India's Neighbourhood Policy Reboot: Trade as Strategic Leverage in South Asia

Indian Express - Opinion · 3 Apr 2026 · 2 min read
Prelims · International relations Mains · GS2 International relations High relevance

Recent political transitions in Bangladesh, Nepal, and Sri Lanka present India with an opportunity to recalibrate its neighbourhood policy through enhanced trade integration, addressing longstanding protectionist barriers and leveraging economic interdependence for regional stability.

Key points

Bangladesh's political shift: The February elections brought Tarique Rahman's Bangladesh Nationalist Party to power, emphasizing 'Bangladesh First', requiring India to transition from sentimental ties to interest-based engagement with its most important regional partner.

Nepal's generational change: The rise of Balendra Shah and Rastriya Swatantra Party demands India abandon 'special relationship' rhetoric in favor of equal partnership respecting Nepal's sovereignty, crucial for Himalayan security.

Sri Lanka's pragmatic turn: The 2024 elections installed a new leadership in Colombo actively seeking to overcome historical animosities through economic cooperation with India.

[GS3-Economy] India's trade paradox: While negotiating ambitious agreements with Western nations, it maintains protectionist policies toward neighbours, creating a 4,000-km border paradox where Bangladesh/Sri Lanka trade more with distant partners than India.

Non-tariff barriers: India's infrastructure gaps and regulatory hurdles systematically undermine the potential of open borders, contrasting sharply with its demands for market access from China.

Trade imbalances: India runs substantial surpluses with neighbours while decrying deficits with China, highlighting policy incoherence in regional economic statecraft.

SAARC irrelevance: The article argues effective regional integration requires bilateral action rather than reviving the stagnant SAARC framework, emphasizing practical connectivity over symbolic multilateralism.

Geopolitical urgency: Global trade fragmentation and Gulf instability create new imperatives for South Asian economic cohesion, with India's market offering unique scale and proximity advantages.

Mindset transformation: India must discard paternalistic assumptions that economic cooperation constitutes 'favors' requiring political deference from smaller neighbours.

Way Forward: India should implement unilateral trade facilitation measures, negotiate asymmetric concessions in regional FTAs, develop cross-border infrastructure corridors, and establish joint economic zones to transform connectivity with Bangladesh/Nepal.

Key terms

Bangladesh Nationalist Party

Major political party in Bangladesh currently led by Tarique Rahman, known for its nationalist stance and historical tensions with India. Its 'Bangladesh First' policy marks a shift from Awami League's India-friendly approach, requiring Delhi to recalibrate engagement strategies in line with changing domestic politics.

Rastriya Swatantra Party

Emerging political force in Nepal that secured a sweeping victory in recent elections, representing a generational shift in Nepali politics. Its rise challenges India's traditional patronage-based approach and necessitates a partnership model respecting Nepal's sovereignty under Article 51 of India's Constitution (promotion of international peace).

Non-tariff barriers

Regulatory obstacles to trade beyond customs duties, including quotas, standards, and bureaucratic procedures. In India's neighbourhood context, these have been more damaging than tariffs, undermining natural geographic advantages and violating the spirit of SAFTA (South Asian Free Trade Area) agreements.

SAFTA

South Asian Free Trade Agreement operational since 2006 under SAARC framework, aiming to reduce tariffs to 0-5% among member states. Its limited success reflects deeper political tensions and non-tariff barriers, making bilateral trade deals more viable for regional integration as argued in the article.