Navigating Geopolitical Rivalry in South Asia: Understanding Small State Strategies

Sagar Prasai, PhD

Mandakini D. Surie

Abstract

In an increasingly multipolar world, geopolitical competition among global and regional powers is likely to intensify and become less predictable. Stable alliances and partnerships will be difficult to negotiate and sustain. This development puts small states in a precarious position. Their need to balance shifting alliances, protect economic and security interests, and maintain national sovereignty can become more challenging. This paper examines the pressures that South Asian small states are facing from a changing world order and proposes a conceptual framework that may enable us to better understand the variety of strategies and responses that small states have adopted to navigate the evolving geopolitical context.

Introduction

The rapid rise of China, a deepening rift in the U.S.-Russia and U.S.-China relationship, ongoing conflicts in Europe and the Middle East, and the emergence of progressively more assertive regional powers are changing the unipolar geopolitics of the 1990s at a fundamental level. The re-election of U.S. President Donald Trump has further accelerated a shift toward a new era of geopolitics characterized by inward-looking assertive nationalism and economic protectionism. In a recently televised speech, Singapore’s prime minister remarked that the world is “entering a new phase in global affairs—one that is more arbitrary, protectionist and dangerous,” emphasizing that it is “uncertain, unsettled, and increasingly unstable.”

Within days of assuming office, President Trump issued a series of executive orders, resulting in the shutdown of USAID and the imposition of steep tariffs on many countries. As world leaders contend with these developments, it is clear that a new world order is emerging—one where the conventional rules of statecraft and the international rulesbased order that emerged after World War II are being tested and tried, unlike ever before.

While the contours of this new world order and its key players are still taking shape, certain elements are coming into focus. There is a clear shift from an era of geopolitics dominated by the United States and its allies to a new, multipolar, and increasingly fragmented world. Competing global and regional powers are vying for influence in strategic areas and regional blocs. The gradual decline and breakdown of multilateralism has led to a shift toward unilateralism and a growing loss of faith in the legitimacy of multilateral institutions such as the United Nations, the World Trade Organization, and the World Health Organization.

For smaller countries, particularly in regions with active conflict or spiraling geopolitical competition among global and regional powers, the state of flux in the international world order can become tricky to navigate. Smaller countries in the South China Sea and continental Africa are forced to balance competing U.S., Chinese, and regional power interests. Similarly, in the Middle East, some countries have had a tougher time maintaining the domestic legitimacy of the state while balancing multiple external pressures, often sliding into instability and civil war. At the same time, the sudden withdrawal of U.S. development and humanitarian assistance has had a tremendous impact on countries around the globe but especially in Central and East Asia, West Africa, Central Europe, and the Americas—raising questions about the future of development cooperation as well as the commitment of the United States and other countries to the Sustainable Development Goals and the Paris Agreement on climate change. Signs of these geopolitical shifts are becoming tangible in South Asia.

Widely regarded as one of the least integrated regions in the world due to a legacy of colonialism and partition, South Asian politics and economics have traditionally been dominated by India, which historically regarded the entire region as its uncontested sphere of influence. As recently as two decades ago, India’s economic, cultural, and strategic dominance in South Asia went largely unchallenged, even by China—which had made few inroads in the region aside from Pakistan. However, in recent years, China’s expanding footprint in South Asia through the Belt and Road Initiative has challenged India’s predominance in the region and opened a new chapter in a strategic rivalry that spans several decades.

Amidst the current flux in international geopolitics and intensifying rivalry between India and China in South Asia, for small countries in the region—Bangladesh, Bhutan, Maldives, Nepal, and Sri Lanka—the stakes are increasingly higher as they see pressure to favor one power over another on a range of issues including trade, infrastructure development, connectivity, development assistance and finance, commercial contracts, development of strategic assets, and procurement of military hardware. Conversely, and as is often seen in such situations, they may see the opportunity to play one or more powers against the others and try to draw as many concessions as possible from all of them. In most cases, however, small state strategies for dealing with large powers tend to fall somewhere between openly favoring one side and skillfully playing both sides against each other. However, these maneuvers can often be quite tricky.

This paper draws on existing literature and research on small state strategies globally and a set of 15 case studies from five countries—Bangladesh, Bhutan, Nepal, the Maldives, and Sri Lanka—to articulate an analytical framework to understand how small states are responding to growing geopolitical rivalry in South Asia. Authored by researchers from each of these countries, the case studies examine specific instances where small states have navigated big power rivalry between India, China, the United States, and other powers in the region. Examples include the Rohingya crisis in Bangladesh, the India-Bhutan Agreement on Trade, Commerce, and Transit, the China-Nepal Transit Agreement of 2016, the China-Maldives Friendship Bridge and the Greater Male Connectivity Project in the Maldives, and the Mattala Rajapaksa International Airport and Lotus Tower projects in Sri Lanka.

It is important to recognize that the behavior of small states can be inconsistent across different situations. In many cases, their policy positions are influenced by narrow political and economic interests of the ruling elites rather than by broader national goals. In other instances, their strategies may reflect a combination of both. These strategies could also drive small states to lean toward one regional power in one instance and pivot toward balancing key powers in another. Consequently, rather than pursuing a singular theoretical explanation of how small states behave, this paper has resorted to categorizing small state strategies and actions through a comparative analysis of the different case studies. The conceptual framework we have arrived at aims to identify the key drivers of small state behavior and to investigate the goals and approaches employed to navigate the challenges posed by asymmetric power relations while protecting their autonomy and engaging with larger powers on both regional and global levels.

