Dhruv C. Katoch:

We are living in highly volatile times. South Asia is not immune to the effects of global power politics, and for various reasons, the region is troubled by internal discord—political, economic, and security-related. In this podcast, we will discuss some issues concerning India’s neighbours. We are honoured to have Ambassador Shyam Saran to explore these topics. The Ambassador is one of the most respected voices on global and regional affairs. He has served as India’s Foreign Secretary and is also the recipient of the Padma Bhushan. Welcome, Ambassador. Let me begin with Bangladesh, with whom we have maintained very friendly relations, but those ties are now starting to fray. What are the main factors shaping Bangladesh’s current political and socio-economic situation, and how might these changes affect its internal stability as well as India’s security, trade, and the broader regional dynamics in South Asia?

Shyam Saran:

Thank you very much for inviting me to speak with you on topics that are very important for India’s foreign policy. So, concerning Bangladesh, as you said, we had an excellent run in a sense with Sheikh Hasina being in power. People sometimes complain that we put all our eggs in one basket, and we should have reached out to other political forces in Bangladesh. I think they neglect the fact that some very major positive developments took place during the past 15 years or so. We resolved the border issue, which had been pending for a very long time. We managed to get agreement, not 100%, but substantially, on the sharing of river waters. We established very strong cross-border connections with Bangladesh, including the revival of river transportation, which was once the lifeline for the northeast of the subcontinent. We became a major power source for Bangladesh’s industry. Without the supply of electric power from India to Bangladesh, the textile industry in Bangladesh would not have progressed as much as it did. We became a significant market for Bangladesh’s products, including textiles, which are their major export. In the security sphere, the sanctuaries that many of the insurgent groups used to have in Bangladesh came to an end. So, for anybody to say that we did not play this game right, I disagree with that. When an opportunity arose, we made full use of it. And even if the political pendulum swings to one side and we have to cope with the consequences of that, the pendulum can also swing to the other side, and we should be ready for that change. So, we should not get too panicky about the situation that has emerged. We should try to deal with it as best as we can.

One thing to consider is that, when examining the situation in Bangladesh, you must not forget its history. Remember that even when Bangladesh became an independent country, there was no complete political consensus, even within Bangladesh, regarding this separation from Pakistan. Nearly one-third of the population did not support Bangladesh’s separation from Pakistan. For example, the Jamaat, an influential force, although it doesn’t win elections, has never reconciled itself to the separation of Bangladesh. Several other people may be more inclined, as far as the attachment to Islam is concerned, to believe that being an Islamic country is more important than being a Bengali country. So, we have to be mindful of the fact that various forces are at work inside Bangladesh.

Regarding the domestic situation, we can do very little to influence those dynamics. So, what is the best course of action? The position that the Government of India initially took was communicated during the visit of our Foreign Secretary to Bangladesh. What message did he convey to the chief advisor? He stated that, despite any political relationship difficulties we may be facing, India will continue with the broad spectrum of cooperation we have always maintained with Bangladesh. This includes the supply of power to Bangladesh, cooperation on river waters, and providing access to our markets, including transit arrangements, which are very important for Bangladesh. We do not intend to interrupt these efforts, and we hope that, despite any political issues, Bangladesh will also recognise the value in maintaining this cooperation.

This is where political issues in Bangladesh have begun impacting some of our cross-border connections. How should we respond? I believe we should remain calm and continue to be prepared to cooperate whenever the other side is willing. However, when it comes to defending our interests, particularly our security concerns, we must be cautious. We need to be aware of where our interests are being affected, and nobody should doubt that if our interests are harmed in any way, we will take appropriate remedial action. Beyond that, we remain open to resuming cooperation with Bangladesh when the situation improves. We hold goodwill for the people of Bangladesh, as we have no issues with them. That should be our approach during this challenging time.

Dhruv C. Katoch:

Just a quick follow-up question: the elections are scheduled for February. First, do you think they will happen? Is it likely that they will (or should they) result in a democratic establishment? I mean, will they genuinely follow the democratic process, or will it simply be the Jamaat taking over?

Shyam Saran:

Well, the fact that they have said the Awami League cannot participate in these elections suggests that it may not be as democratic as one would hope, because the truth is that the Awami League is, in a sense, being marginalised within the political system. The fact that there is a concerted effort to try to delegitimise the Awami League shouldn’t be overlooked. Even today, 30% of the population still supports them. So, if you’re claiming that the preferences of at least 30% of your population cannot be considered, then how can it be truly democratic? We must take that into account. Incidentally, the BNP, which has been the main opposition party, also believes that a competitive political environment is necessary. They are not opposed to the Awami League participating in the election, or at least that’s the impression I have received. As for Jamaat, I am uncertain whether they will achieve significant gains in the polls, given that, as I mentioned, despite their influence, they have never secured a substantial number of seats in the Bangladesh Parliament.

We have observed that, whether or not they succeed in elections, they still become an influential constituency. Now, for the Jamaat, India is a warning sign because they blame us for the separation of Bangladesh from Pakistan. They also blame us for what they see as secularisation of the polity in Bangladesh. Therefore, as we see today, the Jamaat has gained a significant level of influence. If this situation continues and becomes, in a sense, institutionalised, then that is not very good news for India. However, we should also not underestimate the importance of the economic connection between India and Bangladesh. I am hopeful that many of the interdependencies established over the last 15 years or so will remain strong enough to help us through this period of some turmoil.

Dhruv C. Katoch:

Now I will move on to another country, our neighbour Nepal. Our relations with Nepal have traditionally been very close, especially considering the nature of family ties we have shared; there is a commonality of religion, culture, history, civilisation, and complete compatibility. However, we have tensions with them. There is a historical reason for this. Currently, internal problems within Nepal tend to influence the situation. These issues often impact the India-Nepal relationship. How do you see this playing out in the present climate in Nepal, where they face their own political and economic challenges, and China is also emerging as a significant player?

Shyam Saran:

I have been an ambassador to Nepal, and I believe I have some familiarity with the country, though perhaps not a great deal, but enough to know that the most important asset we possess regarding Nepal, which also applies to several neighbouring countries, is the people-to-people relations. Very strong people-to-people relations. You mentioned that we have these cultural links and familial ties, and by the way, the familial links are not only with the Madhesis and the states of Bihar and UP. There are also very strong familial connections with the so-called Pahadi population living in the hills. People tend to think it is only the Madhesis, but it is not. These are also very strong connections. Therefore, the challenge for India has always been how to leverage this very strong people-to-people and cultural affinity between the two countries to influence the state-to-state relationship positively. Because if there is a problem, it exists only there. It is not with the people; it is the political path.

One point I must emphasise is based on my own experience: you have to recognise that you are a very large country surrounded by smaller neighbours. It should come as no surprise that these neighbours may feel somewhat anxious about the possibility of being overshadowed by the larger power, which is natural. We often feel similarly when faced with a superpower, and we try to balance that influence. Therefore, we should not be overly sensitive about it. We need to understand what that implies, which is how we can develop a diplomacy of reassurance with our neighbours. This is especially important for a country like Nepal. The key is to show them that we genuinely wish them well and are willing to be partners in their economic and social development because that truly matters to them.

