The paradox of India’s global rise, its regional decline


India’s foreign policy presents a perplexing paradox: while the nation is experiencing a surge in global influence, its regional power is on the decline. This intricate dynamic poses significant challenges for India’s strategic positioning and geopolitical aspirations.

GS-03 (Growth and Development)

Dimensions of the Article:

  • What is  the issue?
  • Reason Behind It
  • China Factor
  • Drivers Behind India’s Economic Expansion

What is the issue?

  • The essence of this paradox lies in the contrasting trajectories of India’s global and regional influence.
  • While India’s absolute power has grown steadily over the past two decades, particularly evident in its economic prowess, military capabilities, and demographic advantages, its relative influence in South Asia is dwindling.
  • This decline is attributed to various factors, including the emergence of China as a dominant regional power and fundamental shifts in the geopolitical landscape of South Asia.

Reason Behind It:

  • The rise of China plays a pivotal role in India’s regional decline.
  • Despite India’s unprecedented power, it finds itself comparatively weaker vis-à-vis China than ever before.
  • China’s expanding presence in South Asia, coupled with the United States’ strategic disengagement from the region, has shifted the balance of power in Beijing’s favor.
  • Consequently, India’s smaller neighbors are adopting diverse strategies, including balancing, bargaining, and bandwagoning, to navigate this evolving geopolitical landscape. This trend poses a significant challenge to India’s traditional influence in the region.

China Factor:

  • China’s ascent as a superpower poses a formidable challenge to India’s regional hegemony. India’s neighbors perceive China as a viable alternative to India, leading to a reevaluation of regional power dynamics.
  • Moreover, China’s Belt and Road Initiative (BRI) has further cemented its influence in South Asia, offering infrastructure investments and economic incentives to neighboring countries. India must contend with this reality as it seeks to recalibrate its regional strategy in response to China’s growing presence.

Drivers Behind India’s Economic Expansion:

  • Focus on Capital Expenditure: During the initial five months of the current fiscal year (2023), state governments have allocated 25% of their budgeted targets to capital expenditure, while the Centre’s allocation stands at 37%, marking a notable increase from previous years and signaling renewed investment in capital generation.
  • Surge in New Company Registrations: A robust surge in new company registrations underscores burgeoning growth prospects, with approximately 93,000 companies registered in the first half of 2023-24, compared to 59,000 registrations five years prior. Notably, the average daily registration of new companies has spiked to 622 in 2023-24, reflecting a substantial 58% increase from 395 registrations in 2018-19.
  • Accelerating Credit Growth: Scheduled commercial banks (SCBs) have witnessed an uptick in credit growth (year-on-year) since early 2022, with aggregate deposits expanding by 13.2% and credit by 20% until September. With the onset of the festive season, the Government anticipates robust credit demand in the forthcoming months.
  • Formalization of the Economy: The growth in credit is attributed to the formalization of the Indian economy over the past decade, as individuals with no prior credit history increasingly integrate into the banking system. Approximately 40% of new credit accounts added in the last nine years originate from individuals without prior credit records, contributing to at least 10% of incremental credit growth.

Suggested Measures:

  • Acknowledgment of Changed Realities: India must acknowledge the transformed geopolitical landscape of South Asia and reassess its traditional approaches to regional diplomacy.
  • Focus on Strengths: Rather than engaging in direct competition with China, India should leverage its unique strengths and historical ties to foster a new engagement with its neighbors.
  • Maritime Advantage: India’s maritime advantages in the Indo-Pacific offer opportunities for enhancing regional cooperation and countering China’s influence. New Delhi should prioritize maritime partnerships with smaller South Asian states to advance its Indo-Pacific strategy.
  • Engagement with External Partners: India should embrace partnerships with external actors to address common regional challenges, fostering a collaborative approach to regional security and development.
  • Utilization of Soft Power: India can harness its soft power assets, such as cultural diplomacy and people-to-people exchanges, to maintain its influence in the region and mitigate conflicts through informal channels.