Neighbourhood First? Status Quo of India’s Trade with the Neighbours

Abstract

Driven by the objective to create a congenial relationship with the neighbours, the Narendra Modi Government of India instituted the ‘ Neighbourhood First’ policy (NFP) in 2014 which is a continuation of the neighbourhood policy with some new features. Sadly, despite India’s diligent effort expended to enhance its relationship with its neighbours, all exercises were nugatory. It poses the question of how India can effectively pursue the objectives of its foreign policies. The realisation of the NFP’s intended goals remains ambiguous. Consequently, it becomes imperative to assess the impact of Modi’s NFP at this opportune moment. Bilateral trade serves as an essential indicator, reflecting the state of relationships between nations. Thus, this study raises two key questions: first, whether the neighbourhood factor influences India’s exports, and second, how the NFP affects India’s trade with neighbouring countries. The study aims to quantify the impact of the neighbourhood on India’s exports and evaluate the NFP’s role in facilitating trade within the region. The findings reveal that the neighbourhood, as a collective entity, significantly influences India’s exports to neighbouring countries. However, when considering individual countries, the results present a different perspective. Moreover, the study demonstrates that, despite the NFP’s original intention to promote friendly relations with its neighbours, it has not been notably successful. The failure of this policy, along with India’s deteriorating relationships with its neighbors, is evident in its export patterns. JEL Codes: F13, F14