Now, two points regarding how we approach this. One of the challenges we face is the presence of various constituencies in Nepal. If you start saying ‘this is my friend’ or ‘this is not my friend’, it creates a problem. We must avoid being perceived as taking sides in what is essentially a domestic political dynamic. This is very important. India should not be seen as part of that. If we are not involved in that, we are in a much stronger position. The second point is that you should not view your relationship with Nepal solely through the lens of China. If every action in Nepal is framed by what you believe China is doing, you will encounter difficulties. Trying to match China in the way it exerts largesse, which I see as a kind of game, is not advisable. Why? Because you should leverage your areas of strength, rather than attempt to mirror Chinese strengths. This requires careful consideration. For example, consider one area — proximity. China faces more difficulties accessing Nepal than India. Isn’t that correct? Why is it that, despite years of efforts, the Chinese have been carving through mountains and building roads, or even talking about railways? Why, given our geographical advantage, have we not been able to achieve similar progress?

During my time as an ambassador in Nepal, I noticed that travelling from Nepal into India by road could give the impression that one was coming from a relatively developed country to a less developed one, given the poor state of our roads. Now, there has been a significant improvement in that regard. There has also been progress in attempting to revive, for example, some of the rail links that existed before. We have finally started working on a hydroelectric power cooperation between the two countries. These are positive developments, but with respect to Nepal, as with some other neighbouring countries, our overall approach should be to make India the engine of growth for the entire region. You can achieve this because the very asymmetry of power you hold over your smaller neighbours—which, in one sense, is a disadvantage because everyone fears you—could also be turned into an asset, allowing India to become the driving force of regional growth.

Supposing you open your market to everything that your neighbours can produce and sell to you, this will still be a small fraction of your market. Why not become the transit country of choice? Specifically, for Nepal, why insist that only this port can be used; no, only this highway is permissible. Tell them that you will give them national treatment, allowing them to use any channel for exporting or importing that they prefer, whichever is most convenient. You should position yourself as Nepal’s partner of choice. There are so many advantages to truly cooperating with India that I see no reason to look elsewhere. For example, consider the impact of just one project I mentioned when I was an Ambassador — the Barauni-Amlekhganj pipeline. Previously, there used to be a lot of pilferage when tankers delivered supplies, and accidents were common. Now, there is a completely safe supply of gas and petroleum to Nepal. These are the kinds of deep interdependencies that benefit both Nepal and us. That should be the approach we adopt. Sadly, there still exists a mindset that sees something hostile outside our borders. You need to change your mindset. When you do, many more possibilities open up.

Dhruv C. Katoch:

That’s been very well brought out. Let me get down to the next contentious issue. Given Myanmar’s ongoing civil conflict since the 2021 military takeover, and its implications for India’s Act East Policy as well as security in the North East, how do you assess the evolving internal power dynamics in Myanmar, and what potential consequences do you foresee for India amid increasing US involvement in both Myanmar and Bangladesh?

Shyam Saran:

This situation will likely persist for some time because neither side is in a position to overcome the other completely. Furthermore, there are powerful external forces involved, notably China, but not only China; for instance, Thailand is also engaged in what is happening, though China is especially prominent. Therefore, part of the issue for us is that there is little we can do to influence the course of the civil war there. Whether you like it or not, you are in a somewhat defensive position.

So, there is sometimes wisdom in recognising that you don’t have much leverage in this area. What can you do? I think what is crucial for India is that we share a 1400 km-long border with Myanmar. Some of our most sensitive Northeastern states border this region. We have experienced a history of insurgency and other issues, so ensuring the safety and security of this frontier is a top priority. Our focus should be on trying to protect ourselves, albeit not entirely, from the events that occur on the other side, while acknowledging that our influence on them is limited. Problems will arise because you have the Chins on the other side and the Mizos on this side, who share very strong inter-ethnic ties. Likewise, the Nagas are on both sides of the border. Ethnic spillovers are an inherent reality. Over the years, we have allowed these cross-border linkages to persist because they are vital for the livelihoods of those living near the border. Therefore, unless it directly impacts your security, there is no need to overreact or interfere too much with these interactions.

But what is truly concerning for us is whether this situation is creating the possibility of greater Chinese influence in a neighbouring country than would otherwise occur. That is a risk we need to be aware of. Even when I was ambassador in Myanmar, Chinese influence was growing very rapidly. Part of the reason we reached out to the military government, and why we tried to engage with them more than before, was because, if you remember, we strongly supported Aung San Suu Kyi and the NLD. While we did not cease supporting them, we also engaged with the generals. When I reached out to the generals, I found they were quite open and a little concerned about their over-dependency on China. They were therefore willing to increase cooperation with us. There are indeed opportunities here. Maintaining some of the links we have with the military government makes sense because they remain the most organised and powerful force in Myanmar. Completely cutting off engagement would not be sensible. The period of turmoil and uncertainty will likely continue, but as long as we focus on securing our very sensitive borders and stay engaged with key players on the other side, we will generally remain in a strong position.

Dhruv C. Katoch:

Now, as a side note on Myanmar, we sent one of our distinguished fellows there, and she conducted significant research, and everything you have mentioned has been confirmed by her. Now I will turn to one of the smaller island nations. Prime Minister Modi’s visit to the Maldives last month, during which six MoUs were signed, occurred after a period of heightened tensions marked by anti-India sentiment in the Maldives. What factors do you believe contributed to this change, and what impact might the visit have on the future course of India–Maldives relations?

Shyam Saran:

To the extent that countries are mindful of their larger interests and wish to pursue those interests, I see no reason why this more positive trend in our relationship cannot continue. I believe it will. Why do I say that? There is indeed a very strong constituency in the Maldives, similar to what we see in some other neighbouring countries, who believe their interests are better served by having a closer relationship with China, opening up to Chinese investment, and taking large credits or loans from China to develop their infrastructure. How can we object to that? If a country, whether a neighbouring one or not, cannot match China, and it turns to China for infrastructure development, there is no way India can object to that.

But observe what has happened. I am familiar with the Maldives because I had a very close relationship with President Nasheed. We were working during his presidency to foster much more substantial economic cooperation between the two countries. Unfortunately, due to the coup, we could not see this through, but I am aware of the different opinions that exist. A strong group in the Maldives believes that their interests are best served by a closer relationship with China, mainly because China can assist in their infrastructure development, which no other country can. Yes, that’s true. Additionally, before COVID, China had become the primary source of tourism for the Maldives, which generated significant foreign exchange for the country. There are many reasons why the Maldives thought that engaging more with China would be advantageous, and in pursuing that, perhaps downgrading the relationship with India might bring even greater benefits.

