The End of the Neighbourhood Illusion

A cursory survey of the past decade would show that New Delhi has approached its neighbourhood with alternating bouts of confidence and anxiety. Confidence because India’s economic and geopolitical weight has steadily expanded. Anxiety because every election in South Asia in recent years seemed to produce a new leader who promised to stand up to India, reduce dependence on it or seek alternatives elsewhere - usually in China.

Indian policymakers have been concerned that anti-India politics in our immediate neighbourhood would eventually translate into anti-India policy.

But events across Nepal, Bangladesh and Sri Lanka suggest something rather different. All three countries have seen new governments in recent times. The political winds have indisputably shifted and nationalist rhetoric has flourished. But once confronted with economic realities, even leaders elected on promises of asserting sovereignty have found themselves moving towards accommodation with India.

Geography is Destiny

The reason is Geography remains the most powerful force in South Asian politics.

In Nepal, the rise of Balendra ‘Balen’ Shah from rapper and political outsider to national leader marked one of the most remarkable upheavals in the country's recent politics.

Shah’s recent comments on border disputes revived familiar fears in New Delhi that Kathmandu was once again drifting into a confrontational posture. After all, Nepal’s political history is littered with leaders who have discovered that anti-India rhetoric is an easy way to mobilise nationalist sentiment. The most successful practitioner of this politics was ex-PM K.P. Sharma Oli, whose premiership transformed border disputes and resentment of India’s influence into a governing doctrine.

However, the subsequent response from Nepal’s new government has suggested something more nuanced.  Nepal swiftly ruled out third-party mediation and insisted that disputes would be resolved directly with India. Senior officials reaffirmed India’s status as Nepal’s most important partner and stressed cooperation over confrontation.

For all the rhetoric surrounding sovereignty, Nepal’s economy remains inseparable from India. Nearly two-thirds of its merchandise trade is conducted with India, which remains one of Nepal’s largest sources of foreign investment and by far its most important economic partner.

More importantly, Nepal’s future growth story increasingly depends upon Indian infrastructure. The country’s vast hydropower potential, long celebrated as Nepal’s economic salvation, cannot be monetised without access to buyers across the border. India’s commitment to import 10,000 megawatts of electricity from Nepal over the coming decade offers Kathmandu a rare opportunity to transform natural resources into sustained national income. The Arun-III hydropower project, cross-border transmission corridors and expanding energy cooperation are gradually integrating the two economies.

Whether Shah has undergone a genuine change of heart is beside the point. What appears to have changed is his appreciation of the constraints under which every Nepali leader eventually operates. Governing Nepal is very different from campaigning in Nepal. The slogans of sovereignty remain politically useful. But attracting investment, creating jobs and sustaining growth require engagement with India.

Strategic Interdependence

If Nepal illustrates economic dependence, Bangladesh demonstrates strategic interdependence. Relations between Delhi and Dhaka have entered their most uncertain phase in nearly two decades.

Since the upheaval that ended Hasina’s rule, Bangladesh has witnessed repeated incidents targeting Hindus – from temple vandalism to lynching, reinforcing Indian concerns that Bangladesh was entering a more overtly Islamist phase of politics.

Under Hasina, the country had been a crucial strategic partner that denied sanctuary to anti-India insurgents, expanded cross-border connectivity and aligned closely with India on regional security. The fear today is that a political environment increasingly influenced by Islamist sentiment may prove less receptive to such cooperation and more vulnerable to anti-India mobilisation.

This helps explain why bilateral relations have become increasingly dominated by disputes over border fencing, migration and security. The rhetoric emanating from sections of Bangladesh’s political class is sharper than it has been for years. Anti-India sentiment, once largely confined to the margins, is again becoming a useful political instrument.

The BJP’s victory in West Bengal has elevated migration, citizenship and border security into central political issues. Bangladeshi politicians have loudly protested India’s renewed push for fencing along the frontier.

But beneath the noise lies a deeper reality. India today is Bangladesh’s second-largest trading partner. Bilateral trade hovers around $15-18 billion annually. Since 2010, New Delhi has extended more than $8 billion in Lines of Credit to Bangladesh - the largest amount India has provided to any country anywhere in the world.

The reopening of pre-Partition railway routes, the Akhaura-Agartala rail link, and a series of connectivity projects have fundamentally altered the economic geography of eastern South Asia. Bangladesh also imports more than 1,100 megawatts of electricity from India.

Bangladesh’s economic rise over the past decade has coincided with unprecedented connectivity to India. Meanwhile, India’s northeastern states have become increasingly dependent upon transit routes through Bangladesh. The relationship has therefore become too important to fail.

If Nepal illustrates dependence and Bangladesh demonstrates interdependence, Sri Lanka highlights what we may cautiously call ‘gratitude.’

Four years after its economic collapse, India’s standing in Colombo remains remarkably strong. When Sri Lanka ran out of foreign exchange, fuel and credibility in 2022, it was India and not China, that moved first. New Delhi provided almost $4 billion in emergency assistance, including fuel credit lines, food support, currency swaps and deferred-payment arrangements. The intervention helped prevent an already severe crisis from becoming catastrophic.

That memory continues to shape Sri Lankan politics. Many Indian strategists feared that President Anura Kumara Dissanayake would reverse this trend. His political movement emerged from a tradition that was deeply sceptical of foreign influence and often suspicious of India.

Instead, Dissanayake has pursued a pragmatic balancing strategy. He has repeatedly assured India that Sri Lankan territory will not be used in ways detrimental to Indian security interests. More importantly, he has continued to deepen economic engagement with New Delhi.

The lesson here is that across South Asia, China’s influence has risen and fallen with debt cycles and construction projects. But India’s influence on its neighbours is embedded in geography, trade routes, labour flows and everyday economic life.

While nationalism remains a potent force in all three countries, South Asia’s newest leaders are discovering that nationalism has limits, especially while dealing with India.