Mapping South Asia’s Shifting Geopolitics

Geopolitics in South Asia is deeply influenced by the region’s rich civilizational history and culture, shared experiences of colonialism and partition, post-independence state formation, and democratization. The region remains one of the least integrated areas in the world, characterized by limited infrastructure connectivity, trade, markets, and people-to-people exchanges. Cross-border mobility and economic cooperation remain particularly constrained, shaped by the region’s complex and often contentious political history. The enduring legacy of colonialism, the trauma of partition, unsettled borders, and festering bilateral and multilateral conflicts—particularly those involving India, Pakistan, China, and Bangladesh—have significantly hindered regionalism. Institutional mechanisms for cooperation have also remained weak or ineffectual. The South Asian Association for Regional Cooperation has been largely dormant since 2016, and subregional platforms such as the Bangladesh-Bhutan-India-Nepal initiative and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation have achieved only limited traction.

As the dominant economy and arguably most stable democracy in the region, India has significantly shaped and framed the narrative around South Asian regionalism. Often described as the “Big Brother” in the region by its smaller neighbors, India has viewed South Asian regionalism through the prism of securing its strategic interests. For decades, South Asian geopolitics has been heavily influenced by the rivalry between India and Pakistan. The two nuclear powers have fought four wars, experienced numerous border skirmishes, and remain embroiled in the long-standing territorial dispute over Kashmir. The intermittent conflict has recently intensified following a terror attack on civilians in Indian-administered Kashmir on April 22, 2025.

The Emergence of India-China Competition

By far, the most significant driver of geopolitics in the region in the last two decades has been the rise of China. The India-China bilateral relationship has been marked by strategic competition, cooperation, and sporadic conflict. The two fought a border war in 1962 and have unresolved territorial disputes that frequently derail diplomatic ties. China’s economic growth and expanding footprint—in South Asia and the Indian Ocean region—represent a geostrategic and security challenge for India.

India’s foreign policy strategy seeks to balance rather than contain China. China’s expanding footprint in South Asia through the Belt and Road Initiative (BRI) and other with the Quad and increase in bilateral and trilateral engagements with the United States, Japan, Australia, and other allies in the Indo-Pacific region reflect India’s evolving need to reorient strategic alliances.

Despite India’s efforts to strengthen its influence, China’s trade and economic relations with most South Asian countries have been steadily growing. Total trade between China and South Asian countries increased from under USD 100 billion in 2013 to USD 197.4 billion in 2022, reflecting an average annual growth rate of 8.3 per cent, according to China’s Ministry of Commerce.5 While the bulk of India’s development cooperation investment is to countries in the region, in terms of volume, it is far outstripped by Chinese development assistance and investment through initiatives such as BRI and other in-country infrastructure investments such as the Trans-Himalayan Corridor in Nepal, Hambantota Port in Sri Lanka, China-Pakistan Economic Corridor and Gwadar Port in Pakistan, and investments in the Maldives and Bhutan.6 However, the recent economic crises in Pakistan and Sri Lanka and fears about growing economic interdependence with China have created strategic opportunities for India to wield its political and economic influence amongst smaller countries in the region. These shifting economic and geopolitical ties have given China renewed confidence and India a new challenge and opportunity in reasserting its influence in South Asia.

For smaller nation states such as Bangladesh, Bhutan, Nepal, Maldives, and Sri Lanka, the India-China rivalry has created new opportunities to play one against the other The Taliban takeover in Afghanistan and its consequent international isolation have resulted in the rapid contraction of its economy, a rise in poverty, and the deterioration of human rights, especially for women and girls. The closure of the Afghan Embassy in New Delhi and Afghanistan’s souring relationship with Pakistan point to a regionally isolated Afghanistan. In the last decade, Bangladesh’s economy has emerged as one of the most robust in the region, but longer-term progress now depends on how it manages its democracy. In June 2024, mass student protests in Bangladesh escalated into an uprising against the government of Prime Minister Sheikh Hasina, and flee the country, sparking a constitutional crisis. The interim government under Nobel Laureate Muhammad Yunus is working toward elections in 2025 even as it grapples with the political and economic fallout of the crisis.

The recent election of a pro-China presidential candidate, Mohamed Muizzu, in the Maldives has significant implications for India and China. President Muizzu’s campaign agenda focused on an “India Out” policy, which is in marked contrast with his predecessor, Ibrahim Solih, who was largely believed to be pro-India. How this change in government will play out for India’s or China’s strategic interests in the Indian Ocean region remains to be seen. Following the political and economic crisis in Sri Lanka in 2022, the economy has been on a slow path to recovery. India and China have extended their support to Sri Lanka over the last year and continue to vie for influence. Nepal’s current ruling coalition appears relatively stable, but Nepal hasn’t had a government that has survived a full five-year term in more than two decades. Its low-growth economy shows no sign of immediate recovery. Nepal needs new avenues of investment and growth to stem economic stagnation. However, despite recent bilateral visits with India and China, there have been no significant breakthroughs on key issues such as energy trade, connectivity, or investment.

