South Asia, comprising nearly a quarter of the world’s population, stands as a region brimming with economic potential but simultaneously grappling with considerable challenges. Positioned at the crossroads of historical trade routes and cultural exchanges, India’s economic policies and growth trajectories serve as both a beacon of opportunity and a source of contention among its neighbours—Bangladesh, Bhutan, Nepal, Sri Lanka, Pakistan, and the Maldives. India's influence is multifaceted, encompassing trade partnerships, investments, and regional diplomacy. Understanding India’s role in the economic development of South Asia necessitates a nuanced examination of its influence, which fluctuates between being a supporter of regional growth and a potential obstacle constrained by national interests.

India’s vast market, strategic investments, and collaborative infrastructure projects often drive growth across the region. Initiatives such as the South Asian Association for Regional Cooperation (SAARC) and the Neighbourhood First policy aim to promote shared prosperity. However, disparities in economic power and geopolitical interests can sometimes strain these relationships, fostering a perception of India as a "regional big brother."

This article explores India's complex role in the region—how its economic ambitions and foreign policy influence both the domestic development of neighbouring nations and South Asia's collective external relations. Balancing cooperation with competition remains key to ensuring that India’s rise benefits the broader region rather than exacerbating existing asymmetries.

Overview of India’s economic influence in South Asia

India’s economic influence in South Asia plays a critical role in shaping the region’s development trajectory. The essence of this statement is evident through recent findings from a World Bank report, which projects that the region's gross GDP growth will decline from 6.6% in 2023 to 6.2% in 2024. This downturn is largely attributed to the moderation of India's economic growth during this period1. The interconnectedness of India's economy with its neighbours highlights the extent of its influence on the region's overall economic stability and development.

As the largest economy in South Asia, India initiates various trade agreements and bilateral investments that enhance regional integration and growth, reinforcing its position as a pivotal player. The country’s emergence as a hub for technology and manufacturing has spurred economic activities within neighbouring countries, contributing to job creation and increased exports. However, India’s influence often raises concerns regarding economic dependency among smaller nations, leading to debates on whether this domination serves as support or an obstacle to their autonomous development. For instance, while Indian investments can promote broader economic engagement, they may also result in unequal power dynamics that marginalise local industries2. Therefore, understanding the nuances of India's economic strategies is essential for evaluating their long-term implications on South Asia’s economic landscape3.

India as a supportive force in economic development

India’s influence as a supportive force in the economic development of South Asia is manifest in various initiatives aimed at regional integration and poverty alleviation. By fostering bilateral trade agreements, India has sought to enhance economic cooperation with neighbouring nations, a strategy underscored by its leadership in regional organisations like SAARC. However, the effectiveness of SAARC in fostering regional cooperation has been questioned by numerous scholars4,5,6 who examine SAA limitations ints achieving meaningful integration and collaboration among member states in comparison with other regional organisations, such as ASEAN and the European Union, often highlighting SAARC's limitations.

India’s trade relations and economic partnerships with neighbouring South Asian countries play a crucial role in shaping the region's development landscape. For example, the South Asian Free Trade Agreement (SAFTA), implemented in 2006, aims to promote intra-regional trade by reducing tariffs. Smaller economies like Bhutan and Nepal rely heavily on India for imports and exports7. For instance, Bhutan’s hydroelectric power exports to India form the backbone of its economy. Bangladesh has also seen increased trade with India in sectors such as textiles, pharmaceuticals, and agriculture. In recent years, bilateral trade between India and Bangladesh surpassed $10 billion, highlighting their growing economic ties. India has invested heavily in infrastructure projects in neighbouring countries, including road and railway networks, energy projects, and ports.

The India-Bangladesh Friendship Pipeline, for instance, facilitates fuel supply and enhances energy security. In Nepal, India has financed key road and railway projects, improving connectivity and trade flow. Indian firms have also established joint ventures in information technology, manufacturing, and healthcare across South Asia, promoting technology transfer and job creation. The Indian government provides financial aid and concessional loans to countries like Bhutan, Sri Lanka, and Afghanistan. Between 2008 and 2020, India’s development assistance to neighbouring countries amounted (roughly) to over $15 billion (Ministry of External Affairs India 2024; News 2021). Initiatives like the "Neighbourhood First Policy" underscore India’s commitment to regional cooperation, with India supporting infrastructure, education, and healthcare projects in neighbouring nations.

