Indian influence in South Asia declines as China expands foothold

China's exports to the region grew over five times between 2005 and 2020

Earlier this week, the Indian government announced that it would send more fuel-laden ships to Sri Lanka to help tide over the island nation’s shortage. Besides ensuring shipments of grains and other relief products, India has extended a $4-billion credit line to the country. This escalation of effort comes at a time when India has been ceding space to China in the South Asian region.

Sri Lanka, in fact, is a good example of these changing geopolitical dynamics. India accounted for 18 per cent of Sri Lanka’s imports in 2005, and China’s share was just 9 per cent. In 2020, however, while India’s share in Sri Lanka’s import basket was unchanged at 18 per cent, China’s share climbed up to 21.7 per cent. In absolute terms, India’s exports to Sri Lanka rose from $1.82 billion in 2005 to $3.32 billion in 2020, whereas China’s went up from $0.91 billion to $4.01 billion — surpassing India’s exports.

During the same period, Sri Lanka’s exports to China witnessed a 7.2 times jump, whereas the country’s exports to India had only increased 1.2 times.

This phenomenal growth in China’s exports is not just limited to Sri Lanka. China’s exports rose 4.5 times in Pakistan from $3.24 billion to $14.7 billion in 2020. It accounted for a third of Pakistan’s total imports, compared to a 15 per cent share in 2005. India’s trade with Pakistan has collapsed following tensions between the two countries. In 2020, India’s exports to Pakistan were just 40 per cent of the 2005 levels.

Meanwhile, Pakistan’s exports to China have increased 3.1 times during this period.

In the case of Bangladesh, China’s exports jumped six times, whereas, for India, the jump was 6.6 times. The database of the Observatory of Economic Complexity (OEC), the world's leading data visualisation tool for international trade, shows that China’s exports to India increased from $9.76 billion in 2005 to $64.2 billion. India’s exports to China rose just 2.5 times from $7.46 billion to $18.5 billion, widening the trade balance between the two countries.

The only country where India’s kept its share steady is Nepal. Despite tensions with Nepal over water sharing and border issues, that even involved an economic blockade of supplies to Nepal in 2015, India’s trade with Nepal grew seven times between 2005 and 2020, compared to a 6.4 times growth for China. In absolute terms, India’s exports to Nepal at $5.85 billion were nearly 400 per cent more than China’s $1.17 billion in 2020. Although exports from Nepal to China grew faster, there was a 39-times difference between Nepal’s exports to India and China.

As South Asian economies reel under debt and struggle from economic hardship, India has an opportunity to get back in the game again.