Gaps in Prevalent International Relations Theories on Small States

Since the end of World War II and subsequent decolonization, small states have grown in number. Today, small states play an increasingly significant role in global governance through multilateral institutions and forums where one-country-one-vote rules apply. However, there is remarkably little agreement on what constitutes a small state.8 More than a quarter of UN member countries are countries with a population of 1.5 million or fewer. Yet some appear in the top 20 countries when ranked based on GDP per capita. Often, the value of their natural resources and/or the extent of their economic and trade ties place small states in a geopolitical position of influence that far outweighs their size.

Similarly, taking geographic size into consideration, the United Kingdom is ranked 80th among countries, but is the sixth largest economy and a permanent member of the UN Security Council. Going by the size of the economy, comparably sized economies such as Israel and Singapore are quite asymmetric in terms of their military power and regional influence. Additionally, whether a country is in active internal or transboundary conflict also seems to matter, as countries in conflict tend to have a more complicated involvement of global and regional powers than those that are relatively stable.

Given these definitional incongruities, this paper takes the approach of putting countries in South Asia that are “situationally similar”—or, as Thorhallsson and Wivel have called it, “within specific spatio-temporal context”—when it comes to managing relationships with their disproportionately powerful neighbors that are competing for influence in the region.9 The five countries that this paper has chosen to include in this comparative analysis also have a few key features in common:

• All five countries are located close to India, where China has historically had limited influence.
• None of the five countries has fought with India or China in recent history, nor do they have military strategies directed against either nation (unlike Pakistan).
• No significant internal or transboundary armed conflicts are occurring in any of the five countries (unlike Afghanistan).
• All five countries have rapidly growing trade and economic relationships with China, which has raised concerns in India, as the latter has traditionally viewed South Asia as its primary sphere of influence.

Definitional complications aside, some of the widely used theories in international relations literature do not adequately explain how small states respond to big power competition and geopolitical rivalries. The theoretical expectation from existing literature is that small states may employ a combination of the following strategies:

• Neutrality or non-alignment: Neutrality enables small states to avoid becoming embroiled in the geopolitical contests between more powerful states. For some small states, such as Switzerland, adopting a permanent state of neutrality has ensured a level of international security and stability. Other examples of de facto neutral states include Ireland and Austria. Non-alignment is a variant of neutrality, which gained prominence during the Cold War, when many newly independent states in Asia and Africa refused to align themselves with the U.S or the Soviet Union.10
• Alliance formation: Membership in international blocs and alliances can provide small states with a tool to secure their own national security and economic interests and provide them with leverage and lobbying power to mitigate against the unilateral actions of larger and stronger states. In Europe, EU and NATO membership have, for example, provided small states with the ability to play a more strategic and influential role in the region.11
• Balancing, bandwagoning, and hedging: Small states often adopt a mix of alliance strategies—balancing, bandwagoning, and hedging—to protect their security, economic, and strategic interests amid shifts in the global order.12 −Balancing refers to small states aligning with others—often fellow weaker states—to counter a stronger power collectively. NATO is a classic example: a defensive alliance of 32 member states, one-third of which are small states.−Bandwagoning is when a small state aligns with a stronger power to benefit from its protection or influence, rather than oppose it.−Hedging involves avoiding firm alignment with any one power, allowing small states to reduce security risks while preserving strategic flexibility. A key example is ASEAN states’ strategy of navigating between the United States and China, the two major powers competing for influence in the Asia-Pacific.
• Championing multilateralism and adherence to a rules-based order: This enables small states to address power asymmetries between states, reduces the costs of diplomacy, and provides some buffer against the unilateral actions of larger, more powerful states.13
• Economic diplomacy: Small states employ various economic diplomacy tools— such as trade promotion, foreign direct investment, export of goods and services, e-commerce, preferential trade agreements, and tax incentives—to capitalize on their comparative advantages (e.g., natural resources, geographic location). These strategies help advance their economic, foreign policy, and security interests. Many also leverage economic interdependencies, particularly in commodities, critical minerals, and energy trade, as seen in oil-rich Gulf states or mineral-rich African countries.14

In this paper, we demonstrate that small states, including those in South Asia, rarely stick to a single strategy or a specific combination of strategies in a consistent manner. There are two main reasons for this. First, there are inherent risks and drawbacks to consistently following the same strategy. For example, constantly maintaining a stance of neutrality or non-alignment might lead to isolation, especially when faced with an existential threat. Likewise, strategies like hedging or balancing may fail in certain situations, particularly when competing powers converge on the same issue, resulting in “with us or against us” scenarios.

Second, these theories assume that small states can make rational decisions that best serve their national interests in most situations. However, in practice, domestic political economy factors influence many foreign policy decisions. These decisions may be driven by the narrow political or financial interests of ruling elites and influential interest groups within the country, or they may be shaped by the political expediencies of the ruling parties, rather than by a genuine pursuit of the country’s broader national interests. This general lack of predictability is where attempts at “gaming” the behavior of small states also begin to pay fewer dividends.

Given that small state behavior is generally not consistent across cases and that in many instances policy positions could be undergirded by narrow political economy interests rather than established, broad-based national interests, this paper attempts to build a conceptual framework of small state behavior from the ground up based on the case studies conducted in five South Asian countries.