But what has happened? I will give you two examples. First, the bridge between the main island and the airport island. Major infrastructure projects, which are highly beneficial to the Maldives, cost a lot of money and were financed through credit. What is the situation now? The toll for crossing the bridge is so high that nobody uses it except tourists. The local people still prefer the ferry because it is much cheaper. As a result, the toll revenue is insufficient to repay the loan and interest. Clearly, infrastructure development is vital for any country, but it’s also essential that such projects generate income to cover their costs. Merely building infrastructure is pointless if it cannot produce income. That’s what happened with that project. Similarly, there was a large-scale low-cost housing project in the Maldives. Now that housing has become so expensive that no low-income person can afford it. Most of it remains vacant. I believe that in both the Maldives and earlier in Sri Lanka, they realised that while infrastructure development, especially with Chinese assistance, sounds impressive, it can sometimes become a heavier financial burden.

This is the reality that the new government eventually faced: instead of being a support for the Maldives’ development, it became a millstone around their neck. While 5-star hotels can obtain their supplies from Singapore and Dubai, what about the ordinary people of the Maldives? All essential supplies come from India at prices that we Indians pay. Remove that, and you’ll see what happens to the cost of living there. So, I believe we also played our cards well. I commend the government for not taking the bait. They stayed calm and did not respond with the same level of abuse, which also played a significant role. The kind of diplomacy practised is crucial. This approach allowed them, without losing Face, to return to a good relationship with India. Therefore, we are in a good position there, and by the way, we are also in a good place in Sri Lanka.

Dhruv C. Katoch:

So, in Sri Lanka, the political landscape shifted last year, and they now have a left-front government. Naturally, there was some concern about what might happen. But we have seen that nothing significant has occurred. Even with the left-front government, the relationship remains very good, and I think that’s a healthy sign. What has contributed to that? Is it the same as what happened in the Maldives?

Shyam Saran:

Just one thing has contributed, and that is when Sri Lanka was in a deep, deep crisis, we helped them out. India was the only country that provided significant assistance, helping the ordinary people of Sri Lanka deal with that crisis. We supplied them with rice, fuel, and fertilisers. Regarding their financial issues, we provided them with a swap line. So, if you look at how we were able, at a time of deep crisis, to support Sri Lanka, we were ready to reschedule our loans so they could obtain an IMF loan. The Chinese would not provide that letter until much later. What is very important is that in public perception in Sri Lanka, they suddenly realised, look, when we were struggling, only one country came and helped us. That has made an enormous difference, and I think the new government that has come in is aware of the fact that there is a shift in public perception. Therefore, maintaining a strong relationship with India is beneficial in terms of the public there.

Dhruv C. Katoch:

Right. Ambassador, I’ll move on to my final two questions now. I don’t want to cover the entire scope of the India-Pakistan relationship, as I don’t see much progress occurring, especially after Pahalgam and Operation Sindoor. However, I would like to address the internal situation within Pakistan, which is characterised by three primary challenges: economic, internal security, and political. In your view, do you think there will ever be, at least in the foreseeable future, a situation where politics can maintain control over the military, or is the military destined to rule, at least for the next few decades, if nothing else?

Shyam Saran:

I believe, as uncomfortable as it may be, that the only organised disciplined force in Pakistan is the army. Whenever there has been a crisis or significant unrest in the country, the fallback has invariably been the armed forces. That remains unchanged, by the way. So, if you are considering a future situation where the army is no longer influential, I am afraid that isn’t going to happen.

Also, be aware that the only time we have managed, relatively speaking, to improve relations between India and Pakistan has been when the army has been in control. The army there believes that improving ties with India is in its interest. So, this is the reality. Now, the third point we often forget is that the desire for parity with India is deeply ingrained in Pakistan. I wrote in one of my op-eds: “If you do five tests, I will do six.” There is always this mindset that I have to be one step ahead, to prove that I am superior to you. The belief that one Pakistani soldier is equal to ten Indian soldiers reflects this psychology. You may laugh at it, but it is very deeply rooted. Therefore, you must address this kind of mentality.

Having said that, the one thing that my view differs slightly from what we are trying to do at the moment is that I have always believed it is important, even when very difficult, to maintain some engagement and dialogue with Pakistan. Because, at the very least, it provides insight into their thinking. It offers a warning signal if things are heading in the wrong direction. Currently, it feels like a black box, and that is not ideal. As you mentioned, many internal developments and internal dynamics are happening. Part of our problem is how much knowledge India currently has about what is happening inside Pakistan. What is its economy doing? How vulnerable is this economy? What are its strengths? What are the sources of resilience that, whether you like it or not, still seem to exist?

So, unless you understand your adversary and how he thinks, it’s very challenging to develop a counterstrategy. My view is that you should safeguard your interests with respect. Keep your powder dry, but engagement is necessary. Even during the worst times of the Cold War, remember that the Soviet Union and the US still communicated. As a professional diplomat, I would say this is very important. But today, we are in a difficult situation, primarily because of recent events involving the US. This is a new, more dangerous situation. Why do I say it’s dangerous? Look at the statement made by the Army chief in Florida. He might think this is a good time to provoke India, believing he is protected by both China and the US. So, we are in a vulnerable position, and I hope we are aware that such thoughts might be on his mind.

Dhruv C. Katoch:

Ambassador, I have left China for the last question for this podcast. China today faces a range of internal challenges, including an economic slowdown, demographic pressures, and tightening political control. How do you think these domestic concerns are shaping Beijing’s approach to its relations with India, particularly in the context of ongoing border tensions and regional competition?

Shyam Saran:

You are quite right that China faces serious internal issues. One is the ongoing effect of the property crisis. Remember that 30% of the Chinese economy and much of the growth over the past 40 years was driven by real estate. When that has collapsed, everything related to the property sector has also fallen into disarray: demand for glass, aluminium for windows, tiles for floors—all have declined. The second problem is that bank deposit rates have been so low that the only two ways to generate some income are either the stock market or real estate. Since real estate was steadily increasing, it was the best savings option available. But now, with the collapse of the property sector, that savings source has also disappeared. As a result, demand remains weak despite all efforts, and consumption has remained nearly flat. These are serious problems, and the trade war will only make them worse.

But from a political perspective, if Xi Jinping has been under pressure, what he is telling his people is, ‘See, if you don’t have a strong leader here, how can you deal with this man there? That very uncertainty actually strengthens his position. When I was recently in Beijing for a conference, I asked my Chinese friends how it is that this doesn’t seem to be affecting the country’s politics. They replied that, in fact, his position has been strengthened by the ongoing developments. Regarding the external picture, the Chinese have, whether we like it or not, managed to claim: ‘Compared to that, we have stability; compared to the unpredictability there, we are a stable country; look at how they are reordering the entire trading system. We believe in free trade and a rules-based order.’ They are presenting themselves as everything the US is not, and do not underestimate the appeal this holds for many countries.

