India’s geographical location at the heart of South Asia gives it a natural leadership role in the region. To consolidate its position and promote peace, stability, and prosperity in its immediate surroundings, India has long pursued the “Neighbourhood First” policy, a strategic pillar of its foreign affairs. However, in light of emerging global realignments, regional uncertainties, and expanding Chinese influence, there is a pressing need to reimaging and recalibrate India’s neighbourhood policy in 2025 to make it more robust, inclusive, and interest-driven.

Background: India Neighbourhood Policy

Launched in 2014, the Neighbourhood First policy aimed at giving priority to India’s relationships with its immediate neighbours — including Bangladesh, Nepal, Bhutan, Sri Lanka, Maldives, Afghanistan, Pakistan, and Myanmar. It emphasized greater connectivity, security cooperation, economic integration, and people-to-people contacts.

Notable successes include the India-Bangladesh Land Boundary Agreement (2015), improved India-Nepal cross-border connectivity, and COVID-19 vaccine diplomacy where India supplied vaccines to several neighbours under “Vaccine Maitri.”

Current Regional Landscape: Key Challenges

Despite past progress, several internal and external factors have complicated India’s neighbourhood engagement:

1. Geopolitical Competition with China

China’s increasing footprint in South Asia through its Belt and Road Initiative (BRI), port development (Hambantota in Sri Lanka, Gwadar in Pakistan), and infrastructure investments has led to a strategic encirclement of India.

• In Sri Lanka, despite India’s cultural and financial aid during the 2022 economic crisis, China remains a dominant creditor, influencing policy decisions.
• In Nepal, Chinese-funded projects and political outreach have reduced India’s traditional leverage.

2. Political Instability and Democratic Setbacks

Internal political transitions and instability in neighbouring countries affect bilateral relations:

• In Bangladesh, recent elections saw strained ties as India navigates a post-Sheikh Hasina scenario with rising anti-India sentiments.
• Myanmar’s military regime, following the 2021 coup, has led to refugee inflows into India’s Northeast and created challenges for border security and diplomacy.

3. Border Disputes and Trust Deficit

• India-Nepal ties were strained after the Kalapani border dispute flared up in 2020.
• India-China tensions at the Line of Actual Control (LAC) continue to shape New Delhi’s cautious approach in the wider region.

4. Economic Asymmetry and Connectivity Gaps

India’s neighbours often view its size and economic dominance with suspicion. Additionally, infrastructure and trade linkages remain weak, preventing deeper regional integration:

• Intra-SAARC trade remains below 5% of total trade, compared to 25% in ASEAN.

Recent Developments in 2025

• In April 2025, India, the UAE, and Sri Lanka jointly launched an energy hub in Trincomalee, marking a new chapter in trilateral cooperation to counterbalance Chinese influence.
• India is collaborating with Bhutan on digital connectivity and hydropower, highlighting new-age cooperation.
• Migrant and refugee challenges from Myanmar and Afghanistan have intensified, requiring India to address humanitarian concerns alongside security imperatives.

Opportunities and Strategic Shifts Needed

To reclaim its leadership in South Asia, India must move from a “Neighbourhood First” to a “Neighbourhood Smart” strategy, ensuring mutual trust and shared prosperity.

Suggestions for Reimagining the Policy

1. Institutionalise Regional Cooperation Beyond SAARC

Given the dysfunctionality of SAARC, India should invest more in forums like:

• BIMSTEC (Bay of Bengal Initiative) for economic and security cooperation.
• IORA (Indian Ocean Rim Association) for maritime collaboration.

This diversification reduces reliance on any one multilateral body and allows issue-based coalitions.

2. Prioritise Sub-Regional Connectivity Projects

India must fast-track connectivity under initiatives like:

• BBIN (Bangladesh-Bhutan-India-Nepal) motor vehicle agreement.
• India-Myanmar-Thailand trilateral highway, which remains incomplete due to security concerns in Myanmar.

This will enhance trade, tourism, and people-to-people contact in border regions.

3. Redefine Development Partnerships

India should:

• Offer transparent financing, unlike China’s debt-laden investments.
• Focus on capacity building, climate resilience, and technology sharing.

For instance, India’s solar grid initiatives under ISA (International Solar Alliance) can extend to its neighbourhood.

4. Deepen Defence and Maritime Cooperation

India should:

• Expand joint military drills, intelligence sharing, and counter-terrorism cooperation.
• Offer military equipment support (as done with Mauritius and Maldives).
• Strengthen coast guard coordination in the Indian Ocean, countering piracy and illegal fishing.

5. Address Humanitarian and Climate Challenges

India can lead by:

• Offering disaster relief training and early warning systems.
• Collaborating on glacier melt studies and transboundary water management (especially with Nepal, Bhutan, and Bangladesh)

Conclusion: A Recalibrated Policy for a Resilient Region

India’s neighbourhood is in flux — politically, economically, and strategically. As the regional order evolves, India must reimagine its policy with pragmatism, inclusivity, and strategic foresight. By deepening engagement beyond aid, prioritizing regional connectivity, and projecting itself as a responsible and responsive power, India can truly emerge as the net security and prosperity provider in South Asia.

The future of India’s foreign policy begins at its borders. A stable, prosperous, and cooperative neighbourhood is not only desirable — it is indispensable for India’s global ambitions in the 21st century.