Analytical Framework

As the 15 cases analyzed for this research do not readily yield an elegant set of explanations for small states’ behavior in the face of intensifying regional power rivalry, rather than positing an all-encompassing theory of small states behavior, we have instead outlined an analytical framework that attempts to categorize the responses along a two-by-two matrix. The rationale for such an approach is as follows.

First, structural realists have long argued that domestic politics is incapable of changing international power relations, and states—small or otherwise—must make their strategic choices based on international and not domestic politics.16 In such moments, however, policymakers in small states must consider domestic political implications of their policy choices. This predicament, in turn, creates a situation where policy choices that generate short-term political gains become more attractive to ruling elites than policy choices that may be considered favorable to broader national interests in the longer term. This is why it is valuable to look beyond surface-level domestic politics and examine how ruling elites and their political economy interests shape foreign policy decisions. We approached this by applying a Political Economy Analysis lens to categorize and analyze the cases.

Political Economy Analysis (PEA) is a tool to map and analyze the processes through which powerful actors exert formal and informal influence on decision-making processes to pursue their political and economic interests. This tool is increasingly being used in the international development sector to understand why and how change and reform measures hit political resistance in governance institutions, although it can be helpful in other policy contexts as well.

Domestic political elites and their political economy interests tend to have a deep bearing on small state behavior, particularly when institutions designed to protect and promote the rule of law are weak and characterized by public accountability deficits, lack of transparency, and prevalence of corruption. This becomes especially pronounced in relation to protecting the political survival of elites and securing proceeds of corruption in infrastructure contracts, defense procurements, preferential agreements, and other bilateral transactions. In most developing countries, including in South Asian small states, this factor is difficult to ignore, and in some instances, this is the key factor that drives foreign policy decisions.

Second, in international relations literature, the strategic choices that small states have On the other hand, what small states routinely confront as “choices” essentially boils down to whether to lean in one direction or seek to balance relations. Small states can maintain neutrality or remain unaligned only as long as they are perceived as geopolitically insignificant. The moment their strategic value increases—like Cambodia and Laos during the Vietnam War—the option to remain neutral or unaligned rapidly diminishes. Even during peacetime, being in the wrong geostrategic location makes things tricky.

All South Asian small states share this predicament. Sri Lanka and the Maldives are in the middle of a major sea route, and the value of their location in any full-blown regional war in the Indian Ocean will not escape any war strategist’s mind. Nepal and Bhutan are landlocked buffer zone states between India and China. Bangladesh borders active conflict zones of Myanmar on one side and India’s “narrow corridor” on top.

Given this geographic location, it is difficult for South Asian small states to stay neutral or unaligned in the current geopolitical environment. They can indeed choose to leverage their bargaining positions by periodically shifting between balancing strategies and leaning strategies. Still, as mentioned above, these choices are difficult, fraught with the possibility of domestic polarization, and as observed in our case studies, characterized by inherently destabilizing effects.

Based on the above arguments, this paper uses a two-by-two matrix to categorize the cases from five South Asian countries (see below). The horizontal axis moves from policies driven by political economy interests of the ruling elites on one end to policies driven by broad-based national security interests on the other. In practice, policy positions may move on a spectrum rather than fit neatly in one box or the other. For analytical purposes, however, we can assign cases to one or the other box by looking at their dominant features.

The vertical axis runs from leaning and bandwagoning at the top to balancing and hedging at the bottom. This excludes policy positions that are truly neutral, which are practically unattainable and, therefore, can be considered analytically irrelevant. Here, too, policy positions taken by small states are expected to land on a spectrum somewhere along the vertical axis but can be located in one or the other box as a categorization exercise.

This analytical framework has allowed us to interpret the case studies (see the section below) along two postulates. First, if a small state chooses to lean heavily or bandwagon with one of the rival powers and if the decision is largely driven by the political economy interests of the ruling elites, we are likely to see greater instability and flip-flopping in the policy positions. Such a policy position is always exposed to the risk of domestic political challenge as well as efforts by the other power to upend it. Second, if a small state chooses to seek a balance or hedge risks between the rival powers, and if the decision is based on a broad-based national security interest, we will likely see greater stability in policy positions. Such a policy position, however, is exposed to the risk of both rival powers wanting to upend it to their own advantage.

Analyzing Case Studies

In this section, we start with a brief description of the geopolitical context in which the responses and strategies employed by the five countries we studied can be located. We then place the 15 cases in the two-by-two matrix discussed above. Finally, we discuss the patterns we have observed and the inferences we have been able to draw from this exercise.

Key Features of the Geopolitics Context

Bangladesh The intensifying Indo-Chinese rivalry in South Asia has allowed Bangladesh to maximize economic and strategic benefits from both regional powers. In specific instances, such as the Rohingya crisis and the decades-long Teesta water-sharing dispute, Bangladesh has tried to leverage its relationships with India and China to extract concessions or favorable political outcomes while remaining officially neutral. However, a selective reliance on external powers like China for mediation has not yielded tangible results, as seen in the failed Rohingya repatriation efforts. Similarly, India’s reluctance to resolve the Teesta water-sharing issue—due to its subnational political constraints—reflects the limitations of Dhaka’s leverage over New Delhi.

