By investing in regional energy infrastructure and fostering interdependence, India aims to underpin economic growth, counterbalance China's influence, and enhance its global standing
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India’s energy security has become even more precarious in the past 20 years, as the country’s energy imports more than doubled to 40 percent of total energy requirements in 2022 from 18 percent in 2002. In the same period, however, the country diversified its energy partners from 14 to 32. These energy supplies and diversifications are essential to India’s overall economic security as the country will require more and more energy supplies to reinforce its economy, which is growing at an annual rate of approximately 8 percent.
New Delhi is building green energy infrastructure (hydel power plants and solar parks) in Bangladesh, Bhutan, Nepal and Sri Lanka, and is connecting these countries’ national energy apparatus to India for exporting excess energy generated in these nations.
An essential pillar in the Government of India’s (GoI) strategy for resilient energy supply chains is “nearshoring” energy supplies and greening the Indian grid. The GoI is pursuing these goals in tandem with the Neighbourhood First policy, by building energy infrastructure across South Asia. New Delhi is building green energy infrastructure (hydel power plants and solar parks) in Bangladesh, Bhutan, Nepal and Sri Lanka, and is connecting these countries’ national energy apparatus to India for exporting excess energy generated in these nations. This article analyses India’s energy cooperation in South Asia, assesses its impact on bolstering regional connectivity, and delineates New Delhi’s geopolitical rationale for its South Asian energy outreach.
India’s development assistance in the neighbourhood increased dramatically after 2005, increasing at an average annual rate of 11.4 percent and reaching US$ 7.6 billion in 2023 from US$ 968 million in 2005. This development was made possible due to the 1991 economic reforms that led to sustained economic growth for over a decade, thereby providing a fillip to New Delhi’s ability to forge deeper and more meaningful economic partnerships in South Asia. In the energy sector, India loaned, invested, or extended Lines of Credit worth US$ 7.15 billion between 2005 and 2023 to further collaboration with its neighbours—Bangladesh, Bhutan, and Nepal (see Table 1). Indian energy development assistance ranges across cross-border transmission lines, hydel power plants, oil and gas pipelines, and undersea lines for grid integration. These are essential regional energy connectivity projects undertaken by India, as Nepal, Bhutan and Bangladesh feature prominently in India’s energy security matrix and the development of transmission lines and hydel power projects in these countries enhances the ease of electricity trade between India and its neighbours. Resultantly, electricity trade among the aforementioned countries has grown from 2 billion units to 8 billion units between 2016 and 2023.
Table 1: Major India-financed projects for energy cooperation in South Asia (2005-2023)
Source: The Ministry of Power, GoI, the Ministry of External Affairs, GoI and the EXIM Bank of India
India’s energy infrastructure development endeavours with Nepal culminated in the 25-year long-term power purchase partnership agreement between the two countries, wherein India will annually buy 10,000 MW of hydel energy from Nepal by 2030. In FY22, India imported 1500GW from Nepal. The India-Nepal energy partnership is synergistic. India’s border regions and northern states are energy deficient, with power cuts commonplace in tier-two cities. Nepal, currently, has over a hundred hydel power plants and another one hundred and fifty in the pipeline. This massive and rapid hydel power capacity development will lead to a surplus that energy-needing neighbouring countries—India and Bangladesh—can utilise.
Similarly, India and Bhutan also stand to benefit from their energy partnership mutually. In FY22, India imported 1500MW of electricity worth US$ 83 million from Bhutan. These imports comprised 70 percent of Bhutan’s hydel power generation capacity. Thimphu is currently also coordinating with multilateral development banks such as the World Bank and the Asian Development Bank, and bilateral partners like India, to increase its installed hydel power capacity (2.3GW) to cater to energy-deficient neighbours such as India, Bangladesh and Myanmar.
India’s border regions and northern states are energy deficient, with power cuts commonplace in tier-two cities.
India’s energy cooperation with Bangladesh mostly involves importing through the India Bangladesh Friendship Pipeline (IBFP) and the newly developed electricity transmission network. India is also endeavouring to link Bhutan and Nepal with Bangladesh through Indian territory for greater energy connectivity across South Asia.
India’s cross-border collaboration for energy infrastructure development is pivotal for connecting the geographies of India, Bhutan, Bangladesh and Nepal. India’s connectivity vision for South Asia includes integrating these geographies through physical infrastructure and policy coordination. It envisages a multimodal Bangladesh Bhutan India Nepal economic corridor in the long-term scenario. Besides geopolitical and geostrategic convergences, there are economic complementarities amongst these corridor countries which can be synergised for greater regional integration. Bangladesh and India are energy-deficient countries, which heavily rely on conventional energy sources in their energy production matrix. In corollary to this, Bhutan and Nepal produce an energy surplus annually.
New Delhi’s development partnerships in South Asia also aim to counter Chinese influence in the South Asian region. Chinese President Xi Jinping’s transnational infrastructure development programme, the Belt and Road Initiative (BRI) has invested over US$ 150 billion in South Asia between 2013-23 to develop infrastructure for advancing growth in critical economic sectors, which has resulted in growing geopolitical and economic heft for China and its recognition as a major development partner in the region. Incidentally, of the cumulative South Asian BRI investments, US$ 54 billion was invested in developing energy infrastructure in Bangladesh, Nepal, Myanmar, Sri Lanka and Pakistan. China’s energy investments in the region are driven by its energy security strategy, similar to India’s. Beijing wishes to develop energy infrastructure for importing energy from its South Asian partners. Beijing’s territorial disputes and regional rivalry with India also play a crucial role in China’s development outreach in South Asia, especially with Pakistan and now Maldives, presenting Beijing as an “India+1” option for South Asian countries.
India and China are vying for developing off-shore energy assets in Sri Lanka and Bangladesh, renewable energy in Nepal, and deepening ties with the new Male administration, which is largely pro-China and came to power on an anti-India electoral basis.
Since the BRI’s commencement in 2013, Chinese energy foreign direct investment (FDI) has accounted for 47.3 percent of South Asia’s total FDI. Major Chinese energy BRI projects in South Asia include the Nepalese West Seti dam and the Upper Trishuli hydropower project; the Bangladeshi Payra, Patuakali and Barisha power projects, and the 15 Pakistani projects under the China-Pakistan Economic Corridor worth approximately US$ 15 billion. Currently, India and China are vying for developing off-shore energy assets in Sri Lanka and Bangladesh, renewable energy in Nepal, and deepening ties with the new Male administration, which is largely pro-China and came to power on an anti-India electoral basis. India wants to counter China’s BRI through increased development aid in the neighbouring countries because of their geopolitical and geostrategic relevance to India’s territorial integrity. Furthering energy cooperation is a step towards regional connectivity and economic integration, something that can act as a hedge against Chinese influence in the region.
India's energy cooperation with its South Asian neighbours is a cornerstone of its foreign policy and energy security. By investing in regional energy infrastructure and fostering interdependence, India aims to underpin economic growth, counterbalance China's influence, and enhance its global standing. While challenges like geopolitical tensions and competing interests persist, the mutual benefits of energy collaboration are clear. As India continues its rise on the world stage, its energy diplomacy is set to play an increasingly pivotal role in shaping the region's future.
Prithvi Gupta is a Junior Fellow at the Observer Research Foundation.
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Prithvi works as a Junior Fellow in the Strategic Studies Programme. His research primarily focuses on analysing the geoeconomic and strategic trends in international relations. ...
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