We must remember that the China challenge still exists for India. We might be able to make some tactical adjustments, and I believe you know, the Prime Minister is going to the SCO Summit. It is beneficial that he is attending to reestablish a relationship at the leadership level, or that we maintain a good relationship with Russia, which is also positive. However, we should also consider how we can diversify our relationships more than we have so far. My impression is that we have placed too much focus on our relationship with the West, and we have overlooked the importance of having a strong backing from developing countries. It is very important to secure a seat at the high table, but never by neglecting these connections, because ultimately, this is more significant for you. Therefore, if any crisis we face allows us to make a slight shift in how we engage with the world, I believe it would benefit us greatly.

Brief Bios:

Amb Shyam Saran is a former Foreign Secretary of India and has served as Chairman of India’s National Security Advisory Board. Amb. Saran is a career diplomat, having joined the Indian Foreign Service in 1970. He has served in several capitals of the world, including Beijing, Tokyo, and Geneva. He has been India’s Ambassador to Myanmar, Indonesia, and Nepal, and High Commissioner to Mauritius. In the Ministry of External Affairs, New Delhi, he headed the Economic Division and the Multilateral Economic Division and also headed the East Asia Division which handles relations with China and Japan. As a Joint Secretary in the Prime Minister’s Office in 1991/92, he advised the Prime Minister on foreign policy, nuclear and defence–related issues. After a career spanning 34 years in the Indian Foreign Service, he was appointed India’s Foreign Secretary in 2004 and held that position until his retirement from service in September 2006. Subsequent to his retirement, Saran was appointed Prime Minister’s Special Envoy for Indo–US civil nuclear issues and later as Special Envoy and Chief Negotiator on Climate Change. During his last two assignments, Ambassador Saran served as the Prime Minister’s personal representative, or “Sherpa”, at the Gleneagles and St Petersburg G8+G5 summits, and was present at the Toyako and L’Aquila Summits as an advisor on Climate Change issues. He also attended the Pittsburg G20 summit as a member of the Indian delegation. In 2011 Saran was awarded the Padma Bhushan by the President of India for his contribution to Civil Service. The Padma Bhushan is the third highest national award in the country. He holds a postgraduate degree in Economics. He speaks Hindi, English, and Chinese, and is conversant in French.

Maj Gen Dhruv C. Katoch is Director, India Foundation and Editor, India Foundation Journal.

China’s one-party state is often seen as having an easier governance task compared to democracies, where daily struggles between ruling and opposition parties can cause delays in policy making and implementation. However, the Chinese leadership of the Chinese Communist Party (CCP) also faces a complex environment, trying to manage internal socio-economic and political issues alongside an increasingly assertive foreign policy. At home, China continues to deal with an economic slowdown, high youth unemployment and an ageing population, all of which put pressure on social welfare systems. According to a poll by Reuters, China’s gross domestic product (GDP) is expected to slow to 4.5% in the third quarter and to 4.0% in the fourth, highlighting growing economic challenges, as U.S. President Donald Trump’s global trade war expands, and Beijing faces the task of encouraging households to spend more during a time of uncertainty^[1].

The property crisis in China, exemplified by the collapse of giants like Evergrande, on the other hand, erodes public confidence and local government revenues. As people see unfinished projects and rising mortgage defaults, the crisis erodes people’s confidence, while local governments lose significant land sale revenues and face increased fiscal pressure.

The real estate market is one of the most influential drivers of China’s economic growth. However, the crisis within it has caused financial difficulties for local governments. Chinese local governments mainly rely on taxes and revenue from land use rights sales for funding. Nonetheless, their income has declined due to the downturn in the real estate market, which has increased the risk that local government financing vehicles, or special companies that fund infrastructure projects using government assets as collateral, will default^[2]. The debts of local government lending organisations are referred to as hidden costs because they are not included in official government statistics, and the International Monetary Fund (IMF) in 2023 estimated that the debts of local government lenders made up 53% of the country’s GDP^[3].

Social inequalities in China still exist, especially in rural areas, despite claims of poverty reduction. China actually has one of the largest rural-urban income gaps in the world. Although rural-urban migration has increased, the urban-rural divide continues to grow. Remittances sent home have become a significant part of rural incomes, with almost USD 51 billion sent in 2022 alone, but research by Wuhan University indicates much remains to be done^[4]. As the divide widens, the risk of China remaining trapped in the middle-income trap increases, and closing this gap effectively is crucial for the country’s development, especially as China faces multiple economic headwinds.

Politically, the CCP maintains strict control and prioritises stability through censorship, surveillance, and crackdowns on anything the Party perceives as dissent. Xi Jinping’s consolidation of power, along with penalising even Party members who are seen as diverging from the official Party line, raises concerns about long-term governance risks. China also has global ambitions, as shown by initiatives like the Belt and Road Initiative (BRI), which seeks to expand Chinese geopolitical influence to secure economic dominance by heavily investing in infrastructure and trade networks across Asia, Africa, and Europe. These projects, although under grave suspicion from several countries, require significant financial commitments, with estimates suggesting that China has already spent USD 1 trillion on BRI-related initiatives since 2013, mainly funded through state-backed loans and investments^[5].

However, the BRI has also generated opposition. For some countries that take on large amounts of debt to fund infrastructure upgrades, BRI funds have been viewed as a potentially toxic source. For China, BRI projects are a commercial endeavour^[6]. Loans are provided at a rate close to the market interest rate, which China expects will be fully repaid.

However, BRI investments involve opaque bidding procedures and necessitate the involvement of Chinese firms^[7]. Consequently, contractors inflate costs, resulting in cancelled projects and political backlash^[8]. Nevertheless, China cannot abandon the BRI since it is enshrined in the Constitution of the CCP^[9]. Any reversal of the BRI will not only result in at least a trillion dollars worth of lost investments but also damage the CCP’s reputation. Still, extensive spending strains China’s domestic budget and limits resources for social welfare programmes like healthcare and education. To sustain economic stability, China often prioritises foreign investments over domestic infrastructure upgrades, which causes uneven regional development and exacerbates inequalities.

Beyond the need to service foreign debt and manage foreign currency reserves, Beijing is driven to implement tighter fiscal policies, which in turn limit domestic economic reforms and social spending. To understand the ongoing struggle that the CCP faces in balancing its global ambitions with the allocation of revenues and attention to domestic issues, this essay is divided into sections covering current domestic challenges facing China, South China Sea and regional tensions, the U.S.-China rivalry, China’s global governance ambitions, its resource allocation dilemma, internal dissent and external image, followed by a conclusion outlining its future outlook. The article relies on both primary and secondary sources to analyse how China attempts to balance domestic hurdles with its global ambitions.

China’s current domestic challenges in 2025

China’s economic growth has slowed, according to IMF data. Its GDP growth dropped to 4.7% in the second quarter of 2024, influenced by a property sector crisis, falling exports, and poor consumer demand^[10].

