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Rethinking interdependence in South Asia

It is well-documented that South Asia, a region with India at its centre, was for many decades the least economically-integrated region in the world and suffered the economic consequences of lower growth. This was the case despite historical, cultural, and even recent administrative linkages that would on the surface suggest the contrary. However, distrust of India which is endemic among neighbours is partially an artefact of recent history, including large out-migrations of people from the Indian heartland. Other contributory factors included modern variants of the Mandala Theory of foreign policy that position minorities in neighbouring countries as natural allies of India and disruptions caused to connectivity by the inward-focused economic policies of the decades after independence.

As the economies of India and its neighbours continued to grow and their global linkages developed in the context of various degrees of liberalisation, the green shoots of a novel framework emerged. This framework, one of mutual interdependence, was centred around energy, telecom, and transportation. This has made higher levels of economic growth possible. For obvious reasons, it is necessary to separate the cases of Pakistan and China, which also share borders with India, from the present discussion. The neighbours referred to here are significantly smaller. Sri Lanka is among these smaller neighbours and stands to gain significantly from greater regional interdependence and closer economic links with India and others. Energy, telecom, and transport are three areas in which this interdependency is explored further, including through the development of future scenarios.     

Energy: Tapping into regional power grids

Bhutan and Nepal are endowed with enormous hydropower potential. In the latter part of the 20th and early 21st century, India helped Bhutan develop its hydropower and also purchased the generated electricity, which quickly became its primary export and the contributor of as much as 70 percent of the Bhutan government’s revenue. A monopsony is not an ideal situation to be at the wrong end of. When the product is electricity that is moved by cables, there are few possibilities of developing additional markets, short of complex regulatory solutions such as wheeling.  

Yet, the arrangement worked and served as a model for others. It was true that India could have crippled the Bhutanese state by refusing to purchase its electricity and using the leverage to exert pressure on Bhutan for whatever objective. Yet, a halt in electricity purchases did not occur because that would have caused massive disruptions to the economies of West Bengal, Bihar, Odisha, and Jharkhand. Disruption of the relationship would cause severe damage to both sides. Keeping it going benefitted both. This is interdependency in practice.

The fear of becoming dependent on the large neighbour is not without basis. Bhutan was cut off from subsidised fuel from India in 2013, prior to the Bhutanese Assembly elections which the Indian government wished to influence, allegedly due to displeasure with the kingdom’s developing ties with China. Though many explanations were offered concerning the 2015 Nepal blockade by India, it was most likely India’s way of expressing its displeasure over how the Madhesi people in the region adjacent to the India-Nepal border were treated during the Nepalese constitution-making process. 

Those who traded with Bhutan and Nepal would have been negatively affected by the above actions. But its impact would have been narrowly focused and the effects localised. This was quite different from the likely fallout from a cessation of India’s electricity purchases from Bhutan. Purchasing electricity from Bhutan yielded considerable benefits for India; its cessation would have had serious repercussions across a large swath of its economy. But the impact on India would not be the same as on Bhutan, because of the radically disproportionate sizes of the two economies.

It thus appears that any country wishing to preserve or enhance its sovereignty should avoid or minimise critical dependencies, such as obtaining all fuel supplies from a single country. However, there is no reason to eschew the considerable benefits that come from transactions and relationships that satisfy the criteria of mutual interdependence. If, in the interests of maximising sovereignty, Bhutan turned down the opportunity to sell electricity to the Indian grid, it would have foregone a massive source of export revenue and government taxes. The rapid economic growth Bhutan experienced in the past decades would not have been realised. The most likely result would have been a different form of dependency. India too would have been deprived of a reliable source of renewable energy to power its growing economy.

Scenario 1: The success of cross-border trade in electricity between Bhutan and India was an obvious model for the India-Nepal electricity trade, but it caught on slowly only after many hiccups. To realise Nepal’s significant untapped potential in hydropower, the two conditions of investment and market access needed to be satisfied. There was considerable internal resistance to investment by India in the generating and transmission facilities, which was worked around only with some difficulty following the success of the US Millennium Challenge Corporation’s (MCC’s) support for the needed transmission lines and the Nepali private sector’s investments in generating capacity.

Scenario 2: The case of India-Sri Lanka cross-border trade in electricity was more complex. Sri Lanka had almost completely developed its hydropower resources. Its current focus is on the development of wind and solar energy, both of which are sporadic in nature and thus posed difficulties in incorporating into a small grid beyond a certain level. An obvious solution to this problem was the interconnection of the Sri Lankan and South Indian grids, using a HVDC (High Voltage Direct Current) cable across the Palk Strait. The sporadic power generated in the Mannar Basin and elsewhere is now absorbed by the larger system. Indian investments in the Sri Lankan renewables sector accelerated the process.

