. The former is stated; the latter is not. Also unstated—but obvious enough—is the need to carry its neighbors along if both or either of these objectives are to be achieved.

India’s ability and willingness to spend has helped, but the results are uneven and slow.

India did not have the resources to spare in the last century, and it did not clearly see smaller neighbors as potential allies or economic partners. They were only meant to be ‘assisted’ or ‘helped’. An attachment to its local allies was rarely expressed, and when it was, it did not meet similar sentiments.

Never before would India have spent over $2 billion in Afghanistan, given credit to the tune of $1 billion to Bangladesh, or pledged another $100 million to Myanmar.

On becoming chair of the South Asian Association for Regional Cooperation (SAARC) in April 2007, India announced duty-free imports from all Least Developed Countries (LDCs) in its area. The beneficiaries include Nepal, Bhutan, and Bangladesh, but not Pakistan and Sri Lanka who are not LDCs.

During the SAARC Summit at the Maldives, on November 10, 2011, Indian Prime Minister Manmohan Singh rooted for greater economic integration and connectivity in South Asia. He announced the reduction of the ‘sensitive list’ of taxed imports from least-developed countries under the South Asian Free Trade Area Agreement (SAFTA). It would be reduced from the existing 480 tariff lines to 25 tariff lines.

Singh said India would immediately give zero basic customs duty access to all items removed from the list.

Bilateral trade with its South Asian neighbors rose more than a third in 2010-11 over the previous year to nearly $16 billion. Trade with Bangladesh alone has almost doubled to more than $4 billion over the same period.

To fuel this growth, India is building a web of ports, highways and railways that will help it to integrate better with the markets of the sub-continent.

In addition, India is busy working out a handsome package for Sri Lanka to assist in the rehabilitation of the Tamil populace in the strife-torn North and North-Eastern regions of the island nation. Although a difficult situation, it is matter of good diplomacy and managing domestic politics.


Bhutan is the basis for a number of projects undertaken by the Government of India and both public and private Indian enterprises. India buys the surplus power that Bhutan produces with Indian help, and India has pumped millions by way of developmental aid and assistance into Bhutan over the past half-century.

Overall—and quite surprisingly—it is tiny Bhutan that takes the biggest portion of Indian financial assistance to other countries. In the fiscal year 2010-11, India’s assistance to Bhutan including loans and aids amounted to roughly $3.3 billion.
India has even revised an old treaty to make the neighbor more comfortable. On February 8, 2007, the India-Bhutan Friendship Treaty, signed originally during the British era in 1865, was substantially revised, and Article 2 in the 1949 treaty, which the Bhutanese were uncomfortable with, was amended.

Earlier, Article 2 of the 1949 treaty read: “The Government of India undertakes to exercise no interference in the internal administration of Bhutan. On its part the Government of Bhutan agrees to be guided by the advice of the Government of India in regard to its external relations.”

In the revised treaty, this reads as, “In keeping with the abiding ties of close friendship and cooperation between Bhutan and India, the Government of the Kingdom of Bhutan and the Government of the Republic of India shall cooperate closely with each other on issues relating to their national interests. Neither government shall allow the use of its territory for activities harmful to the national security and interest of the other.”
The wording now pays more respect to Bhutanese sovereignty and paves the way for Bhutan to advise India on some matters.

Contributing financially, India has aided Bhutan in commissioning three major hydroelectric projects. These are the Chukha Project (336 MW), the Kurichhu Project (60 MW) and the Tala Project (1020 MW). The fourth and the biggest hydel power project, Punatsangchhu (1200 MW), is currently under construction.

India is also helping Bhutan develop a knowledge-based economy by way of a contribution the equivalent of $40 million. The ‘Total Solutions Project’ will provide access to technology and ICT solutions to a significant proportion of Bhutan’s population over the next five years. The project envisages training and establishing ICT enabled schools, computer labs, and computer stations in rural Bhutan.


Afghanistan, though not technically a neighbor, is the second largest recipient of India’s assistance with the equivalent of $600 million for the fiscal year 2010-11.

In Afghanistan, India is looking beyond the Silk Route. The transit trade agreement between Islamabad and Kabul will open the land route for the movement of goods through the Wagah border, and New Delhi is likely to ask Islamabad to provide transit facility for its goods.

Apart from the land route, alternative trade channels are being worked out by New Delhi to strengthen economic relations between the two countries. India is looking at developing ports, rail lines, and roads to boost trade relations after gaining the confidence of the people of Afghanistan by setting up hospitals and other facilities.

