South Asia’s tipping point: Inequality, instability, and India’s leadership test

The pandemic acted as both a trigger and a breeding ground for this turbulence. It widened the gap between rich and poor, eroded trust in governance, and sharpened frustration among youth who already felt excluded from opportunity. What we are now witnessing across South Asia and beyond is part of a global pattern of volatility, with structural roots that cannot be ignored.

The inequality trap

For eight decades, capitalism and open markets have generated extraordinary prosperity. Hundreds of millions across Asia were lifted out of poverty, and global integration spurred innovation and growth. Yet, capitalism today faces a legitimacy crisis.

The “top one per cent” phenomenon has become starker, not only in advanced economies but in the Global South. Wealth and influence are concentrated in the hands of a few, while the middle class feels squeezed and the poor remain vulnerable. Social media and digital technologies have amplified this inequality, exposing privilege and corruption in real time while fuelling polarisation. The result has been growing impatience among young populations, who are less willing to wait for incremental change.

South Asia reflects these trends vividly. Sri Lanka’s dramatic political and economic crisis in 2022 was not only about fiscal management but also about the collapse of trust between rulers and ruled. Bangladesh is wrestling with political polarisation; Nepal’s streets echo with popular dissatisfaction; Afghanistan and Pakistan remain mired in instability; and even smaller states such as the Maldives and Bhutan have faced their own disruptions.

The uprisings in the region are, therefore, not isolated events. They are signals of a deeper malaise — an inequality trap that erodes legitimacy, undermines stability, and fuels volatility.

India’s first response

India has not stood idle. Through its Neighborhood First policy, New Delhi has acted decisively in moments of crisis. When Sri Lanka teetered on the edge of collapse, India provided more than $4 billion in assistance, a lifeline that few others were willing to extend. Bhutan, Nepal, and the Maldives have also benefited from India’s development aid, infrastructure projects, and people-to-people initiatives.

Through the Vaccine Maitri programme, India provided critical support during the pandemic, supplying vaccines that potentially saved millions of lives across the neighborhood and far beyond.

These interventions reinforced India’s role as the indispensable partner in South Asia. But they also highlighted a limit: Crisis management alone cannot ensure lasting stability. The underlying economic and social pressures — inequality, youth exclusion, and fragile institutions — remain unresolved.

The case for Neighborhood First 2.0

This is why the time has come for a Neighborhood First 2.0. The region requires not just fire-fighting but a long-term architecture. The challenge is structural, and so must be the solution.

India, with anticipated economic growth of nearly 7 per cent, is well placed to anchor this next phase. It can serve as the locomotive of regional prosperity, pulling neighbors along through deeper integration and shared opportunities.

Where other powers are closing doors, India can open them. As the United States and parts of the West turn protectionist, India can demonstrate leadership by expanding market access to its neighbours. Preferential trade frameworks, easier movement of goods and services, and regional supply chains can help smaller economies stabilise while giving Indian industry new depth.

What Neighbourhood First 2.0 could look like

Regional connectivity: Investments in ports, airports, highways, and railway networks that knit South Asia into a single economic ecosystem. Modernised and cross-border rail links can reduce costs, expand markets, and accelerate people-to-people ties.

Youth-centered growth: Skill development programmes, regional employment platforms, and digital entrepreneurship opportunities that channel the energy of South Asia’s young populations into constructive enterprise.

Inclusive trade and supply chains: Trade frameworks that support not just large firms but also small businesses, women-led enterprises, and rural producers, ensuring that growth spreads more widely.

Shared energy networks: Cross-border electricity grids, gas pipelines, oil logistics, and rail corridors for energy and commodity transport that can lower costs, build resilience, and strengthen interdependence. South Asia has enormous potential for solar, wind, green hydrogen and hydro; connecting these resources through integrated networks could be transformative.

Shared security of essentials: Cooperative mechanisms on food, energy, climate, and health and addressing the vulnerabilities that can quickly turn into crises.

A more inclusive capitalism: India can model a form of capitalism that reconciles growth with fairness, and that is transparent, participatory, and less extractive than the elite-driven systems that have fueled unrest.

The multipolar context

All this is unfolding against the backdrop of a collapsing old order. Multipolarity is no longer a hypothesis but a lived reality. Global power is dispersed, competition is sharper, and smaller states are exposed to new uncertainties. In this environment, South Asia cannot afford to remain fragmented or disconnected.

Economics will be the defining arena of this multipolar world. Those who are able to plug into value chains, ensure connectivity, and offer markets will shape the future balance of influence. India, with its size and growth, can serve as the anchor market for South Asia, absorbing goods, sharing investments, and providing neighbours access to larger opportunities.

Importantly, a Neighbourhood First 2.0 can be organically linked to India’s participation in the India–Middle East–Europe Corridor (IMEC). If India succeeds in knitting South Asia together through trade, connectivity, rail, energy, and digital integration, the region will not remain a periphery — it will become a bridge between the Indian Ocean and Europe via the Middle East. For Sri Lanka, Bangladesh, Nepal, and the Maldives, this is not only about access to India, but also about entry into one of the most ambitious connectivity frameworks of the 21st century.

The uprisings in Nepal, Indonesia, Bangladesh, and Sri Lanka are not anomalies; they are warnings. They show what happens when inequality festers, opportunity stalls, and trust collapses. But they also point to the solution: Shared growth as the foundation of stability.

India has already proven it can act in moments of crisis. Now it must move from reactive to proactive, from episodic interventions to systemic leadership. A Neighbourhood First 2.0 — with India as the region’s economic locomotive — can help deliver prosperity, stability, and resilience.

To succeed, India’s diplomacy will need to make her neighbours feel more secure and less afraid. Regional cooperation cannot be sustained by economics alone; it requires trust, reassurance, and the recognition of a greater shared cause. This will be easier said than done, but it has to be attempted. By linking South Asia’s growth story to larger frameworks such as the India–Middle East–Europe Corridor, and by building rail, energy, trade, and digital networks, Delhi can ensure that its neighbours are not left behind but instead become partners in a broader transformation. In the wider Indo-Pacific context India should consider Japan too as a potential partner for this initiative.

If India succeeds, it will not only secure its neighbourhood, but also define what leadership looks like in a multipolar world.

The writer is former Sri Lankan cabinet minister, diplomat and founder of the Pathfinder Foundation, a strategic affairs think tank