<p>Until a decade ago, India was regarded largely as a poor developing country with low visibility on the global political and economic front. A multitude of factors, most prominently its emerging global economic strength, have led India not only to redefine its self-image but also to adopt a new political role both internationally and within its immediate neighbourhood.</p><p>The aim of this report is to conduct a preliminary investigation into the linkages between India’s growing economic and political clout and its correlation, if any, to peace-building in South Asia, with particular emphasis on conflicts in Sri Lanka and Nepal. The report starts from the premise that India occupies a special position in the region, economically and politically. Owing to this unique position, India has a particular potential vocation to become the driving force for greater regional peace and prosperity. The analysis in this report supports the argument, recognized by many Indian policy-makers, that India’s long-term prosperity hinges to some degree on a conflict-free neighbourhood; that an economically integrated region is in India’s overall security interests.</p><p>The report examines in detail India’s spectacular economic performance, its strengthening position in the global order and its evolving special relationship with the United States. It lays down the larger landscape within which the ‘new India’ views the world and the region and examines India’s broader foreign policy concerns as its increasing financial muscle triggers a shift from <em>moralpolitik </em>to <em>realpolitik. </em>This shift is most visible in the change from its traditional path of non-alignment to a strategic alliance with the US. India’s complex relationship with China shows how India is seeking economic complementarities with its giant Asian neighbour, while at the same time consciously competing with it on procuring energy and on geo-strategic and political levels.</p><p>India’s policies towards its neighbours in the current context are best understood within the framework of its overall foreign policy concerns. India’s burgeoning global presence and its larger economic interests are bringing a subtle reconsideration of its policies towards its neighbours. With economic integration and energy self-sufficiency emerging as the two most important pillars of its foreign policy, India has made strong economic overtures in the region. It has a successful trade agreement with Sri Lanka, has made Bangladesh and Pakistan a similar offer, has entered into various multilateral trade agreements and is keen to be involved in Nepal’s economic recovery.</p><p>It is argued that India’s attempts at development cooperation in the neighbourhood and encouraging bilateral trade are driven, not just by economic concerns, but by a sharp realization that its political capital in the neighbourhood is fast dwindling. Its relationship with all its neighbours, including Sri Lanka and Nepal, is complicated, and, especially in the case of Sri Lanka, India’s reluctance to play a more politically active role in resolving the twenty-year conflict is unlikely to diminish.</p><p>Despite some successes, India’s economic engagement with its neighbours continues to be crippled by deep-rooted political tensions. Current research suggests an absence of any trade–conflict causality in South Asia. In other words, trade agreements, whether bilateral or regional, do not seem to have had any positive influence yet in reducing conflict in South Asia. However, the two cases under study – Sri Lanka and Nepal – have varying political and economic complexities and offer different potentials for peace-building.</p><p>The potential for India to achieve peace-building in Nepal by pursuing an equitable economic relationship is far clearer than India’s current economic relationship with Sri Lanka. This could be because in the case of Nepal, the convergence between India’s security, geo-political and economic interests is much clearer and more tangible than in the case of Sri Lanka. Further, past Indian involvement in Sri Lanka continues to cast a shadow on any active involvement by Indian businesses in peace-building within the country now. To a certain degree Indian policy-makers and the private sector alike, while encouraging and intensifying economic engagement with Sri Lanka, deliberately choose to separate the political from the economic processes and seem unwilling to consider any correlation between the two.</p><p>Despite the complications and past experience, peace-building within Sri Lanka and Nepal remains a concern for India. Given the complex and often contentious histories of the Indian state’s relations with both its neighbours, the report raises for future research the idea of exploring the potential of business communities as an important constituency for peace-building. This is suggested because on a policy level, Indian industry is convinced of the need to economically engage with and support neighbouring businesses as an essential prerequisite for sustained regional development. In principle, the Indian government also appears keen to allow Indian industry to take the lead in shaping the contours of an economic relationship with Sri Lanka and Nepal. However, what appears to be absent at present is the political will to establish such a framework if it comes at a cost, albeit short-term, to Indian industry.</p><p>The lack of any correlation between the political and economic trajectories in the case of Sri Lanka, or of any positive fall-out so far on the conflict there from India’s intensive trade relationship, may be attributable to the profile of Indian investors. Most Indian investments in Sri Lanka are large businesses that have the capacity to bear some conflict costs and move their businesses to other destinations should the costs become too heavy to bear. As the Sri Lankan Free Trade Agreement expands to include investments and services, along with trade in goods from 2008, an increasing number of smaller, regional players from south India could become the vital force linking economic and political policy.</p><p>The report aims to generate ideas for discussion and research and its findings should not be regarded as definitive. It should be regarded, rather, as a first step towards exploring the possibilities of using economic interests as a positive lever for peace-building.</p>
India and its Neighbours
Do Economic Interests Have the Potential to Build Peace?
South and Southeast Asia
Sri Lanka, Nepal
International Alert and Chatham House