The economic slowdown in China strains job creation and public welfare, weakening the social contract of prosperity in exchange for political loyalty. By July 2024, China’s youth unemployment reached 17.1%, up from 13.2% in June, increasing discontent among graduates in a challenging environment marked by a property crisis and declining domestic demand. The rate is the highest since China introduced and adopted a new methodology. This new methodology for calculating the youth unemployment rate was introduced in January 2024 and excludes university students from the calculation. The change was made after youth unemployment surged, and the calculation was temporarily suspended in 2023 while the government aimed to improve the statistical methodology^[11]. However, the unemployment rate still soared in 2024. The situation is worsened by a mismatch between job expectations and available positions, leading to frustration among the youth^[12].

A major contributing factor is the impact of the zero-COVID policies, which led to the shutdown of many small and medium-sized businesses^[13]. The struggle for the CCP in this context cannot be overlooked. Therefore, on 8 April this year, China’s General Office of the Communist Party Central Committee and General Office of the State Council jointly issued guidelines aimed at creating a high-quality employment services system for university graduates^[14]. Nevertheless, this is not the first time the CCP has had to implement such policies. The following table displays some of the recent policies in China aimed at creating employment for youth.

Table 1: Some examples of Chinese policies from the recent past to generate employment for the youth.

Source (s): Various news reports

These policies have been ongoing, indicating that the challenge persists indefinitely. However, allocating funds is not an easy task, given that Beijing also needs to manage its global ambitions. In this context, an analysis of China’s South China Sea ambitions, the losses it faces from the U.S.-China rivalry, and the impacts on its BRI deserve closer scrutiny.

South China Sea and Regional Tensions

China’s assertiveness in the South China Sea has increased significantly. Its aggressive actions have heightened tensions with several Southeast Asian countries, particularly with the Philippines at the Second Thomas Shoal in the Spratly Islands. China’s actions, including ramming, water cannon usage, harassment, and militarised patrols, all aim to assert dominance over disputed areas, especially within China’s “nine-dash line” claim, which was invalidated by a 2016 tribunal in The Hague. Table 2 below shows representative actions by the Chinese Navy in the South China Sea between January and August this year.

Table 2: China’s aggressive tactics in the South China Sea in 2025.

Source (s): Various news reports

It is evident from the examples from 2025 alone that China must allocate a substantial amount of money to its military activities in the South China Sea. In 2023, it was reported by Reuters that China had spent about USD 15 billion, or 7% of its defence budget, on exercises in the Western Pacific^[15].

China has invested heavily in land reclamation and construction in the Spratly Islands since 2013, creating over 3200 acres of artificial land. This involves building airstrips, radar installations, and missile facilities, which enhance China’s military posture in an effort to project power across the South China Sea^[16]. China’s national military budget for 2025 was set at 1.78 trillion Yuan, roughly about USD 246 billion, making it the second largest in the world. The expenses for its South China Sea activities, including the building of artificial islands and military exercises, are part of this budget. The increase in the national defence budget has been 7.2% compared to last year^[17]. The odd part is, that as China’s economy slows, plagued by numerous problems, its military budget grows.

The South China Sea dispute is one of many conflicts involving China. China is engaged in territorial disputes with at least 17 countries, covering both land and maritime issues. Military aggression makes up a significant part of China’s defence budget.

The U.S.-China economic rivalry and its impact on China’s economic growth

The trade war with the U.S. has affected its economic growth, and according to analysts at RAND, the GDP is declining by approximately 0.3% to 0.6% each year^[18].

In the case of a sustained embargo-level trade war, the private sector may suffer a greater blow. Reduced exports, disrupted supply chains, and slowing economic growth in China have led companies to diversify production, prompting the CCP government to implement policy adjustments. The Chinese economy has so far shown signs of resilience; however, the uncertainty created for foreign companies in China cannot be overlooked. Additionally, there has been a dampening of investor confidence and a broader reassessment of global economic interdependence^[19].

In the first quarter of 2025, growth remained steady at 5.4% year-on-year, but by the second quarter it dipped slightly to 5.2%, supported by infrastructure spending and consumer subsidies, as well as interest rate cuts, amid reduced demand. Considering a 1.2% drain from tariffs, the projections for 2025 are around 4.5%^[20]. One of the most severe impacts is on employment, as tariffs harm the growth based on an export-dependent strategy. In export-oriented coastal regions like Guangdong, the impact is more severe, with estimates indicating a job loss of 16 million, approximately 2% of China’s 734 million workforce^[21].

Consumer prices fell in China during April 2025 despite stimulus efforts^[22]. This reflects tightening budgets amid job uncertainty and a bleak economic outlook, which further dampens demand. Factory prices are in deflation, and the Chinese economy is stuck in a deflationary spiral. According to Goldman Sachs’ estimates, in 2025, China’s retail inflation will drop to 0% from a 0.2% year-on-year increase in 2024, and wholesale prices are expected to decline by 1.6%, compared to a 2.2% decrease last year^[23].

Adding to this, U.S. companies have reduced investments in China to record lows, influenced by tariffs and geopolitical tensions. Foreign direct investment is fleeting and has also been at record lows^[24]. The geopolitical and geoeconomic competition with the U.S. adds to China’s problems, increasing the burden on the CCP to balance global ambitions and domestic needs.

The BRI, on which China has spent an estimated USD 1.308 trillion since its inception in 2013, is also on shaky ground^[25]. While the BRI aims to reshape global governance, it faces several challenges including issues with debt sustainability, poor risk management and execution, negative social impacts in recipient countries, corruption, political resistance, and funding shortages. Given the shifts in geopolitical dynamics, promoting China’s rise as the leader of the current international system carries multiple costs, which, considering the turmoil in the domestic economy, require recalibration by the CCP.

Conclusion

China’s dual pursuit of internal stability and global ambitions poses a complex challenge for the CCP. China’s economic slowdown, as shown by its GDP figures, highlights the difficulty of balancing domestic socio-economic issues with an assertive foreign policy. The property crisis, exemplified by the collapse of Evergrande, undermines public confidence and leads to a decline in local government revenues. High youth unemployment, which reached 17.1% in July 2024, increases discontent among graduates. The significant rural-urban income gap, one of the highest worldwide, risks trapping China in the middle-income trap and jeopardises long-term development.

These domestic challenges require the allocation of substantial resources, yet China’s ambitions, as demonstrated through its increased assertiveness in the South China Sea and its investments in BRI projects, compete for the same financial and political capital of the CCP and the country. A defence budget of USD 246 billion diverts resources from domestic needs, worsening inequalities and restricting social welfare investments. The U.S.-China trade war further complicates matters, leading to job losses, especially in manufacturing. Falling consumer prices and deflationary pressures in 2025 highlight weakened domestic demand, while decreased FDI indicates waning investor confidence.

