Economic Crisis in Nations on Indian Periphery: A Sub Nationality Syndrome and Chinese Afflictions
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Issue Net Edition | Date : 09 Aug , 2022

It is not a coincidence that all the nations on the Indian periphery have been showing signs of economic down fall and political instability in recent times. Two years of Wuhan virus is surely one of the catalysts impacting economies of most of the nations across the world. However, economic shortfalls have always been there amongst South Asian small nations ever since they became independent. The rationale to this phenomenon partly lies in deliberate disintegration of Indian nation state by the British for their vested interests. In that, essentials to provide a stable and sustainable political entity were compromised by creating nations based on Indian sub nationalities.

 Bharat of the yore was known to be roughly spread from Himalaya to Indian Ocean and from Iran to Indonesia. It was endowed with ancient civilization, rich common culture, abundant natural resources, economic surpluses and restrictive terrain securing its boundaries. Accordingly, India enjoyed high political strength and stability during old empires that administered these vast lands from a strong central ruling authority. The sub nationalities and regions were seamlessly integrated in a federal system with high politico-economic synergies ensuring peace and prosperity.

 Vikramaditya, Lalitaditya ,Ashoka, Maurya, and Gupta dynasties are known to have ruled the Akhand Bharat preceding and post Roman calendar era. Subsequently, India became a house divided by early tenth century with smaller states sans requisite political buoyancy to survive on their own. This in turn created a window for outsiders to intrude into political space by exploiting the internal divide through deceit, duplicity and military strength. Three centuries of Mogul rule followed by two centuries of British presence consolidated the boundaries once again similar to the old Indian geographical turf. By early twentieth century, the British contemplated moving out as it was becoming a matter of diminishing returns to stay on. However, they were keen for continuation of their control of strategically important South Asian region.

 In British perception that time, an undivided India with potential to emerge as a regional power was not in British interests. Accordingly, in order to ensure their political presence they followed policy of divide and rule with an intent to create smaller weak states that would be politically subservient and easy to manipulate. British also opted for separating few states where it was politically inconvenient to continue their hold over them, albeit with few compromises. It manifested in division of the Indian nation state based on selected sub nationalities/ regions that suited the British strategic calculus.

Afghanistan was moved out from Indian folds in 1876 through Gandamak treaty between British and Russia, creating a buffer state between two powers that time. Nepal and Bhutan were separated in 1904 and 1906 respectively. Ceylon ( Sri Lanka) dominating the Indian Ocean was separated in 1935. Similarly, Burma (Myanmar) dominating Bay of Bengal and South East Asian tracks was delinked in 1937. Finally, Pakistan was created in 1947 due to its strategic location that provided access to Indian Ocean to land locked Eurasian hinterland. It also acted as a proxy front line state to dominate Asian energy belts. The West and East Pakistan combine also facilitated to keep truncated India under check lest she occupies vacant strategic space in South Asia impacting on Western interests.

These are all sub nationalities of Indian nation state with obvious lack of political buoyancy to sustain them without external support. Few of them do not even have a well defined political system till date giving way to military rules and weak hybrid democratic dispensations. As a result, they stand vulnerable to the scheming big powers to use, misuse, disuse them for their grand games in Indo-Pacific, West and Central Asia.

True to British calculus, these nations have served the intended geo political and economic objectives of the western powers. In return, they have been providing liberal economic and military aids to retain their loyalty and sustain their economies. There has also been opportunism displayed by these small nations by cozying up with the rival powers, thereby maximizing their financial benefits. With such easy money these small nations neglected development of national structures and economic fundamentals leading to parasitical tendencies.

Consequent to ongoing global geo political resetting, there seem to be a shift in priorities of the western world resulting in decline in the foreign aids . Moreover, the notion of political parity and unwarranted competition with bigger nations has resulted in expenditures in excess of their economic capacities to support such ambitions. It has lead to untenable financial deficits in absence of external support economic model. The international financial institutions and friends are also seen to be reluctant in providing financial aid due to pattern of weak debt servicing in the past.

It is in such a scenario China took advantage of economic vulnerability of these nations through lucrative financial packages outside realms of international financial institutions. China has marketed BRI as a fairytale mutually beneficial scheme. Easy loans alongside turnkey infrastructure projects by Chinese companies appeared to be a spring board for development and employment with prospects of socio-political harmony. The scheme was accepted by the gullible political leaders looking at easy way for economic growth, besides political and personal vested interests.

The loans for these projects happen to be way beyond the financial capacity to repay by these nations leading them into a well orchestrated Chinese debt trap. Pakistan, Nepal, Bangladesh, Myanmar, Sri Lanka and Maldives are all part of Chinese BRI bandwagon. All of them are under heavy Chinese debt, hence stand vulnerable to Chinese dictates including intrusion in their sovereign space . It has turned out that the BRI projects are less about development of the host nations and more about facilitating Chinese strategic agenda to encircle India and ensure their global economic expansion.