Bangladesh’s foreign policy positions toward India and China have been strongly aligned with domestic political considerations. For decades, the ruling party under former Prime Minister Sheikh Hasina pursued a foreign policy based on prioritizing alignment with India, China, and Russia, which were seen as less critical of democratic backsliding in Bangladesh than the United States and other Western powers. Public opinion on Bangladesh’s foreign policy has been critical, particularly regarding its perceived submissiveness to India and inability to secure concessions from China or solve critical issues like the Rohingya crisis and the Teesta River dispute.

Bhutan As a buffer state between China and India, Bhutan’s sovereignty and territorial integrity is an existential and pressing concern for the mountain kingdom. Consequently, Bhutan has worked to carefully maintain its sovereignty by capitalizing on its relationship with India while cautiously expanding informal relations with China. It remains the only South Asian country without formal diplomatic relations with China, yet it strategically manages potential tensions. Bhutan has skillfully managed sensitive border issues, such as the Doklam tri-junction with China and India, demonstrating diplomatic acumen in preventing escalation and protecting its territorial interests without compromising its sovereignty. Bhutan relies heavily on Indian financial support but has actively sought to diversify its development financing by engaging with multiple international partners like the European Union, Japan, UN agencies, the Asian Development Bank, and the World Bank to reduce single-country dependency and maintain economic independence.

Nepal Nepal’s geostrategic location between India and China has meant greater interdependence on the two Asian powers for trade and transit but equally opportunities for Nepal to capitalize on the intensifying rivalry to extract economic benefits and investment. Foreign policy is increasingly a matter of public discourse and debate in Nepal and is highly politicized. Public perceptions of Indian high-handedness in cases such as the Madhesi blockade in 2015 and other cross-border matters have led Nepal to pursue a more pro-China stance in certain spheres, such as transit, infrastructure, and hydropower. Notably, in 2016, Nepal signed a Transit Agreement with China, which is seen as balancing India’s influence and providing Nepal with more strategic and economic autonomy.

Occasionally, Nepal has been able to engage in “bluff diplomacy,” playing on India’s concerns regarding Chinese influence in Nepal, to accelerate India’s commitments on trade, infrastructure, and other investments. However, in other instances, Nepal has struggled to balance relations with India and China, such as India’s refusal to purchase power from Chinese-funded hydro-power projects or to allow access to airspace over India for flights to Pokhara airport. Nepal’s ability to use its position with respect to India and China is constrained by its political context—marked by a long history of political instability, poor governance, and slow economic growth. Many of its foreign policy responses appear as ad hoc, tactical responses rather than the result of a carefully calibrated foreign policy.

The Maldives Like Sri Lanka, the Maldives is strategically located in the Indian Ocean. The atoll island country has welcomed infrastructure investments from both China—the Sinamalé Bridge under BRI—and India—the Greater Male’ Connectivity Project—leveraging the competition to fulfill domestic developmental goals while avoiding complete alignment with either power. Free trade agreements with China and discussions of a trade agreement with India reflect the Maldives’ effort to maintain economic ties with both nations, balancing opportunities for growth with sensitivity to Indian security concerns. Historically, defense cooperation has been stronger with India due to proximity, shared regional security concerns, and India’s swift responses to crises, such as the 1988 coup attempt.

However, there are deep national sensitivities associated with any foreign presence on Maldivian soil, as evidenced by the recent protests against the stationing of Indian troops in the Maldives. Defense ties with China remain minimal and focused primarily on economic collaboration. Maldivian politicians often use relations with India and China for political leverage, employing narratives about sovereignty and foreign influence to sway public opinion and fulfill campaign promises. The Maldives benefits from the rivalry by securing investments and aid but lacks a long-term strategy, relying instead on reactive decisions.

Sri Lanka Sri Lanka’s geostrategic location on key trade and transit routes in the Indian Ocean has enabled it to attract investments from both India and China—such as China’s BRI projects like the Hambantota Port and India’s investment in energy infrastructure and railways. The island nation has frequently adopted a hedging strategy, engaging both India and China to maximize economic and strategic benefits while attempting to avoid complete alignment with either power. Examples include the Colombo Port Expansion Project, where Sri Lanka allowed China to develop the Colombo International Container Terminals and later involved India and Japan in the Eastern Container Terminal to maintain balance.

There have been growing domestic concerns around an overreliance on China and Chinese-funded projects, such as the Hambantota Port and Mattala Airport, which have led to significant debt burdens. These concerns were exacerbated by the 2022 economic and political crisis that resulted in a change in government. Sri Lanka’s internal governance issues, political instability, and lack of comprehensive feasibility studies have undermined project outcomes, such as the underutilization of the Mattala Airport and the Colombo Lotus Tower. Political factions often align with different external powers based on expediency, creating inconsistent foreign policy and complicating long-term strategic planning.

Locating the Cases in the Analytical Framework

In each of the five countries studied for this paper, researchers selected three cases that illustrate how the states approach and manage large power rivalry in the region (See Annex 1: List of Cases Studied). The cases cover a range of areas and sectors within bilateral relations, including trade, transit and connectivity, development assistance and investment, special economic zones, regional migration and refugees, and development of strategic infrastructure such as ports, bridges, energy plants, and transmission lines. As none of the five countries studied were experiencing an existential external or internal threat from armed conflict at the time of analysis, the cases can be said to exemplify small state behavior under normal conditions.