India and Afghanistan have reached a pact on strategic and economic co-operation, including the exploration of untapped mineral wealth in the war ravaged nation.

New Delhi plans to construct a 900-km railway line that will connect Chabahar port in Iran to the mineral-rich Hajigak region of Afghanistan. It will reduce Afghanistan’s dependence on Pakistan by gaining further access to sea, and it will open up opportunities for Indian companies to explore Afghanistan’s mineral wealth, believed to be worth $1-3 trillion.

U.S. geologists and government officials estimated last year that Afghanistan was sitting on unexploited mineral reserves such as copper, iron ore, lithium, gold and cobalt worth over $1 trillion. Gaining access to the unexplored minerals would boost both the Afghani and Indian economy.

“Afghanistan’s economic integration with the Indian economy and South Asia as a whole is in the national interest of the people of Afghanistan, and one of the ways to achieve this is to promote closer trade, investment, and transit links,” Prime Minister Manmohan Singh has said.


Nepal has long counted India as its largest trade partner and greatest source of foreign investment and tourists. According to figures for the Nepalese fiscal year ending July 15, 2009, bilateral trade with India accounted for 58.22% of Nepalese total external trade. India also remains Nepal’s largest source of foreign investment, accounting for 43.17% of the total foreign investments in Nepal.

India continues to invest in Nepal even faced with new criticism. While the Nepalese monarchy was mute in its opinion of the Indo-Nepal Treaty of Peace and Friendship of 1950, the newly empowered Maoists have been more vocal in demanding scrapping or at least reviewing the treaty.

In essence, it is a bilateral treaty establishing a close strategic relationship between the two South Asian neighbors. The treaty was signed on July 31, 1950 by the then-Prime Minister of Nepal Mohan Shamsher Jang Bahadur Rana and Indian ambassador to Nepal, Chadreshwar Narayan Singh.

The treaty allows for the free movement of people and goods between the two nations and a close relationship and collaboration on matters of defence and foreign affairs. While India values the treaty for deflecting the influence of its regional competitor China, the treaty has been unpopular with many in Nepal who often regard it as a breach of their sovereignty.

Upon forming a coalition government after the 2008 Nepalese Constituent Assembly election, the leader of the Communist Party of Nepal (Maoist) Pushpa Kamal Dahal Prachanda said on April 24, 2008 that the 1950 treaty would be scrapped and a new pact would be negotiated with India. The announcement signaled Nepal’s willingness to review the treaty.

Nepal has since been embroiled in internal issues seriously touching on its polity (see page 40), and there has since been no serious move by either Kathmandu or New Delhi to reopen the treaty.

India’s cooperation so far has risen mainly from Nepal’s heavy economic dependence on India, and New Delhi wants to keep Beijing’s influence away from Kathmandu as much as possible. India and Nepal have continued to cooperate despite the political controversy it generates in the Himalayan nation.

The grant assistance extended to Nepal during 2008-09 under the ‘Aid to Nepal’ budget was roughly the equivalent of $30 million. In addition, the Indian government has extended considerable economic assistance to the ongoing peace process in Nepal.

The Small Development Projects scheme offered by India delivers development assistance at the grass-roots level in sectors identified with the local population. It now covers over 335 projects with an outlay of approximately $37 million.

India and Nepal signed a revised trade treaty in October 2009 that allows Nepal greater access to the Indian market. India and Nepal also have a treaty of transit, which confers transit rights through each other’s territory on mutually agreed routes and modalities. The treaty was last renewed for seven years in March 2006.


To Bangladesh, India has pledged to accept imports of eight million pieces of apparel duty-free. This is despite the fact that both nations compete in the garmet market.

For Bangladesh, there is another game changer—hooking on to India’s electricity grid. This will give it access to electricity generated not only in India but also in Bhutan and Nepal.

India is also working to provide land access between Bangladesh and India’s other neighbors Nepal and Bhutan. The goal is to facilitate movement of goods for trade and to enable land-locked Nepal and Bhutan to access the Bangladeshi ports of Chittagong and Mangla.

India’s own access to the two ports and to its isolated northeastern region was, however, prevented by Bangladesh, which was unhappy with India’s failure to sign the much-awaited agreement on the sharing of Teesta river waters.

The agreement was blocked in the end by Indian West Bengal Chief Minister Mamta Banerjee who was widely perceived as giving her domestic political compulsions, vis-a-vis her Marxist opponents, priority over the country’s bilateral relations with a key neighbor.

The issue was unfortunately mishandled by Indian officials, and this failure cast a shadow over the Indian Prime Minister’s much-prepared visit to Bangladesh. A major opportunity was lost by India to cement good relations with its neighbor.


