Regional connectivity: An opportunity for India

India’s persevering with incapability to counter China’s cheque-book diplomacy has allowed the latter to say its pursuits within the area, not at all times to the long-term financial and improvement advantage of these nations.

By Amit Bhandari

The Bay of Bengal (BoB) is gaining financial and strategic relevance as a big sub-region throughout the Indo-Pacific. It more and more issues in international strategic competitors. But regardless of its significance to regional safety and prosperity, there’s insufficient monetary, bodily, and power connectivity. India’s strategic and political pre-eminence and affect within the Bay of Bengal is diminished by its restricted connectivity with Bangladesh, Myanmar, Thailand, Nepal, and Sri Lanka.

That is in sharp distinction to China, which, in recent times, has constructed a big presence within the Bay of Bengal and its resident nations with connectivity tasks and infrastructure finance.

India’s central place within the area implies that with out its participation, cross-border connectivity is a non-starter. India is, nonetheless, capital-deficient, counting on third companions to put money into giant tasks. That is unlikely to vary within the medium time period, notably given the financial and humanitarian impacts of the Covid-19 pandemic. In distinction, China has change into a regional participant with a number of rail, ports, and energy tasks.

Constructing infrastructure on this area faces governance and operational challenges, together with small-scale insurgencies, migration, environmental stress, and crime. Nonetheless, China has succeeded on this atmosphere attributable to its willingness to fund in any other case unviable tasks, typically on opaque phrases. The place transparency is missing, native elites are open to seize, and sustainability requirements are sidelined. India’s persevering with incapability to counter China’s cheque-book diplomacy has allowed the latter to say its pursuits within the area, not at all times to the long-term financial and improvement advantage of these nations.

China is a transparent winner within the bodily connectivity stakes within the Bay of Bengal due to its strategic planning, large-scale investments, and an formidable scope. Chinese language tasks join to at least one one other, from rail to the street to the port. An instance is the proposed 2,800 km railway line connecting Kunming to Kolkata through Myanmar and Bangladesh. China additionally invests closely in maritime infrastructure within the area—even whether it is seen just for its personal profit. Tasks like Sri Lanka’s Hambantota, Kyaukpyu in Myanmar, and the Kra Canal in Thailand are seen as white elephants by some in these host nations. India, in distinction, has profitable cross-border street and rail infrastructure tasks with Nepal, Bangladesh, and Myanmar.

Nonetheless, nearly all of those are small in scale and scope—fairly often, an extension of an present railway line or freeway into Nepal or Bangladesh, however with out the larger ambition of constructing direct rail connectivity between Nepal and Bangladesh tasks in rail, ports and energy. The give attention to street and rail additionally demonstrates India’s terrestrial or subcontinental bias and give attention to connectivity by means of its northeast into southeast Asia. India needs to be doing extra to put money into the huge maritime potential of the Bay of Bengal, the place it trails China in maritime infrastructure and has not maximised the potential of the essential Andaman and Nicobar Islands.

A number of Bay of Bengal nations—particularly Myanmar, Nepal, and Bhutan—are wealthy in hydropower however don’t have the sources to construct dams or have the electrical energy demand to justify the expense. Bangladesh and most of India are web power importers with giant populations and rising demand, offering a prepared market to make tasks viable. What would appear a pure match is unexplored. No tasks within the area join three or extra nations—for example, Nepal-India-Bangladesh. The dearth of regional electrical energy commerce has inspired Bangladesh to think about thermal energy tasks funded by China.

Sturdy Bhutan-India hydropower ties, evident from the big focus of hydropower tasks in Bhutan and energy transmission strains taking this energy to India, provide a blueprint for the remainder of the area. India has financed and constructed over half a dozen dams in Bhutan, owned by Bhutan’s state-owned Druk Inexperienced Energy Company. The electrical energy therefrom is exported to India, and the incoming income is Bhutan’s largest export. Nonetheless, India has not been in a position to replicate this in Nepal or Myanmar. Within the absence of connectivity, Bangladesh can be unable to purchase electrical energy from these two.

Multilateral establishments might present preliminary assist for these long-gestation and big-ticket investments in hydropower in Nepal and Myanmar, which India and Bangladesh would in the end buy energy from.
Regional monetary connectivity between the Bay of Bengal states is missing or skewed, with some exceptions corresponding to India-Thailand. India’s exports to Bangladesh, Nepal, and Sri Lanka are far increased than its imports from these states. The largest export markets for nations of this area are elsewhere—so the intra-region commerce is much less essential. FDI throughout the area is low apart from Thailand-Myanmar.

By its investments in infrastructure tasks led by state-owned enterprises, China has a bigger FDI footprint within the area. India’s FDI is way decrease and is led by personal sector corporations, extra centered on consumer-oriented sectors than on infrastructure.

India has a big and vibrant start-up economic system, catalysed by its huge inhabitants and therefore market dimension. It has been a magnet for international tech and e-commerce firms and enterprise funds. These overseas and even Indian tech traders hardly ever veer into the comparatively smaller Bay of Bengal nations, which lack tech ecosystems, making it tough for firms to scale up or be thought of enticing for enterprise cash. Profitable tech entrepreneurs are massive backers of recent start-ups—this class of traders must be created. The tech sector can be much less impacted by systemic inefficiencies that plague bodily infrastructure.

The Worldwide Finance Company, and even perhaps the event help funds or EXIM Banks of the person Quad or EU nations, can play a transformative function. China has not expanded its tech sector within the area but and prefers monopolistic penetration in these markets. With multilateral funding, start-ups in fintech, healthcare, and agri-tech can present great advantages by serving to develop an area ecosystem and higher entry to seed funding—and construct sturdy ties with the Indian market.

India should assist Nepal and Myanmar arrange nationwide hydropower firms to personal and function hydropower property. Multilateral companions should allow simpler financing by multilateral establishments for heavy-investment infrastructure tasks to keep away from unsustainable debt and use of infrastructure finance as a software for political affect. Multilateral venture-funding and personal fairness—affected person and long-term capital—for agri/well being/edu/fin tech start-ups within the area (ex-India) may also be a key driver of connectivity.

Bay of Bengal nations, for his or her half, should arrange a SPV to construct a Bay of Bengal Energy Grid with regional governments as shareholders. This may function a template for cooperation in different infrastructure tasks. Aside from this, a Bay of Bengal Enterprise Fund with regional governments as an anchor (however not the bulk) investor centered on regional tech start-ups is so as. This might be executed underneath the BIMSTEC umbrella.

Edited excerpts from Unfinished Connectivity within the Bay of Bengal, an October 2021 report from Gateway Home

Fellow, Power and Surroundings Research Programme, Gateway Home