In the interest of brevity, the full case studies are not included in this paper. The case studies and analyses for Bangladesh, Nepal, and Sri Lanka are available as standalone papers. Due to current political sensitivities, the Bhutan and Maldives papers are not being released at this time.

We describe cases briefly in Annex 1, and where relevant, particularly when we begin to draw inferences from our analysis. Here, we are interested in the patterns we can observe while locating the cases in the matrix.

We see some readily observable patterns in the table above. First, none of the small states we studied appears to have a consistent strategy across all three cases. Further, there is no country with all three cases in one quadrant. Even in the case of Bhutan, which does not want to appear overtly to be deviating from its India-leaning stance, we see attempts to resist or reshape international cooperation propositions based on the political economy interests of the ruling elites. Second, balancing and hedging appear to be the preferred choice of strategy for all small states, but importantly, not in all instances. Third, the oscillations between balancing and leaning strategies tend to have an iterative pattern. It is almost as if going in one direction creates the argument for going in the other direction iteratively.

Going beyond the graphical patterns and analyzing the qualitative elements of the 15 cases, we can make four assertions on small state behavior in the context of a spiraling geopolitical rivalry in South Asia:

First, small states in South Asia are rarely able to maintain internally and externally stable strategies toward regional power rivals.

Small states in South Asia have been heavily India-leaning until three decades ago because of long-standing geographic, colonial, sociocultural, and economic ties with India. However, since the 1990s, as China began to make inroads into the region, some of India’s influence has eroded. Despite China’s substantive efforts in the last decade, the region’s historical context gives India a disproportionate advantage. However, when we look at the core foreign policy doctrines of the South Asia small states, except in the case of Bhutan, all four countries—Bangladesh, Sri Lanka, Nepal, and Maldives— officially aspire for an equidistant, non-aligned, and neutrality-seeking relation with the two regional powers. The aspirations for managing and attaining an “equidistant” relationship with regional powers often collide with the economic and geographic compulsions to stay India-leaning, resulting in instability in countries’ foreign policy positions.

For example, the Maldives is a country heavily courted by both India and China due to its strategic location in the Indian Ocean Region on key maritime economic and strategic routes. Here, we see the most interesting seesaw between the foreign policy positions of successive governments. The Maldives has a long-standing defense cooperation arrangement with India, under which the country has received military hardware, including radars, patrol vessels, rescue aircraft, and helicopters. In addition, the two countries routinely conduct joint naval exercises.

Despite strong historical ties and a long history of cooperation, a small contingent of Indian officers stationed in the Maldives is periodically asked to leave or remain on Maldivian soil, depending on the political party in power. Notably, President Mohamed Muizzu’s 2023 election campaign focused heavily on an “India Out” policy—seeking the removal of Indian boots from the Maldives. Seen as pro-China, Muizzu’s policy position toward India was in marked contrast to that of his predecessor, Ibrahim Solih, who was seen as pro-India. Following his election in 2023, one of President Muizzu’s first acts in office was to ask India to withdraw all Indian military personnel stationed in the country. Similarly, regarding infrastructure and investment, the Maldives has frequently wavered between India and China. For instance, in 2015, former President Yameen (2013-18) signed an agreement to build the USD 202 million Sinamalé Bridge with China and followed this by signing a free trade agreement in 2018. His successor, President Solih, then turned to India and signed a deal to build the USD 500 million Thilafushi-Male Bridge. In recent months, current President Muizzu has dialed back on his “India Out” campaign, making a state visit to India in October 2024 focused on enhancing bilateral trade and investment ties with India and courting New Delhi, seeking to strengthen bilateral trade and investment ties with India. This suggests that political expediency and domestic concerns are often far more critical factors in determining small state responses to big power rivalries than they are conventionally given credit for.

Second, leaning or band-wagoning strategies are fundamentally risky when driven by political economy interests of the ruling elites.

When a government’s domestic legitimacy is weak, and it attempts to legitimize its rule on the back of a regional power, as has been seen in the case of Bangladesh or the military junta in Myanmar, the small state in question as well as the regional power’s long-term strategic interests come under significant risk. Bangladesh illustrates this.

The now-deposed Prime Minister Sheikh Hasina came to power in Bangladesh in 2009 in a legitimately contested election. The successive elections in 2014, 2018, and 2024 were widely regarded as “fixed” by the opposition parties who accuses of being methodically sidelined through oppressive measures. Prime Minister Hasina reliance on India, in turn, brought support for her government based on its strategic calculations. To expand her political base and cut into the BNP’s constituency, her foreign policy repeatedly resorted to hedging and balancing strategies, but in each instance, she could not control the outcome in her favor.

The Teesta River case in Bangladesh exemplifies why such strategies do not work as intended. The Teesta River is a transboundary river flowing through India’s strategically sensitive 22-kilometer corridor that connects mainland India with its northeastern states. Bangladesh has wanted a water-sharing treaty with India on the Teesta River for more than four decades but has been unable to achieve it mainly due to objections from the Indian state of West Bengal, through which the river flows. After years of trying, Prime Minister Sheikh Hasina wanted to demonstrate her “balanced” approach to regional relations by unilaterally building a flood control and irrigation system downstream of Teesta in Bangladeshi territory.