Conflicts have existed since the border was first drawn between the Pakistan and India in 1947, and their trade has since dwindled because of adversity and remnant hostility, but new economic agreements between the countries might change that.

At the time of India and Pakistan’s independence, trade relations were very strong—70 per cent of Pakistan’s trade was with India, and New Delhi exported 63 per cent of its goods to Islamabad. It came to less than one percent in 2010-11.

In addition to direct trade, $1.5 billion, nearly the same amount, is traded indirectly every year between India and Pakistan. As it stands now, both are losing revenue because this amount is being routed through third countries, such as the

United Arab Emirates. The consignment goes first from Delhi to Dubai, Dubai to Karachi, and from Karachi to different cities in Pakistan, and it adds to a lot to the cost of trade.

There are concerns that a re-opening of trade between the two could flood Pakistan’s markets with Indian goods and affect their domestic industry. Nisha Taneja, a trade analyst with the Indian Council for Research on International Economic Relations, reports that this fact is a misnomer, saying “China is the biggest trading partner of Pakistan, and New Delhi would have to be competitive to get its market share.”

Either way, trade might be revitalized between the two with a preferential trade agreement, which would provide lower duties and spur greater economic activity in both countries.

With this in mind, Pakistan has granted India the title of Most Favored Nation (MFN), actually restoring something that was lost in the wake of the 1965 war. While India has welcomed the initiative, Pakistan is divided on the issue.

Pakistan has in the past been wary of a gradual approach to peace-making, fearing India would try to ‘normalize’ ties while maintaining its position on the disputed region of Kashmir. The government in Pakistan holds the Kashmir issue to be a priority in Indian-Pakistani relations. Hence the Indian government has conveyed in recent meetings that it is ready to discuss all issues, including Kashmir.

Basing optimism on the need for economy to take precedence over politics, sections of the Indian media are excited. Business Standard called the trade talks “a game-changer”.  Mint newspaper noted that bilateral trade with Pakistan now amounts to only $2 billion, compared to India’s global trade of about $600 billion. It quoted Biswajit Dhar, head of Delhi-based think tank Research and Information System for Developing Countries (RIS), as saying that, “if trade relations improve, there will be movement on the political level because a constituency for peace will be created for better ties.”

The media agrees. On November 26, 2011, of The Indian Express reported that “this has been an historic year for India’s changing trade relations with two of its important South Asian neighbors — Bangladesh and Pakistan. The idea that economic gains through freer trade could serve as a powerful means for conflict resolution appears to be finally finding full acceptance by all three countries.”

Underscoring the importance of bilateral trade last year, India helped Pakistan with sugar, and Pakistan both imported and then exported Indian onions. Yet there is no investment promotion and protection treaty between the two countries. Unless those protocols are in place, long-term trade is not possible.

So, the overall picture is not very positive when it comes to economic ties as a whole between India and Pakistan. The bottom line is that the businessmen have got to be enthused.

Even with policy changes in sight, India and Pakistan are some distance away from investments actually crossing their border given that companies would be worried about a reversal of policy. But in case of trade, Pakistan can show the way and it has been suggested in the Hans India newspaper that India can reciprocate through easier visa norms.

By contrast, it is noteworthy to compare the $2 billion annual Indo-Pak trade with the trade India has with China. India-China trade hit $60 billion this year. The leaders have set a target of $100 billion by 2015.

This is despite the uneasy relationship that the two have—what with an unresolved border dispute, China’s growing brinkmanship over a myriad issues ranging from Dalai Lama’s presence in India to claims over several parts of North-Western and North-Eastern India, and its protests over India’s presence in South China Sea to explore oil and gas off the Vietnamese shores. (See page 20 for an analysis into China’s military policies in the Indian Ocean and South China Sea.)


In a difficult neighborhood historically and geographically, India occupies a strategic position in the sub-continent. It shares borders with nine neighbors, and adding to complications, none of India’s neighbors have a common border other than Myanmar and China. India is also centrally located in the Indian Ocean, placed in the midst of much of the seafaring.

Since its independence, India has lived amidst a hostile geo-political environment caused by historical grudges and by the asymmetry of its size since it is the largest, the most populous and most endowed in terms of resources. In India’s situation, it would be apt to start on the age-old premise that one can choose friends, but not neighbors.

In the West, Pakistan gained independence in adversity to India and the two remains congenitally hostile. In the North, geopolitical rivalries have developed with China almost since the latter’s birth in 1949—despite the fact that India supported the rise of independent China and, subsequently, its permanent membership on the UN Security Council.

