Thirteen months is too small a period to decipher a government’s foreign policy but one discernible trend that stands out in the Modi government’s statecraft in past 13 months is that the Modi-led India is giving China the run for its money in South Asia, literally.

Thirteen months is too small a period to decipher a government’s foreign policy but one discernible trend that stands out in the Modi government’s statecraft in past 13 months is that the Modi-led India is giving China the run for its money in South Asia, literally.

What is more creditable is that an indirect and subtle corroboration of this has come from an impartial body like United Nations Conference on Trade and Development (UNCTAD).

The UNCTAD report has put its finger on increasing Chinese FDI in South Asia, particularly Pakistan and Sri Lanka. The report can be accessed here.

But before we discuss the UNCTAD report here is a primer on Sino-Indian rivalry in South Asia, particularly in terms of trade and investments .

China is not an Indian Ocean power and yet for over a decade it has systematically launched a pro-active engagement with all South Asian countries with a two-fold strategic agenda: (i) to nudge out India in its own backyard and (ii) to emerge as an important stakeholder in Indian Ocean.

While China’s forays into South Asia have encompassed all seven South Asian neighbours of India, it has put a special focus on four of these nations – Pakistan, Bangladesh, Sri Lanka and Nepal, in that order.

For past one decade, China has succeeded in eclipsing Indian influence in South Asia – be it Bangladesh or Sri Lanka or Nepal.

But the Modi government is determinedly in pursuit of policies which seek to reverse this trend. India is doing it by way of increasing trade, investments and connectivity in the region. The concept of BBIN (Bangladesh, Bhutan, India and Nepal), a sub-regional route within SAARC aimed at bypassing Pakistan, China’s most important strategic leverage in the region.

This writer has repeatedly stressed the BBIN strategy of the Modi government and the most recent one can be seen here.

Now let’s come back to the recent UNCTAD report in context of India-China investments in South Asia.

Call it the politics of trade, India and China are engaged in a neck-to-neck competition to woo South Asian countries by way of increased trade and investments. The Narendra Modi government is taking China head on in this respect.

For example, Chinese FDI inflow in Pakistan increased by 31 per cent to $1.7 billion. This is what the UNCTAD report says in this context: “A number of South Asian countries saw rising FDI from China. FDI inflows to Pakistan increased by 31 per cent to $1.7 billion as a result of rising Chinese FDI flows in services, in particular a large investment made by China Mobile in telecommunications.

In addition, Pakistan will benefit significantly from the China Pakistan Industrial Corridor and the associated Chinese investment in infrastructure and manufacturing in the overall context of implementing China’s “One Belt, One Road” strategy. According to agreements signed between the two governments in April 2015, Chinese companies will invest about $45.6 billion in Pakistan over the next few years, including $33.8 billion in electricity and $11.8 billion in transport infrastructure.”

In context of Sri Lanka, the report has the following observations: “In Sri Lanka, FDI flows from China rose as well. China has become the largest source of FDI to Sri Lanka in recent years.11 For instance, a joint venture between two local companies and China Merchants Holdings (International) Company has invested $500 million in Colombo International Container Terminals, the country’s largest foreign investment project. After two years of construction, the port started operation in August 2014. A China–Sri Lanka FTA will be signed in June 2015. If the implementation of the 21st Century “Maritime Silk Road” gains ground, an increasing amount of Chinese investment will flow to Sri Lanka, particularly in large infrastructure projects, including another port planned in Hambantota, as well as highways and an airport. Large projects with investment from India and United States were also recorded in Sri Lanka in 2014.”

Before Indian nationalists find it familiarly depressing, here is an indication of Indian response to the Chinese economic maneuvers in the UNCTAD report.

Sample this quote from the report: “FDI outflows from South Asia originate mainly from India. In 2014, Indian outflows saw a five-fold jump to $10 billion, recovering from a sharp decline in 2013. As the performance of the Indian economy has improved, large Indian MNEs have stopped large-scale divestments and some have resumed international expansion, including announcements of some intra regional investments in manufacturing (such as in the automotive and chemical products industries) in neighbouring countries.” This needs to be read in sync with this writer’s earlier piece here.

It is not easy to take on the Chinese economic might. China has surpassed the United States to become the largest FDI recipient in the world. FDI inflows to China reached $129 billion in 2014, which gives a lot of economic heft to Beijing. No wonder that FDI outflows from China reached $116 billion last year, an increase of 15 per cent over the previous year.

But India too is not doing badly. “Inflows to India increased by 22 per cent to $34 billion. As an expected economic recovery gains ground, FDI inflows are likely to maintain an upward trend in 2015. In terms of sectoral composition, manufacturing is gaining strength, as policy efforts to revitalize the sector are sustained, including for instance the launch of the “Make in India” Initiative in mid-2014,” according to the UNCTAD report.

In short, the Modi-led India is out to reclaim the strategic space it had ceded to China in past decade and a half. It is work in progress.

The writer is FirstPost Consulting Editor and a strategic analyst who tweets @Kishkindha.