As dominant economies mature in their domestic markets, they pursue expansion opportunities in emerging markets to tap into new consumer bases and cheaper production factors—resources, labour, capital and innovation—to diversify their revenue sources for continued economic vitality. The Indo-Pacific region has emerged as a pivotal frontier for the expansion of leading economies. Comprising 60 percent of the world’s population and contributing 40 percent to the current global gross domestic product, the region is home to the world’s fastest-growing economies.

Historically, the Indo-Pacific has experienced a blend of competition and cooperation due to its fertile economic ground and the convergence of global economic realities with local conditions. Today, the region confronts substantial pressures that intricately mould and influence its politics, economic and foreign policies. These challenges have now extended to South Asia. The region’s politics and economic policies are predominantly influenced by China’s Belt and Road Initiative (BRI) and the strategic interests of the United States, the European Union (termed the West) and India in the Indo-Pacific. This has brought increasing geopolitical and investment competition.

Between 2008 and 2022, China invested at least $52 billion in South Asia via its BRI framework. Concurrently, other actors like the US, EU and India are developing their Indo-Pacific strategies (IPS). India’s 2022 extension of a line of credit worth $14 billion exemplifies its growing commitment to counterbalance Chinese investments. This increasing competition and rivalry has profound implications, compelling South Asian nations to partition their foreign and economic policies. It poses a credible risk to the fabric of regional cooperation, particularly given the pre-existing political and economic challenges in what is already the world’s least integrated region.

The dual thrust

Since 2015, the BRI has garnered significant attention in South Asian media, the political sphere and economic discourses. The increased focus emerged with the involvement of two prominent Chinese policy banks—the China Development Bank and China Export-Import Bank—commencing major investments of $23 billion in Pakistan and $12.5 billion in Sri Lanka. By 2019, all South Asian countries, except India and Bhutan, had become BRI partners, drawing Chinese investments and influences. India and particularly the West view BRI as a geo-economic manoeuvre by China to assert control over the world’s economic arteries from a geopolitical standpoint. India’s reluctance to endorse the BRI stems from its desire to maintain its influence in smaller South Asian countries and along the Indian Ocean rim, its strategic backyard. Consequently, the Sino-Indian rivalry and the West’s Indo-Pacific ambitions have brought synergy, with IPS taking centre stage. This alignment of interests seeks to actively engage with smaller South Asian economies.

The perception of the IPS has become difficult to decipher due to the emergence of new economic and political frameworks in the region, such as the Millennium Challenge Corporation compact being recently endorsed by Nepal but rejected by Sri Lanka. This has led to a lack of clarity in understanding the boundaries of IPS and what it covers and does not.

On the BRI front, the recent sovereign debt crises faced by Pakistan and Sri Lanka highlighted the rift in their internal politics concerning BRI investments and debt restructuring. Chinese infrastructure projects were alleged to be the primary contributors to these crises by the West and India. Given the region’s evolving bipolarity, these intricacies will likely impact smaller states’ foreign policy autonomy. Allies of the IPS adopt the viewpoint that BRI projects have the potential to result in a debt trap, corruption, political instability, environmental issues and unsustainability, among others. This is on par with the Sri Lankan and Pakistan cases to a certain extent. Considering this, the perception conveyed by allies of the IPS suggests that the BRI indicates neo-colonialism.

Be that as it may, the smaller economies in South Asia urgently require investments to boost their economic growth. These nations seem to foster engagement with both sides and reap optimal benefits from their competition, as long as it aligns with their national interests. However, their success in doing so has been somewhat constrained. With that being mentioned, concerning South Asia, the multifaceted geopolitical and geo-economic rivalry will likely contribute to additional disintegration in the already least-integrated region. Regardless of the situation, in the short run, individual nations might gain benefits, but in the long run, it is likely to hinder South Asia’s aspiration for regional integration, potentially leading to increased regional disorder.

One South Asia

Historically, South Asian nations have been intricately connected via a complex network of relationships and proximities that extend across civilisational, economic and political milieus. During the Cold War era, these nations actively displayed their collaboration with various global powers, albeit on an individual basis rather than a collective one. However, today, the dynamics of IPS and BRI are more complex as they challenge the region’s long-standing aspirations for better integration. The contests of various forms and natures have increased the integral risks to regional security and cooperation. To begin with, India aligns with the West, while Pakistan aligns with China, forming a distinct and evolving military and economic alliance. Conversely, the influence in Sri Lanka, Bangladesh, Nepal and Maldives remains confined to domestic politics shaping foreign policies.

Regional bodies like the South Asian Association for Regional Cooperation (SAARC) are inactive, and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) has attained limited success. In light of the growing influence of China, India and the West in South Asia, the discourse on the importance of regional cooperation, particularly in trade and investment, has reignited. The substantial impact of regional economic cooperation and integration, driven primarily by trade and investments, has been a powerful force in achieving inclusive and sustainable development outcomes. It also contributes to welfare gains across regions.

Closer to home, the Association of Southeast Asian Nations (ASEAN) stands out as a prominent example within the developing world, showcasing the significant development dividends derived from effective regional cooperation. Our region needs a unique, irreplaceable and functional regional organisation, regardless of the existing tensions between India and Pakistan. By resolving the prevailing intraregional discord, South Asia can boost its collective comparative advantages and create room for navigating and addressing the challenges of great power contests in the region. Adopting a new orientation and discourse, emphasising “One South Asia” is crucial to liberate the region from the unpredictable and volatile political economy. The region appears to be losing momentum rather than attaining the collaborative synergy necessary for collective security, development and economic growth. South Asia’s aspirations to progress as a developed region hinge on achieving mutually beneficial outcomes for all economies, fostering a collective win-win situation.

Today, South Asia is at a critical juncture amid great power contestations. Hence, there is a compelling call for unity. The moment has arrived for South Asian nations to transcend individual interests, harness their diversity as a collective strength and chart a course toward shared prosperity amid global uncertainties.