Many smaller nations share the area. South lie Sri Lanka and the Maldives; in the East, it is Bangladesh, Nepal, and Myanmar. These small states have by and large played favorites in Sino-Indian relations. To a certain extent, each has turned back and forth between the competing Asian super powers based on which had the most to offer.

Nearby Nepal was beset with internal political struggle for the past decade. Only Bhutan has remained at peace with India and with itself.

Sri Lanka has a serious problem of its own with no end in sight to the ethnic strife among the majority Sinhalas and the minority Tamils. India’s soft approach emboldened Sri Lanka to launch military offensives to crush the Liberation Tigers for Tamil Eelam (LTTE).

India virtually conceded to this civil war.  The long-lived conflict in Sri Lanka left around 300,000 internally displaced persons (IDP) living in camps in the north of the island nation, and it devastated infrastructure in the affected areas.

International reaction was one of shock and dismay to the Indian television documentary entitled “Sri Lanka’s Killing Fields”. But India’s External Affairs Minister S M Krishna said only: “A just and fair settlement of the political problem is of utmost importance. I have stressed the need for an early withdrawal of emergency regulations, [for] investigations into allegations of human rights violations, [for] restoration of normalcy in affected areas, and [for] redress of humanitarian concerns of affected families.”

In Nepal, there is no let-up in attacks on Prime Minister Baburam Bhattarai from his detractors even within his own United Communist Party of Nepal due to ideology and his steady rise to national prominence.


China’s relations with India pose the biggest challenge to the nation. Dealing with a difficult, stronger neighbor that has dared the world powers, forcing them to engage it, has not been easy.

India suffers comparisons and comes out poorly on most counts—not just among the world community that believes in might is right, but also among critical, almost self-deprecating, critics at home.
China’s dogged alliance with Pakistan on the military front—though the economic involvement is modest— remains a serious irritant for India. It finds frustrating Pakistan’s greater successes at making missiles and nuclear weapons, all with the clandestine and spurious help of not just China but North Korea.

The Chinese refusal to even take note of Pakistan’s role in fomenting terrorism in South Asia and exporting it to other regions—despite the fact that even the Uighour Muslims fighting Beijing are trained in Pakistan—frustrates India. The Indian intelligentsia is divided between hawks and moderates on China. This makes their policies less coherent. India is unable to decide whether and how to confront China. The western nations’ subtle overtures to co-opt India into their plans to counter China—while doing business with it—complicate the Indian approach further.

The People’s Daily in China has observed that nations with an “envious, jealous, and hateful attitude toward China” have been singled out to bear the responsibility of any potential “changes in the international and regional security landscape that shall negatively impact upon China.” It states that these actions “will benefit one country: India.”

At the East Asia Summit last year, these Sino-Indian relations came up regarding the South China Sea. Reminiscent of the 1960s to 1980s, China has begun to oppose India openly while keeping up the façade of moderation at a bilateral level, but even this was shed at the East Asia Summit at Bali.

The think tank Centre for Land Warfare Studies (CLAWS) in India reported on the discussion:

The agenda of the recently concluded East Asia Summit incorporated a wide canvas with an attempt of keeping the divergence pertaining to the South China Sea out of the purview of the summit. Notwithstanding the intent, Prime Minister Manmohan Singh of India sent out a clear and firm message to his Chinese counterpart, Wen Jiabao, by choosing to reject Chinese objections to the Indian presence in the South China Sea. Stating that Indian interests were “purely commercial and that sovereignty claims must be resolved according to international laws”, Singh visibly admonished Chinese claims over the issue.

The response by the Indian Prime Minister came in following Wen Jiabao’s warning that “outside forces” should refrain from getting embroiled in the South China Sea dispute. Wen further expressed, “The dispute which exists among relevant countries in this region over the South China Sea is an issue which has built up for several years… It ought to be resolved by countries directly involved… Outside forces should not, under any pretext, get involved.”

In addition, China demanded that India cancel a Buddhist conference in New Delhi which the Dalai Lama was expected to address. The conference coincided with the boundary talks between Dai Bingguo, a Chinese diplomat, and Shivshankar Menon, the Indian National Security Advisor, were also to be held there.

India refused to comply with the demand, saying this was a spiritual conference and the freedom was an essential part of New Delhi. The Indian side even promised full security to the Chinese delegates. Beijing refused and called off the talks. Although later Chinese officials said they wanted to hold the talks “very soon”, India has reacted coolly.

Many Indian analysts insist that China is ‘surrounding’ India with military bases near the Indian Ocean called the “String of Pearls”, but the confrontation has moved to the cultural arena as well. News agencies in both countries are running smear campaigns against the other.