The CCP thus faces a delicate balancing act. Prioritising global initiatives like the BRI and South China Sea dominance, for example, risks neglecting domestic challenges, potentially undermining the social contract between the state and its citizens. Conversely, focusing on internal reforms could also weaken China’s global standing, especially as the BRI is enshrined in the CCP Constitution. The future of China depends on the CCP’s ability to harmonise these competing priorities, ensuring that economic stability and social cohesion take precedence. China is skilled at learning from its history. Amidst shifting geopolitical winds, China may very well revert to Deng Xiaoping’s policies of hiding one’s powers and biding one’s time, while exploring other export markets, and engaging in posturing and optics to ensure it can leverage other markets beyond those in the West, including the ones it routinely confronts with aggression.

Once China rebuilds its internal cohesion, similar to the 1970s and early 1980s when it relied on the West, Japan, South Korea, and India, it will re-emerge and pursue its ambition to lead the current international order. While this remains a prediction, it is clear that China is undertaking recalibrations and reformulating policies. The world, especially those with which China has experienced hostility—be it militarily or economically—must be cautious about how they engage with a China that carefully balances its own priorities and global ambitions. China often promotes win-win outcomes, but the results frequently turn out to be the exact opposite of mutual gains.

Author Brief Bio: Dr. Sriparna Pathak is a Professor of China Studies at O.P. Jindal Global University. She is also a Senior Fellow at the Jindal India Institute, and can be reached at sriparnapathak@gmail.com.

^[1] https://www.reuters.com/world/china/chinas-gdp-growth-set-slow-raising-pressure-policymakers-2025-07-11/#:~:text=China’s%20GDP%20growth%20set%20to%20slow%2C%20raising,policy%20rate%20by%2010%20bps%20in%20Q4.

^[2] https://english.hani.co.kr/arti/english_edition/e_international/1104836.html

^[3] Ibid

^[4] https://english.ckgsb.edu.cn/knowledge/article/growing-closer-chinas-rural-urban-divide-and-its-effects/#:~:text=%E2%80%9CThe%20simplest%20solution%20is%20to,%2C%20you%20need%20people%20there.%E2%80%9D

^[5] https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative

^[6] https://docs.aiddata.org/ad4/pdfs/Banking_on_the_Belt_and_Road_Executive_Summary.pdf

^[7] https://documents1.worldbank.org/curated/en/715511560787699851/pdf/Main-Report.pdf

^[8] https://www.cgdev.org/article/china%E2%80%99s-massive-belt-and-road-initiative-council-foreign-relations

^[9] https://www.idcpc.gov.cn/english2023/dzwk/zgkx/202307/P020230717028554589528.pdf

^[10] https://www.reuters.com/markets/asia/chinas-economy-seen-slowing-q2-stimulus-calls-grow-2024-07-14/#:~:text=Summary,for%20Greater%20China%20at%20ING.

^[11] https://www.wsj.com/economy/jobs/chinas-youth-jobless-rate-edges-higher-after-methodology-change-4a969225

^[12] https://stratnewsglobal.com/world-news/chinas-youth-seek-govt-jobs-opt-for-vocational-courses/

^[13] https://www.chinacenter.net/2023/china-currents/22-1/the-covid-19-pandemics-impact-on-the-chinese-economy/

^[14] https://opportunities-insight.britishcouncil.org/short-articles/news/china-releases-new-policies-improve-graduate-employment#:~:text=On%20April%208%2C%202025%2C%20China’s,emphasises%20entrepreneurship%20and%20strategic%20sectors.

^[15] https://www.reuters.com/world/asia-pacific/china-spent-153-bln-pacific-exercises-2023-internal-taiwan-estimates-show-2024-08-27/#:~:text=On%20Assignment-,Exclusive:%20China%20spent%20$15.3%20billion%20on%20Pacific%20exercises%20in%202023,around%20Taiwan%20and%20its%20neighbours.

^[16] https://pppescp.com/2024/12/09/the-south-china-sea-a-complex-historical-and-geopolitical-landscape/#:~:text=China’s%20Strategy:%20%E2%80%9CCabbage%20Tactics%E2%80%9D%20and%20Expanding%20Presence&text=Since%202013%2C%20China%20has%20also,over%20territorial%20claims%20%5B8%5D.

^[17] https://www.thehindu.com/news/international/china-will-increase-its-defence-budget-72-in-2025/article69295050.ece

^[18] https://www.rand.org/pubs/commentary/2025/06/testing-self-reliance-what-the-trade-war-reveals-about.html

^[19] https://www.juliusbaer.com/en/insights/market-insights/market-outlook/us-china-trade-war-escalation-what-investors-need-to-know/

^[20] https://www.chinausfocus.com/finance-economy/the-impact-of-the-tariff-war-on-the-chinese-economy

^[21] https://www.rand.org/pubs/commentary/2025/06/testing-self-reliance-what-the-trade-war-reveals-about.html

^[22] https://www.bloomberg.com/news/articles/2025-05-28/china-deflation-worry-deepens-among-economists-after-trade-truce

^[23] https://www.cnbc.com/2025/05/05/china-risks-deeper-deflation-by-diverting-exports-to-domestic-market.html#:~:text=China%20risks%20a%20spiral%20into%20deeper%20deflation,economic%20deterioration%20before%20it%20exercises%20fiscal%20firepower.

^[24] https://www.weforum.org/stories/2025/07/tariff-impacts-us-companies-cut-investments-china-record-lows/

^[25] https://greenfdc.org/china-belt-and-road-initiative-bri-investment-report-2025-h1/

On 14 August 2025, Pakistan celebrated its 79^th Independence Day.^[1] The occasion was marked by a 31-gun salute in the Islamabad Capital Territory and 21-gun salutes in provincial capitals, presided over by the Prime Minister and the respective Chief Ministers of the provinces. The Independence Day celebrations took place against a backdrop of relative peace and strict security in Khyber Pakhtunkhwa and Balochistan. Nevertheless, it saw muted protests in Quetta and Kalat by Baloch nationalist elements, who marked the day as a ‘black day’^[2] and protested against the continued imprisonment of Dr Mahrang Baloch,^[3] the founder of Baloch Yekjeheti Conference, along with several Baloch civil rights activists.

Marka-i-Haq: Of Meta-Narratives of Piety and Legitimacy

This Independence Day was notable for another reason: the government and the Army, beyond celebrating Independence Day, also marked it as the “victory” of ‘Marka-i-Haq’^[4] or the “war of righteousness.” It marks the end of the conflict between India and Pakistan that erupted in early May, after India launched Operation Sindoor in response to the terrorist strike in Pahalgam. Nationalist fervour was, therefore, quite vocal, with the Prime Minister addressing the nation from Jinnah Sports Stadium, Pakistan’s largest stadium in the centre of Islamabad, on the eve of Independence Day. The festivities at the stadium included marching contingents from Türkiye and Azerbaijan, which had provided moral and material support to Pakistan during and after the conflict, as well as representation from Pakistan’s armed forces.