China lured Sri Lanka into investing money on unviable projects which suited China as well as the local political leaders. Overall there is a $ 35.1 billion debt due to be paid by Sri Lanka as of now. Between 2018 to 2021 the 27.4% debt was Chinese loans which as per IMF estimates amounts to $ 24.7 billion. The public debt to GDP ratio rose from 91% to 119% during this period. China forced Sri Lanka to hand over Hanbantota port and large chunk of land on long term lease as against payments due to them. As on March 2022, the Chinese debt stands at approximately $ 6 billion as against Sri Lankan forex reserves of $1.9 billion.

Tourism and agriculture are two main pillars of Sri Lankan economy which have suffered heavily due to Covid-19 and change in policy to shift to organic farming. The war in Ukraine has also impacted on supply chains and energy costs leading to shortages of essential commodities. The inflation stands at 60% and may rise further with devaluation of Sri Lankan rupee vis a vis US dollar. It has lead to a civil war like situation recently wherein the President was forced to leave the country. A new government is in place and they have reached out to IMF for a bailout of $ 4.5 billion to tide over current situation.

Pakistan has a large military establishment due to their Kashmir obsession that in turn has resulted in skewed priorities in their economic policies. Pakistan enjoyed US patronage and economic benefits being a proxy front line state and later they helped in creation of Taliban in 80s. However, US and Pakistan relations deteriorated during Trump era leading to cutting off of US aid to Pakistan.

 China filled up the US political space and lured Pakistan into investing in $ 42 billion CPEC scheme in 2015 with potential to boost their economy besides enhance military deterrence. The Chinese loans against Pakistan stand at $ 60 billion as of now which is way beyond capacity of Pakistan to repay. Pakistani sources of borrowing are getting restricted as they have not been able to pay back earlier loans. Pakistan has borrowed 16 times from IMF in last 30 years amounting to $ 90 billion. The debt to GDP ratio stands at 72% with only $ 9.3 billion in reserves. The net principal debt as of now is $ 24 billion and Pakistan would need $ 41 billion in next 12 months.

The PNR is sliding every day as against US dollar that stands at PNR 240 to a dollar. The inflation is 37% as per official figures whereas as per John Hopkins University it is much more. Pakistan continues to be in the FATF grey list impacting on her outward economic reach out. Pakistan may go Sri Lanka way with insufficient reserves, rampant corruption amongst the political and military class, arms race with India and weak institutions of governance.

Bangladesh, despite a reasonably good record of economic profile in recent past has seen decline in her GDP. Garments export, their main source of income, has suffered due to reduction in demand. High energy costs have also impacted on their economy. Bangladesh has applied for $ 4.5 billion loan from IMF , $ 1 billion from World Bank and $ 1 billion from ADB. While Bangladesh may be able to pull out of current crisis, they are likely to continue to live on the edge due to limited industrial base and other economic fundamentals. Nepal is under Chinese influence and under heavy debt which they are finding it difficult to repay.. Similarly, Maldives is being patronized by the China as they want to establish their military presence to monitor sea lanes in Southern Indian Ocean.

It is Chinese debt trap that happens to be a major reason for down fall of economies of these small nations. Whereas, the politicians continues to be inclined towards China even though China has not been forth coming to help them in times of their existential crisis. On other hand , India has always been the first responder whenever they are in trouble. India has gone out of way to provide $ 4.5 billion to Sri Lanka, Bangladesh was supplied wheat to tide over their food emergency and Maldives has been given $ 100 million recently. Whereas, all three have lost no time in siding with China in their coercive military activism against Taiwan and Japan, a clear violation of international norms.

 In case of Sri Lanka no sooner there is some respite, China has been permitted to berth their military ship meant for surveillance at Hambantota port. This action when hyphenated with recent Chinese military posturing in South China sea do suggest their intentions of increasing military foot prints in Indian Ocean. It is an act with severe inimical connotations, besides encroaching upon Indian area of influence.

In the given circumstances, it is a challenge for India to wrest the initiative to synergize security and environmental harmony as a lead regional power. Therefore, it is a compulsion for India to keep them afloat and wean them away from manipulative China lest they are further exploited. The long term solution for political stability lies in regional solidarity amongst all South Asian nations as a confederation akin to erstwhile Indian nation state. A format of ‘common wealth of independent states’ is a viable model that may be considered. Earlier these nations realize the benefits of regional synergy, better it would be for their growth, security and economic wellbeing.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Lt Gen Rameshwar Yadav

Former Director General Infantry, Indian Army.

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