Illuminating both China’s efforts and their own perspective on the matter, the Times of India reported the following on November 26, 2011:

[China] had proposed a “Lumbini project” at Lumbini in Nepal, the birthplace of Buddha. Earlier this year, a Chinese organization believed to be close to the party elite, had promised a $3 billion investment in Lumbini (which would translate roughly to 10% of Nepal’s GDP) with an airport, hotels, highways and a university.

While seemingly innocuous, India suspected that this could be used to promote China-friendly Buddhist leaders in all the three main schools of Buddhism—Mahayana, Hinayana and Tibetan Buddhism. Under Indian pressure, Nepal agreed to cut the Chinese links to the project. Sources here said China wanted Lumbini to be the focal point for Buddhists in the world. At present, Buddhist travel to India to meet Dalai Lama and to visit Sarnath and Bodh Gaya. Besides, through a project like Lumbini, China may reckon it would be easier to “control” both religion and religionists.

Such a stance is not new in Indian media. Amidst controversy over skirmishes on the Sino-Indian border during the summer of 2010, China had accused the Indian media of carrying out a baseless anti-Beijing campaign.

However, since the start of the Indian presence in the South China Sea, the Chinese media itself has been carrying out such a campaign against India. The state-run Xinhua news agency in China said that India has an “inferiority complex” and lives “under the delusion that China lays out a strategic chessboard to lock up and contain India”, according to a report in The Hindu out of India.


Though faced with difficulties in local relations, India is attempting to sponsor development and infrastructure abroad. This growing international profile, however, is increasing tensions with its rivals. This study can be best concluded with comments from two diverse publications, one from Afghanistan and the other from Bangladesh:


South Asian countries are the least integrated countries in the global system. India has been making a tremendous effort to foster regional dialogue and understanding in order to turn South Asia into an economic and political bloc. Regional cooperation is the only recipe for overcoming our challenges. Because of its rising clout, India can play a unique role in strengthening regional cooperation through organizations such as SAARC. Afghanistan is a big beneficiary of India’s positive regional policy.

Similarly, India’s economic power creates great opportunities for Afghanistan, and its growing middle class constitute the biggest market for our products. With improved security and better regional cooperation, we will hugely benefit from India’s trade with the Central Asian countries. The TAPI pipeline project, which will ship Turkmen gas to Pakistan and India through Afghanistan, could not materialize without Indian investment. Thus, Indian investment in the region is very appreciated, particularly in a time when major economies of the world are facing deep crises.

Also, India’s soft power in Afghanistan, which is not limited to Bollywood influence alone, has been growing very fast over the past decade. The number of Afghan students who are attending Indian colleges and universities has expanded yearly. New Delhi has become an important destination for wealthy Afghans either for tourism or quality healthcare. In addition, joint Indian-Afghan private investment in education and healthcare in major Afghan cities is making a major contribution in the development of our country.

India’s emergence at the global stage is welcomed by Afghans, and its positive political and economic impact since the fall of the Taliban regime in 2001 is visible to us. Despite many domestic and regional challenges, India’s investment in reconstruction and development of Afghanistan is tremendous, and Afghan people appreciate this unconditional economic and political assistance.

-Haroun Mir, Director of the Afghanistan Centre for Research and Policy Studies, Kabul

India’s true leadership role lies in helping all its smaller neighbors reach their economic potential and become flourishing democracies. India must admit that it has, so far, failed to do so, and sincerely introspect why.

India’s position as a regional leader is a fact of history. It’s emergence as an effective one is a matter of time. Much will depend on the wisdom of her leadership. For far too long India has allowed its problems with Pakistan to absorb almost all of its attention and resources at the expense of its bilateral relations with others. In fact it neither spent the time nor the resources to mend fences with its other neighbors which often needed a lot of mending. The Indian media is guilty of the same.

Greater leadership role for India will naturally emerge as the country grows. It is inevitable. Its rising importance and consequent role of India is seen both with fear and hope. Fear, that India will use its rising economic and military power to bulldoze its will on her smaller neighbors, and hope that India will be able to see the bigger picture and help her smaller neighbors reach their economic potential and thus build a network of interdependent relations that will tie us in a common purpose and shared dreams.

It is in India’s interest to help Nepal, Myanmar, Bangladesh, Sri Lanka and Maldives rather than adopt an adversarial approach.

This has not yet happened. But it must, not only for the smaller neighbors, but also for India.

-Mahfooz Anam, Editor of The Daily Star, Bangladesh