China saw an opportunity and offered Bangladesh a USD 1 billion loan for the project. Immediately after the 2024 elections, however, India upped the ante and offered a USD 1.1 billion loan. This made China rethink its offer, and in conjunction with Hasina’s intentions to prop up the Rohingya Refugee issue, around which both Myanmar and China have always had a skeptical view of Bangladeshi intentions, China eventually withdrew the offer. A few months later, Prime Minister Hasina’s government in Bangladesh fell in a popular uprising, forcing the country into a difficult and contentious transition and a faltering economy.

This case had its antecedents in Sri Lanka, where a similarly unpopular government drew in three BRI projects with poor feasibility—the Mattala Rajapaksa International Airport, the Colombo Lotus Tower, and the Hambantota Port—occasionally also courting India and eventually polarizing its own population to the effect of further eroding its legitimacy. As in Bangladesh, the ruling family—the Rajapaksas—fled the country, exposing it to a long-term political transition and an economic debacle from which Sri Lanka is still struggling to escape.

Third, a balancing and hedging strategy built around narrow political economy interests of the ruling elites is the most common approach employed by South Asian small states.

As the cases from the Maldives, Bangladesh, and Sri Lanka demonstrate, in the South Asian small states, balancing and hedging strategies are politically more popular among the populace than leaning or bandwagoning strategies. An overtly bandwagoning strategy driven by the ruling elite’s narrow interests often backfires politically, sometimes resulting in mass uprisings. Given this predicament, the ruling elites in small states often guise their bandwagoning intentions with a peppering of balancing and hedging attempts, as in the case of Hasina’s Bangladesh or Rajapaksa’s Sri Lanka. In some ways, where India and China are concerned, this is to be understood as a rational political move, given India’s preeminence in the South Asian economy, connectivity, and softpower domains like tourism and cultural influence.

The case that fundamentally supports the above assertion, however, is that of Nepal, which has often described itself as a “yam between two boulders,” indicating that any wrong move could lead it into an unfavorable position. At the same time, Nepal’s foreign policy does not carry the legitimacy of a broad-based consensus on how to deal with its two giant neighbors, apart from an exalted ideal of being equidistant to both.

On the ground, however, the reality is different. Nepal has a 1,400-kilometer open border with India, more than 80 percent of its trade happens with India, its currency is pegged to India’s currency, and India has a monopoly over its oil market. Even a few weeks of disruption in the supply chain or transit route have the potential to drive Nepal into a complete scarcity of essential goods, as happened in 2015 when India, citing its displeasure with some of the provisions in the new Nepali Constitution, brought Indo-Nepal trade down to a trickle. Despite this overwhelming dependency, Nepal, like other small states in South Asia, repeatedly flexes its muscles to demonstrate that it also has China as an option.

The political maneuvers behind this type of posturing may or may not hold real significance, but smaller states feel compelled to engage in such tactics. In the immediate aftermath of the 2015 de facto Indian blockade, Nepal signed an agreement with PetroChina to supply fuel and negotiated a bilateral trade and transit agreement with China. These two instruments formalized the “potential” to find an alternative fuel supply and other essentials for Nepal. Still, going into the agreement itself, both countries knew that this was not a viable alternative to the vast and much more efficient supply chain already in place with India. Given that road linkages between the two countries are not commercial-grade roads and the supply route is at least four times longer than that from India, the move was more political than practical. Ten years after the blockade, not a liter of fuel flows from China to Nepal, and the trade volume has not increased significantly from 2016 levels. However, moves of this nature are common in most small states in South Asia.

Fourth, small states that lean or bandwagon with a regional power to secure their national security interests still have to contend with popular discontent over sovereignty interests.

India and Bhutan have what may be called a “special relationship” compared to all other South Asian small states. The Indo-Bhutan Treaty of Friendship and Cooperation of 1949 was essentially a handover from the British Raj in India, where Bhutan was obligated to consult India on all matters related to external affairs. This was modified in 2007 to allow Bhutan to conduct its foreign policy as long as it does not harm India’s security interests. This arrangement, and the fact that Bhutan does not have a bilateral relationship with China, puts Bhutan in a unique bracket.

While this arrangement ensures Bhutan’s national security and territorial integrity, it also encroaches on its sovereignty when dealing with China. This issue occasionally arises because Bhutan and China have unresolved border disputes, and China has offered enticing land swaps that do not sit well with India’s security interests in the Doklam area just above the Chicken’s Neck. China’s strategy of putting Bhutan in a typical small state dilemma may or may not work, but it is important to note that no stone remains unturned in this game.

Conclusion

Contrary to conventional views that small states are constrained by their size, population, and economic might, this paper and the companion analyses illustrates that small states

can draw on a range of diplomatic strategies and tools, across different domains— military, economic, cultural, environmental—to secure their national interests, gain benefits, and/or respond to changes in their external security environment. At the same time, small states must negotiate an increasingly unstable, conflict-ridden, and economically unstable geopolitical environment. In the face of this, small states need to be agile, flexible, and entrepreneurial in their strategies, approaches, and tools to secure their interests and respond to changes in their external environment.

The actions of small states are also equally a product of internal factors, such as the pulls and pressures exerted by domestic elites, voting constituencies, political leadership, the state of the economy, and systems of governance. Thus, any analysis of small state strategies and capabilities in contemporary geopolitics must look at both the internal and external drivers of small state behavior.