Similarly, Indian investments in the long-unused Trincomalee oil tanks finally unlocked the much-talked-about potential of the Trincomalee port as an energy hub serving the larger Bay of Bengal region, including the eastern seaboard of India.

Telecom: Shared connectivity     

Interdependency in telecom bandwidth has also emerged regionally; here, however the power asymmetry took a different form. With the rapid growth of data communication, the demand for telecom “big pipes” capable of hauling terabytes of data both domestically and to data centres located all over the world increased apace. 

In the first decades of the 21st century, the principal landing points for international subsea cables in India were mostly on its west coast – Mumbai, Kochi, and Thiruvananthapuram – with Tuticorin and Chennai on the southern part of the east coast. That meant long domestic backhaul to get to the landing points for internet traffic from India’s northeastern states, through a limited number of cables laid along the Siliguri Corridor, a 60 km strip of territory that is only 22 km at its narrowest point, which lies between Nepal and Bangladesh. As a result, the quality of internet service in the seven sister states of the northeast was poor.

Below the Siliguri Corridor lay Bangladesh which had two international cables landing on its territory. Here was the solution to the problem of backhaul experienced by the northeastern states as well as West Bengal and Sikkim. Once India agreed to purchase bandwidth from Bangladesh’s wholesale carriers, the quality of service improved and costs went down. 

On this occasion, it may be argued that India made itself dependent on Bangladesh. Technically, Bangladesh can cut off or degrade the quality of the backhaul services provided. However, this would mean damage to a long-term service export opportunity and losses caused by unused capacity on domestic and international cables to the Bangladeshi carriers. Again, the criteria of interdependence were satisfied. 

Scenario 3: Later, India permitted Nepal and Bhutan to transit across the Siliguri Corridor into Bangladesh so that they too could benefit from the low latencies and costs of connecting to international cables through Bangladesh. 

Scenario 4: With the SEA-ME-WE 5 cable directly connecting to Matara in the south of Sri Lanka (shaving off milliseconds of latency from being connected via spurs, as before) and the location of the cable repair facility in Hambantota, were the beginnings of a pivotal role for Sri Lanka in terms of international connectivity. The Asian Highway route, AH 43, which runs from Matara to Agra via Bangalore and Hyderabad was upgraded by both countries with the laying of road authority-owned fiber. This resulted in redundancy for the connectivity that was provided by cables landing in Chennai.

Transport: Docking at world-class ports

Colombo has for long been the second largest container port serving India. Depending on the year, Colombo and the Jawaharlal Nehru Port Trust (JNPT) Port (or Nhava Sheva Port) are the largest and second largest container ports in South Asia and among the top 25 or 30 in the world. It is not incorrect to say that Colombo is India’s second largest container port because over 70 percent of the containers going through Colombo are from or headed to Indian ports. Colombo was the first deep-water port in the region, capable of accommodating the largest container vessels. The deep-water South Harbour was completed in the first decade of this century. It was designed for three container terminals, of which the first was in operation since 2013 and the second and third were completed by 2025.

In addition to the South Harbour, Colombo has three other container terminals, one being a public-private partnership. The terminal that handles the most containers is CICT in the South Harbour, which is 85 percent owned by China Merchant Port Holdings. Tensions between India and China have not prevented Indian shippers from enjoying the benefits of the efficiencies of the CICT Terminal and the access through it to the largest carriers. The second terminal is majority owned by India’s Adani Group. 

The continued success of the Colombo Port depends on its use for transshipment by India. If not for Indian volumes, Colombo would not be among the Top 25 Container Ports in the world and would not be one of the best-connected ports according to UNCTAD. Indian politicians, particularly in the run-up to elections, would talk up the need for a hub in South India to retain the transshipment payments now flowing to Colombo.

Scenario 5: Periodic posturing by politicians was ended by the decision of the two governments to enter into a sectoral agreement which recognised Colombo as an integral part of the Indian transportation system and assured non-discriminatory treatment. If Colombo was efficient, it would get business. Indian shippers, too, would benefit from efficiency and competition among ports for their business.

This framework of mutual interdependence can continue to shape the future of India and its relations with smaller states in the South Asian region.

The opinions expressed in this article are those of the author. They do not reflect the opinions or views of Debas.

This photo, “Colombo Skyscrapers from the new Port” is copyright (c) 2022 Nazly Ahmed and made available under a Attribution-Noncommercial-Share Alike 2.0 license

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