Trends to Watch in South Asia Next Year

Welcome to Foreign Policy’s South Asia Brief.

Last week, we reviewed a turbulent 2022 in South Asia. This week, we look at four key questions for the region in 2023, from India’s potentially big year to an uncertain outlook for regional economies.

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India starts 2023 with some of the most favorable trend lines in the region. At some point next year, it will become the world’s most populous country. Despite concerns about inflation and unemployment, it has avoided the economic turbulence felt elsewhere in the region. India’s booming economy—now the fifth largest—is expected to be the fastest-growing major economy in the world next year.

India will elevate its role on the world stage through its yearlong leadership of the G-20, the world’s most powerful economic bloc. 2023 is also set to be a big year for Indian science and technology. The world’s biggest technology firms are likely to keep exploring relocating production from China, and India plans to conduct milestone tests for space exploration as it works toward launching its first human-driven space mission.

Meanwhile, India’s domestic politics will heat up as the country moves closer to national elections in 2024. There are nine scheduled state elections next year, and the ruling Bharatiya Janata Party (BJP), which has remained powerful thanks to the enduring popularity of Prime Minister Narendra Modi, will likely ramp up its Hindu-nationalist agenda on the campaign trail. This helped the BJP win reelection in 2019 and key state elections more recently, but it could produce more hateful rhetoric that fuels communal tensions.

India has a big opportunity to shine next year, but divisive domestic politics risk putting a damper on its efforts to showcase its global clout.

After a difficult 2021, South Asia turned the corner on the COVID-19 pandemic in 2022. Although supply chain bottlenecks affected the region’s economies this year, the challenge should be manageable if the pandemic continues to recede in 2023. But it’s a different story with Russia’s war in Ukraine, which also disrupted South Asian economies, manifesting in high inflation and slower growth.

The global price shocks triggered by Russia’s invasion hit some states especially hard, largely because of preexisting vulnerabilities: from tourism-dependent economies in Nepal and Sri Lanka to years of economic mismanagement in Pakistan. South Asian governments must work to get their economies back on track, and that’s tougher to do the longer the war continues.

Some countries hope for increased remittance inflows from workers in the Gulf states, which benefited from higher global oil prices in 2022. Bangladesh and Sri Lanka aim to finalize new packages from the International Monetary Fund (IMF). Pakistan, where a debt default can’t be ruled out, wants to maintain the one it received this year, although the IMF is unhappy about continued subsidies. India will likely keep importing cheap Russian energy, and Pakistan has signaled it intends to do so for the first time.

With South Asia preoccupied with immediate economic pressures and with some key elections nearing, governments are unlikely to pursue badly needed but politically risky economic reforms, such as land reform in India and export diversification in Pakistan.

An activist holds a banner during a rally to protest rising fuel prices in Dhaka, Bangladesh, on Aug. 6.MD ABU SUFIAN JEWEL/AFP via Getty Images

Several South Asian governments enter 2023 in a precarious political state. The administration in Pakistan, in power only since April, has struggled to rein in economic problems and is deeply unpopular as it staggers toward elections scheduled for October. Ousted Prime Minister Imran Khan has a large and growing support base and will try to force early elections—whether through street protests or parliamentary tactics.

In Bangladesh, the ruling Awami League has been in power since 2009, but recent economic stress sparked large opposition protests this month, just a year before scheduled elections. Sri Lanka’s government took office this summer after mass protests and will try to muddle through until 2024 elections; it hopes that the resignation of former President Gotabaya Rajapaksa in July was enough to appease the public. But protesters have demanded a clean slate.

Afghanistan’s isolated Taliban regime, which promised to restore peace and prosperity when it took over in 2021, starts the year amid another economic crisis and rising terrorism threats. It has instead focused on implementing draconian social policies as millions of people are subjected to deep and extended suffering.

In each of these cases, governments may respond forcefully to challenges to their rule. Islamabad, fearing Khan’s clout, could try to use the courts to get him disqualified from politics. (Khan was already disqualified in October—but by Pakistan’s Election Commission, not the courts.) In Dhaka, the Awami League could use its characteristic muscle to sideline protests. Colombo may be tempted to take a hard line as well, not wanting to let protests distract it from economic recovery efforts.

The economy will be one of the biggest factors to watch. If struggling governments manage to bring some relief, it could ease public anger. Other factors that will shape governments’ fates next year include: Pakistan’s new army chief and the political role he plays; internal divisions within the Taliban; how much influence the Rajapaksa family tries to exert in Sri Lanka; and how susceptible Bangladesh is to increasing pressure from the West to ease its crackdowns.

India-China competition has intensified in South Asia. China has provided submarines to India’s neighbors in Bangladesh, Myanmar, and Pakistan and expanded its naval presence in the Indian Ocean region. The two countries have competed to provide infrastructure, financial aid, and vaccines across South Asia. And this year ended with a reminder of the direct threat that this rivalry poses to India: In December, the two militaries sparred along the eastern portion of their disputed border—their worst fighting since a deadly clash in Ladakh in 2020.

Deepening India-China competition spells bad news for the region. Aside from Pakistan, which is an ally of China, most South Asian countries seek to balance their relations and not get dragged into great-power competition. But staying on the fence could become difficult.

Next year, economic assistance looks to be an active area of competition. Beijing has made major commercial inroads in South Asia in recent years with its Belt and Road Initiative, but New Delhi—perhaps taking advantage of China’s economic slowdown—could push back with offers of financial assistance and infrastructure support. Additionally, with U.S.-China competition also heating up, Washington may step up its own economic engagement in South Asia.

South Asian governments will need to balance their immediate need for economic assistance with their interest in retaining independent foreign policies. Their best solution may be to court assistance from Beijing and New Delhi simultaneously, making the strategic tug of war work for their interests, too.