India must reboot neighbourhood policy — trade is the key

Source: The post “India must reboot neighbourhood policy — trade is the key” has been created, based on “India must reboot neighbourhood policy — trade is the key” published in “Indian Express” on  01st April 2026.

UPSC Syllabus: GS Paper-3- International Relations

Context: India currently has a rare strategic opportunity to reboot its neighbourhood policy due to recent political transitions in countries such as Bangladesh, Nepal, and Sri Lanka. Trade-led regional integration can become the most effective instrument for strengthening India’s relations with its neighbours and ensuring long-term regional stability.

Reasons why rebooting neighbourhood policy is necessary

1. Political transitions in neighbouring countries

1. Political changes in Bangladesh after the exit of Sheikh Hasina and the electoral success of Tarique Rahman have opened space for a more interest-based and pragmatic bilateral relationship with India.
2. Nepal has witnessed a generational political shift with the rise of leaders such as Balendra Shah, which provides India an opportunity to rebuild trust based on equality and sovereignty.
3. Sri Lanka’s political transition after the 2024 elections has also created conditions for more pragmatic and cooperative engagement with India.

2. Fragmentation of the global trading system

1. The global trading system is becoming increasingly uncertain due to rising tariffs, sanctions, and geopolitical competition among major powers.
2. Smaller South Asian economies are therefore likely to depend more on regional markets such as India for stable export opportunities.

3. Strategic competition with China

1. Despite geographical proximity and historical ties with India, countries such as Bangladesh, Nepal, and Sri Lanka continue to depend heavily on imports from China.
2. India faces a large trade deficit with China but maintains trade surpluses with its smaller neighbours, which creates an imbalance in regional economic relations.
3. India must therefore increase imports from neighbouring countries to promote mutually beneficial economic partnerships.

Importance of trade as the central pillar of neighbourhood policy

1. Geographical advantages remain underutilised

1. India shares a long land border of nearly 4,000 kilometres with Bangladesh, which creates strong potential for cross-border trade integration.
2. India’s close maritime proximity to Sri Lanka also provides natural advantages for enhancing bilateral economic cooperation.
3. India’s open border with Nepal provides a unique opportunity for deep economic integration, but this advantage has not been fully utilised due to infrastructure and regulatory barriers.

2. Trade promotes political trust and stability

1. Greater economic interdependence through trade helps in generating employment opportunities and strengthening supply chains across the region.
2. Trade cooperation also reduces political mistrust and contributes to long-term stability in bilateral relations.

3. Connectivity can transform eastern South Asia

1. Improved connectivity between India, Bangladesh, and Nepal can significantly boost economic development in eastern India and the wider eastern subcontinent.
2. Better regional connectivity will also strengthen integration of India’s northeastern region with neighbouring economies.

4. Energy cooperation offers additional opportunities

1. India can strengthen regional cooperation in energy security with Bangladesh, Nepal, Bhutan, Sri Lanka, and the Maldives.
2. Such cooperation has become particularly important because economic instability in the Gulf region is affecting energy supplies and remittance flows across South Asia.

Challenges in India’s neighbourhood trade policy

1. Protectionist trade approach: India has traditionally followed a protectionist trade policy toward neighbouring countries despite demanding greater market access from major economies globally.
2. Presence of non-tariff barriers: Several non-tariff barriers such as customs delays, regulatory restrictions, and weak border infrastructure continue to limit regional trade integration.
3. Legacy mindset in regional diplomacy: India’s neighbourhood policy has often been shaped by the assumption that smaller neighbouring countries should respond with political loyalty in return for economic support from India. This approach has generated resentment in several neighbouring countries and weakened India’s regional influence.

Way Forward

1. India should shift its neighbourhood policy from a “special relationship” framework to one based on sovereign equality and mutual respect.
2. India should increase imports from neighbouring countries to create more balanced trade relationships.
3. India should invest in modern border infrastructure, transport corridors, ports, and digital connectivity to strengthen regional integration.
4. India should promote cross-border investments and regional supply chains to enhance economic interdependence.
5. India should adopt transparent rules-based trade mechanisms, including safeguards such as rules of origin, to ensure sustainable regional cooperation.

Conclusion: India’s neighbourhood policy must increasingly rely on trade-driven regional integration rather than political management alone. A trade-centred approach can strengthen mutual prosperity, reduce strategic vulnerabilities, and establish India as the primary economic anchor of South Asia.

Question: India’s neighbourhood policy requires a shift from political management to economic integration led by trade and connectivity.” Discuss in the context of recent political transitions in South Asia.

Source: Indian Express