A brief analysis of Shehbaz Sharif’s speeches over the years on Pakistan’s Independence Day, first as the Chief Minister of Punjab and later as Pakistan’s Prime Minister since 2022, shows a clear shift: the speech was infused with nationalist slogans aimed at emphasising a collective ‘bond of faith’ ^[5]strengthened by defending the country during the conflict with India, led by the government and the military establishment (referred to hereafter as the Establishment).

The infusion of virtue and righteousness in his rhetoric constructed a Manichean binary between Pakistan and its adversary, in this case India. In creating this Manichean, moralistic binary to justify Pakistan’s Operation Bunyan Marsoos,^[6] Sharif was, in effect, trying to reaffirm the legitimacy of the hybrid regime, which was cloaked in a febrile legitimacy afforded by a widely disputed electoral verdict, as the protector of Pakistan as well as its Islamic identity. In addition to noting the military’s role and the ‘resolve of the citizens’, Sharif expressed gratitude to China, Türkiye, Azerbaijan, Saudi Arabia, the UAE, and, especially, President Trump for their diplomacy, thereby reaffirming the alliances that fructified in the lead-up to, and were strengthened during, the May conflict.

Sharif’s speech may have diverged from the calculated political correctness he was previously associated with; instead, his confrontational, masculine rhetoric now resembles that of Imran Khan, his predecessor and arch-rival, who is currently in prison. The moral undertones and lavish allusions to Pakistan’s Islamic identity were borrowed from the Islamist playbook of the Pakistan Tehreek-i-Insaaf, particularly Khan, and aim not only to pacify the current surge in nationalism but also to serve two additional purposes: firstly, domestically, it reaffirms Pakistan’s Islamic identity, thereby strengthening unity to symbolically shift Pakistan’s eruptive partisan and ethno-linguistic fault-lines, which will be discussed later in this article.

But secondly, and perhaps as an understatement, Sharif’s rhetoric intensified Pakistan’s outreach to its partners in the Organisation of Islamic Cooperation, especially the Gulf monarchies and Turkey; Pakistan was instrumental in founding and shaping the idea of OIC,^[7] and the country prioritises its OIC relations in its foreign policy as it is its only nuclear power and second-largest member. While giving special importance to OIC is not new, embedding it in notions of piety and using it as a basis for a moralistic foreign policy is indeed an inheritance from Khan’s Islamist populism. Additionally, according to data from the Ministry of Overseas Pakistanis and Human Resource Development, out of 9.9 million Overseas Pakistanis, over 52% reside in OIC member states, particularly in the Gulf.^[8]

Nationalism in the Name of Islam: An Oxymoron and a Community Unimagined

But the appeals to Islamic piety and the ummah, as espoused in the OIC Charter concur with a paradox: On one hand, juxtaposed against military parades and masculine portrayals of the nationhood—as demonstrated in the Marka-i-Haq celebrations in Islamabad, Lahore, and Karachi—and the announcement of a Rocket Force Command, indicate that these appeals originate from a position of strength. On the other hand, Sharif’s constant invocation of Islamist rhetoric seeks to mask Pakistan’s societal fragility: a master narrative of the Marka-i-Haq endures the rally-around-the-flag effect achieved during Operation Bunyan Marsoos.

However, the attempt to mask Pakistan’s internal divisions through Islam remains futile. While the idea of a homeland for South Asia’s Muslims forms the core of Pakistan’s founding myth,^[9] it has been consistently challenged. For example, ethno-nationalist movements across Pakistan and the desire for a sense of normalcy and strength led to the pre-emptive suspension of Internet services in Balochistan, igniting protests. Baloch activists continue to face armed resistance as their protests to secure the release of Mahrang Baloch and other members of the Baloch Yakjehti Conference have been met with fierce opposition. In 2024, Balochistan saw a remarkable rise in violent attacks and casualties, with an 84 per cent increase over 2023, resulting in 322 lives lost and 534 others injured in 202 incidents.

Militant nationalist groups such as the Baloch Liberation Army (BLA) and the Balochistan Liberation Front (BLF) significantly increased their attacks. They targeted security forces, civilians, and non-Baloch workers, miners and travellers.^[10] They have carried out some high-profile attacks, including hijacking an entire train, Jaffar Express, in March 2025. In July 2025, BLF launched coordinated attacks across 17 locations in Balochistan. These incidents not only demonstrate their extensive reach, but also the overwhelming support of the local population, showing their alienation from Pakistan.

Terrorism continues to unsettle life in Pakistan’s western frontier. In July 2025 alone, 91 incidents of killing were reported, in which 60 victims were civilians. Five were killed and 11 injured in a roadside bombing in Bajaur. Four security forces personnel were killed as 150 terrorists of the Tehreek-i-Taliban opened fire in Orakzai. 2024 was the bloodiest year in the recent past, when 852 persons were killed and 1092 injured in 521 terrorist attacks.  Over 95 per cent of these attacks were concentrated in the provinces of Balochistan and Khyber Pakhtunkhwa.^[11] There were 785 violent incidents in total, which included operations by security forces and resulted in the killing of 1950 and injuries to 1850 others.^[12]

The deteriorating internal security situation has led to the launch of Operation Azm-i-Istekham. It is a counter-terrorism, kinetic operation aimed at reconciling with the changing regional realities, such as terror attacks on Chinese citizens working on projects of the China–Pakistan Economic Corridor, attacks on migrant workers from Punjab in Balochistan, and a surge in activities of the TTP since the return of the Taliban regime in Afghanistan in 2021.

A spate of terror incidents, highlighted by the attack in a school in Peshawar in 2014, had precipitated the launch of a National Action Plan (NAP)^[13] to combat terrorism. It included kinetic measures as well as non-kinetic approaches such as promoting regional autonomy in radicalised areas like the then Federally Administered Tribal Agency (FATA), poverty alleviation, and reconciliation dialogues. The Jaffar Express bombing in March this year has prompted calls from the Pakistan People’s Party chief Bilawal Bhutto–Zardari to launch an NAP-II to address current challenges.

His remarks were followed by Asim Munir’s diatribe in the Pakistani Parliament, after the convening of the National Security Committee that month, where he admonished the failure of successive governments in containing terrorism, advocating for a “hard state.”^[14] His comments ignited debate in Pakistani civil society about the feasibility of this approach, especially vis-à-vis Pakistan’s declining trend in human rights. And although commentators have remarked on the futility of extrajudicial law enforcement processes, Pakistan’s history offers few alternative approaches.

State Capacity—or the Lack Thereof

However, the dichotomy between a hard and a soft state is often misconstrued in these commentaries: a hard state does not necessarily imply a hardline state. The distinction lies in state capacity: Pakistan has not been able to expand state responsiveness and readiness to face threats. State expansion has been hindered by anaemic institution-building, which has routinely fallen into the hands of the Establishment. To understand the laxity in Pakistan’s state capacity, it is essential to understand the rise and fall of Mohajirs.

