EDITED BY PREETI KAPURIA
As the world’s economy has come under the grip of the two-year-old COVID-19 pandemic and the Russia–Ukraine conflict, India’s neighbourhood is experiencing unprecedented crises. Political instability, economic meltdown, and deteriorating social conditions afflict Sri Lanka, Nepal, Afghanistan, Myanmar, and increasingly, even Pakistan. While Sri Lanka, Nepal, and Pakistan are facing declining foreign exchange reserves and a balance of payment crisis, Afghanistan and Myanmar are witnessing sharply deteriorating humanitarian conditions.
This series is a rapid evaluation of the current economic situation in India’s neighbouring countries. The essays presented here examine how national politics, governance and regional geopolitics, shape both economic and humanitarian conditions within each nation. The essays bring together expertise from academia and the media who have analysed and written about the effects of macroeconomic policies and regime changes on economic and social outcomes.
The island nation Sri Lanka has sprung the biggest surprise, going from conditions of relative prosperity and stability to its worst economic crisis since its independence. It has defaulted on its fiscal and international monetary commitments, and is left with little or no reserves to sustain the supply of food, fuel, electricity, and medicine. Rapid inflation has drastically reduced the purchasing power of ordinary citizens and the demand for political accountability has only led to a clampdown on individual rights through the imposition of national emergency. The origin and expansion of the crisis can be traced back to the pandemic and a series of flawed and misguided policy initiatives that have crippled agricultural production and raised the fiscal deficit to catastrophic levels.
Nepal, India’s landlocked neighbour, may have fared better but is also heading towards an economic crisis. Inflation is on the rise. Debilitated by unproductive loans, trade imbalances, and a decline in foreign exchange earnings, Nepal is amidst a liquidity crunch in the banking sector. The COVID-19 pandemic had a crippling impact on the hospitality sector and with it the foreign exchange earnings. Overseas remittances, which constitute nearly a quarter of the economy and are crucial for external payments and maintaining reserves, have also declined.
In both Afghanistan and Myanmar, civilian unrest is building against the hard-line rulers with a tight grip on power. Protracted conflicts and poor governance have left failing economies, weakened public health systems, food shortages, and a lack of public safety in both nations. Episodes of conflict and violence may have been punctuated by relative peace, but the number of people requiring humanitarian assistance continues to rise.
The evolving crisis in the neighbourhood is something that India cannot afford to ignore. The crisis is an opportunity for India to create mutually beneficial, people-oriented, regional frameworks for stability and prosperity. And in the geopolitical stand-off with China, the importance of maintaining positive influence with India’s neighbours cannot be understated.