Historically, these connections have emerged as a double-edged sword, fostering both cooperation and contention. For instance, initiatives such as the Delhi-Mumbai Industrial Corridor underscore India’s commitment to enhancing regional connectivity, which can significantly bolster economic growth across neighbouring nations (Nandy 2024). Furthermore, water-sharing agreements and economic cooperation treaties illustrate India’s diplomatic approach to managing shared resources, a strategy necessitated by competing demands and environmental challenges, as seen in the ongoing discussions about South Asia’s major rivers (Crow and Singh 2008). Despite these initiatives, India’s influence can be perceived as both supportive and obstructive, depending on the lens through which trade relations are viewed. Ultimately, India’s ability to navigate these complexities will determine whether it emerges as a catalyst for regional solidarity or an obstacle to collective economic progress.

Challenges posed by India’s economic policies

India’s economic policies have often posed significant challenges that impact not only its own development trajectory but also that of its South Asian neighbors. India’s economic dominance can create dependency, making it difficult for smaller economies to diversify their trade relations. Many South Asian countries face significant trade deficits with India. For example, Bangladesh’s imports from India exceed its exports, leading to economic strain. In 2021, Bangladesh’s trade deficit with India was around 7 billion US dollars (Hasan 2022). Non-tariff barriers, such as bureaucratic red tape and quality standards, often limit the entry of goods from neighbouring countries into Indian markets. On the other hand, the focus on rapid industrialisation often sidelines essential sectors such as agriculture, which remains crucial for regional economic stability. As noted, traditional, cultural, and political constraints serve to limit the participation of specific demographic groups in the workforce, affecting economic output and social cohesion 8.

Furthermore, while public diplomacy initiatives are intended to bolster India’s image and attract foreign investment, they may inadvertently foster resentment among neighbouring nations if perceived as coercive or overly ambitious, complicating regional dynamics (Mazumdar 2020). On the other hand, geopolitical conflicts, particularly between India and Pakistan, hinder the effectiveness of regional cooperation under the South Asian Association for Regional Cooperation (SAARC). The India-Pakistan rivalry has stalled numerous SAARC initiatives aimed at boosting regional trade and collaboration.

These challenges highlight a paradox: as India aspires to be an economic leader in South Asia, its policies can simultaneously alienate and impede cooperative growth efforts, raising critical questions about its role in the region’s economic development.

Conclusion

India’s role in South Asia’s economic development is a nuanced blend of support and dominance/obstructive elements. India’s investments, trade relationships, and developmental assistance provide significant opportunities for regional growth. On one hand, India’s economic initiatives, including its robust financial assistance and efforts toward regional trade integration, have been pivotal in fostering economic growth and stability across the region. However, as noted in studies on global philanthropy and regional cooperation, India’s approach often encounters dominance or crucial obstacles, such as the legitimacy deficit among its neighbours, leading to hesitancy in collaboration9.

This capability-legitimacy gap illustrates the challenge of maintaining cohesive economic partnerships while simultaneously addressing national interests. Ultimately, the effectiveness of India’s role hinges on its ability to balance power dynamics and enhance regional cooperation, ensuring that its contributions lead to mutual benefits rather than perceived dominance. As the region evolves, India must strategically navigate these complexities to cement its position as a regional leader.

References

1 Rao, Archana. 2024. “India to Propel South Asia as Fastest Growing Region: World Bank.” India Briefing.
2 Weitz, Richard. 2017. Promoting U.S.-Indian Defense Cooperation: Opportunities and Obstacles.
3 Shin, Hyun Bang. 2019. Asian Urbanism.
4 Khullar, Akanksha. 2015. “SAARC Still Marred by Divisions.” East Asia Forum.
5 Shaheen, Irum. 2013. “South Asian Association for Regional Cooperation (SAARC): Its Role, Hurdles and Prospects.” IOSR Journal Of Humanities and Social Science 15(6):01–09.
6 Srinivasan, Madhuvanthi. 2017. “Trust Deficit, Cross Border Terrorism Biggest Challenges before SAARC.” The Hindu.
7 Anon. 2023. “Promoting Cross-Border Hydropower Development in South Asia.” Reglobal.
8 Subhani, Zulqernain Haider, Bouhedda Ghalia, and Rohaiza Rokis. 2023. “An Exploration of Demographic Profiles and Work-Family Interface among Muslim Women in India.” Sprin Journal of Arts, Humanities and Social Sciences 2(12):37–51.
9 Acharya, Amitav. 2012. Foundations of Collective Action in Asia: Theory and Practice of Regional Cooperation. 344.