It is clear from these case studies that South Asia offers a rich and dynamic context for studying small state behavior. The region is currently experiencing far greater instability than it has in nearly two decades, marked by armed conflict between India and Pakistan, as well as political and economic instability in countries such as Afghanistan, Bangladesh, Pakistan, and Sri Lanka. As countries in the region grapple with domestic issues, geopolitical rivalries between larger powers impact regional stability, often exacerbating local tensions and conflicts. This is particularly concerning for landlocked countries like Nepal and Bhutan, which share borders with India and China, but it is equally a concern for maritime countries such as Sri Lanka and the Maldives, whose strategic location in the Indian Ocean renders them key actors in regional geopolitics.

Second, going beyond conventional international relations theories, this paper has advocated for employing a political economy analysis lens in analytical frameworks so that we stop seeing the state as a monolithic, rational actor and start seeing states as representing the flexible, often self-serving agency of ruling elites as well. This reflects the fact that foreign policy is increasingly domestic policy, as small states are under pressure from domestic constituencies to rapidly deliver on expectations for economic growth and development. There is, therefore, a strong domestic political incentive for small states to look for the best “deal” or investment propositions.

These case studies make it abundantly clear that small states do not live in or operate in a world of neat categories. Rather, depending on the situation, small states often move between strategies, adapting and responding to dynamic pressures. This is seen in cases where states must balance between competing powers—sometimes aligning with one, sometimes engaging both, or even hedging against potential risks. This adaptability and fluidity underscore the need to look beyond static categories and recognize the agility and ingenuity that small states demonstrate.

Finally, this analysis highlights that small states politically tend to gravitate toward stability, preferring balancing or hedging over leaning or bandwagoning toward one or the other power. However, their inability to control domestic and internal politics means these strategies do not play out as expected. Consequently, small states often switch between the two strategies in an extremely ad hoc and resolutely self-serving way.

Annex 1. List of Cases Studied

Dr. Sagar Prasai Dr. Sagar Prasai is a Senior Advisor to The Asia Foundation. Previously, he was The Asia Foundation’s country representative in India. His current work revolves around water, energy, and climate issues and regional collaboration in South Asia. He has several articles, book chapters, and reports published in South Asian and international journals, blogs, and websites. Dr. Prasai holds a B. Arch. from Nagpur University; M.A. in Urban and Regional Planning from the University of Hawaii; and PhD in Regional Planning from the University of Illinois at Urbana Champaign.

Ms. Mandakini Surie Mandakini Surie is an international development consultant with over 19 years of experience across South Asia, specializing in program design, aid management, and grant oversight. Her expertise lies in natural resource governance, civic engagement, social accountability, and international development cooperation. Mandakini has led complex, largescale sustainable development programs and brings valuable insights into governance structures, institutional processes, and the political economy. Her strategic guidance supports organizations in planning, implementing, and reviewing development initiatives. Throughout her career, she has worked with prominent institutions, including the Australian Department of Foreign Affairs and Trade, The Asia Foundation, the Centre for Policy Research, the United Nations Development Programme, and the Commonwealth Human Rights Initiative. Mandakini is a Chevening Scholar with an MSc in Development Studies from the London School of Economics and a master’s in Modern Indian History from Jawaharlal Nehru University. She also completed Stanford University’s Draper Hills Summer Fellows Program.

Notes

4. Since 2014, under the leadership of Prime Minister Narendra Modi, India has made a concerted effort to align its foreign policy and international cooperation to expand the country’s influence and counterbalance China in key geographies. This is reflected in foreign policy directives such as “Neighborhood First”—seeking deeper ties in South Asia; “Act East”—focused on ASEAN; and through the “Sagar—Security and Growth for All in the Region”—focused on maritime cooperation in the Indian Ocean. India’s engagement 5 while extracting economic benefits and investments.
7. At the same time, managing the balancing act between two regional powers also has its risks, particularly when domestic politics gets embroiled in geopolitical polarization, such as in the Maldives or for example in in Bangladesh where one party was publicly considered as pro-India, the other was considered pro-China. On matters of trade, preferential bilateral agreements, investments, large construction contracts, and defense procurements, smaller countries often get hamstrung by the competing influences of the two regional powers and the interplay with their own domestic and foreign policy concerns. Recent Political Developments in South Asia South Asia is more fractious and unstable today than it has been for several decades. The political and economic situation in Pakistan has deteriorated significantly in recent months. The rapid depreciation of the Pakistani rupee, along with dwindling foreign exchange reserves, has left the country struggling to import essential goods. The situation remains unstable with rising public discontent over the economic situation and resurgent Islamic militancy. India, on the other hand, must contend with increasingly tense and volatile borders with China in Ladakh and Pakistan in Kashmir. The April 2025 attack by Islamic terrorists on Indian civilians in Pahalgam, Kashmir, brought India and Pakistan to the brink of war with heavy shelling and artillery fire across the Line of Control, until a ceasefire was finally reached.6 in dealing with big powers are often characterized as dilemmas.
18. This is mainly because small states are usually not positioned to shape the choices or control the outcomes independently. They usually must “respond” to choices framed by big powers and work with big powers to shape the outcome of their choices. Given the asymmetry in capabilities and potential risk associated with this kind of proposition, foreign policy decisions in small states are often internally and externally contested. 10