The next battle in the Bay of Bengal
The Bay of Bengal is a natural bridge between South Asia and Southeast Asia, and is gaining economic and strategic relevance as a significant sub-region within the Indo-Pacific. Almost 1.4 billion people live in the surrounding countries, and almost a quarter of the global trade in goods crosses these waters every year.
However, connectivity within the region is weak. India’s Act East policy seeks to build greater connectivity with its Bay of Bengal partners, but progress on the ground has been slow.
This has given China space to step in, with mega projects under the umbrella of the Belt and Road Initiative (BRI). China has invested heavily in the maritime infrastructure of the region, although the projects have not always benefitted the host country. The Hambantota Port in Sri Lanka is already a white elephant. Other proposed projects such as the Kyauk Pyu port in Myanmar and the Kra canal in Thailand are likely to end up similarly, if executed in their original form.
While India cannot match China’s cheque book diplomacy, it can use a combination of physical, technological and financial projects to improve regional connectivity.
The first is in the domain of energy. A regional power grid will allow hydropower-rich Nepal and Myanmar to sell electricity to Bangladesh, India and Thailand. Access to the electricity markets of India and Bangladesh will enable Myanmar and Nepal to raise funds for building their own hydropower projects. Bay of Bengal states can form a special purpose vehicle (SPV) company to set up the regional grid, with regional governments as shareholders. This can be a model for collaboration on other large projects that seek to promote regional connectivity, such as railways or ports.
Countries such as Japan and Australia, which are a part of the Indo-Pacific and also Quad, can be brought in as shareholders. The oversight provided by this kind of experienced syndicate will prevent small states from having to accept unsustainable projects. It will also be difficult for a single country to dominate the infrastructure sector.
However, investments in physical connectivity take time. And there are often political complications. Therefore, in addition to physical infrastructure, the region must simultaneously focus on other forms of connectivity — digital/virtual/tech.
Here, India has a significant role to play. It has a vibrant startup sector, with over 30 startups already crossing the $1 billion valuation mark in 2021. Most of these are in areas that directly touch the lives of a large number of people. Unlike mega infrastructure, which is top down, these startups aim to solve everyday problems, are bottom-up, and are less impacted by systemic inefficiencies that plague physical infrastructure. They also rely on a larger ecosystem of investors, as opposed to the multilateral institutions controlled by a few governments. Because these startups are privately funded, investments will not lead to debt traps.
However, Indian and foreign and tech investors backing Indian startups rarely venture into the relatively smaller markets of Sri Lanka, Bangladesh and Nepal. This is where governments and multilateral bodies can play a helpful role. A Bay of Bengal venture fund, seeded with capital from local governments but without government control, can be one way to improve regional financial and digital connectivity.
Aid agencies of the United States, Japan and Australia already provide significant assistance in the region. Some of this assistance can be redirected towards funding startups with a social impact in sectors such as agri-tech, fintech and health care. With multilateral funding available, these startups will enable the creation of a local tech ecosystem and better access to seed/venture funding for new entrepreneurs.
In their joint statement on September 24, Quad members have reaffirmed their support for the Blue Dot Network, which certifies infrastructure projects for transparency and sustainability. The grouping also emphasised the importance of free, fair and transparent lending practices. Supporting tech start-ups will also enable these safeguards for digital infrastructure. To Act East, invest in tech.
Amit Bhandari is a fellow, Gateway House, and the author of the report, Unfinished Connectivity in the Bay of Bengal
The views expressed are personal