Pakistan’s weak state capacity is, arguably, rooted in its problematic origin, whereby it inherited a smaller financial and bureaucratic apparatus than India, the latter quickly populated by educated, Urdu-speaking, middle-class,^[15] and upwardly mobile Mohajirs from India.

Pakistani censuses conducted between the 1950s and 1970s reveal the extent of their dominance. By 1970, they held nearly a third of administrative positions within Pakistan’s bureaucracy and controlled more than ten of the top positions in the military. Businesspeople who had migrated from India’s coastal regions controlled some of Pakistan’s largest corporate and media houses. While Liaquat Ali’s administration introduced a quota to increase the representation of Bengalis and check the overbearing influence of the Mohajirs, it did not diminish their social and economic capital, especially in the upper echelons of the bureaucracy. Their disproportionate access to public goods like education meant that the passage of the One Unit Plan intensified this polarisation. However, their fortunes declined with the inauguration of Islamabad as the national capital, coinciding with the first military regime of Pakistan under Ayub Khan and the subsequent expansion of Punjabi dominance in civil and political affairs.

Subsequently, the arrival of Zulfiqar Ali Bhutto and the PPP’s policies, such as the Sindhi Language Bill and the introduction of quotas in the Sindh Government, marginalised the Mohajirs. Karachi, Pakistan’s economic centre and the heartland of the Mohajirs, also saw the growth of Pashtun, Sindhi, and Baloch immigrants, and disputes over its limited resources led to ethnic riots, notably in the 1980s, when Altaf Hussain’s All Mohajir Student Organisation mobilised against what they saw as discriminatory practices by the state. Later becoming the Muttahida Qaumi Movement (MQM), the party was arguably positioned as a counterbalance to the PPP, gaining support from the Establishment and ruling Karachi through mobocracy.^[16]

The lack of state capacity in Pakistan’s largest city is exemplified by what Laurent Gayer described as ‘ordered disorder’ of Bhatta extortions, ethnic enclaves, mob justice, and the erosion of law and order due to the MQM’s cadres.

Following Operation Clean-Up in 1992, the MQM’s influence diminished for some time. However, it consolidated control over Karachi’s political economy by initially supporting Musharraf and later by becoming part of most federal governments. Its legitimacy waned when the Lawyers’ Movement in Pakistan gained strength and demanded democratisation, leading to Musharraf’s resignation. Its ultimate downfall occurred after its leader Altaf Hussain delivered a vitriolic anti-Pakistan speech from London in August 2016. The speech triggered a harsh crackdown, resulting in the party’s fragmentation and the decline of Mohajir influence in Karachi. As the most socio-economically developed community in Pakistan, Mohajirs have the lowest birth rate among various ethnic groups. Coupled with the large-scale migration of Pakhtoons, Baloch and Sindhis to Karachi, this has reduced the Mohajir population in the city to less than half, weakening their stranglehold over Pakistan’s financial hub. The MQM’s current version is supported by the Establishment; therefore, despite regaining control over Karachi and Hyderabad—albeit through a widely considered rigged election—the party has lost support without a charismatic leader like Altaf. This decline has heightened Mohajir insecurities and increased their alienation from the state. The alienation of Mohajirs, who are considered the founders and ideologues of the idea of Pakistan, clearly demonstrates that a shared religion has failed to bridge ethnic divisions.

At the other end of the political spectrum in Sindh, the Sindhi identity is experiencing a resurgence. Since the death of GM Syed, a counterpart to the Jiye Sindh Movement has been difficult to identify.^[17] The rise of the Pakistan Peoples Party (PPP) and consequently the Bhuttos in national politics gave Sindhis a stake in the national arena and lessened their perceived marginalisation, initially vis-à-vis the Mohajirs and later vis-à-vis the Punjabis. However, the assassination of the two PPP Prime Ministers from Sindh—Zulfiqar Ali Bhutto and Benazir Bhutto—transformed their sense of ‘victimhood’ into anger against the Punjabi-dominated military. While the PPP’s vote share has increased in successive elections, its influence has become more concentrated in rural Sindh.

Since the announcement of the Cholistan irrigation project by the Army Chief, protests have erupted against what Sindh regards as the diversion of its rightful share of the Indus waters. The project, which aims to irrigate large areas of land in the Cholistan desert in Southern Punjab by constructing new canals from the Indus, has naturally caused concern in Sindh, which derives its name from the river.^[18]

The province relies heavily on the river to sustain its agricultural economy. Already, the rising salinity from the sea has rendered large areas of fertile land barren; the Cholistan canal project will further diminish downstream flow, increasing salinity. This is expected to damage 12 million hectares of cultivated land. As a result, despite receiving unequivocal support from the Establishment, the canal project has been halted amidst protests from groups advocating for Sindh’s regional autonomy, such as the Jeay Sindh Markaz. However, the issue-specific movement has gained a broader scope thanks to the leadership of Zulfiqar Ali Bhutto Jr, who, along with his sister Fatima Bhutto, has decided to establish a political party in Sindh, complicating the internal disputes of their father with the Bhutto-Zardaris. His fashion choices and combination of urban, ecological, and rural concerns signal a challenge to the PPP’s Sindhi vote-bank.

With the Cholistan dispute,^[19] the PPP found itself in a quagmire, and hence the inaction. The PPP, since the departure of Shah Mahmood Qureshi^[20] and the trickling away of the ‘electables’, especially the sajjda-nashins of Southern Punjab and the Sairaiki belt, has been seeking to stage a comeback in the region and, by extension, in Punjab. The canals were supposed to benefit the farmers of South Punjab, but risked putting the citizens of Sindh, the rain-impoverished province, in peril, which, incidentally, is also the PPP’s bastion.

The exposition of Pakistan’s hard military power, amidst the absence of adequate state capacity, will be most evident on Pakistan’s restive Western frontier. Khyber-Pakhtunkhwa, bordering Afghanistan, has been at the fulcrum of the spike in terrorist incidents since the return of the Taliban regime. KP has also borne the brunt of Pakistan’s malfunctioning state identity. ^[21]Even at the time of Independence, calls for territorial autonomy and a potential merger of the Pashtun-populated lands of Pakistan and Afghanistan had threatened the foundations of the State. The Jamaat has had a sizeable presence in the ethnically diverse region. Madiha Afzal^[22] has written about the high concentration of madrasas and Islamic seminaries in the province. Symptomatic of state incapacity, over 2 million children in Pakistan have to attain education in madrasas, over 1.2 million of whom live in KP. Musharraf’s attempts at containing Islamism in the early 2000s also influenced the madrasas, as the Madrasa Education Board was established in 2001. However, madrasa reform is in a constant conflictual dialectic with the forces of religiosity and, since the fall of Musharraf, has been a stillborn idea.

In Khyber Pakhtunkhwa (KP), the expanding scope of the Council of Islamic Ideology (CII) has gained significant influence because of the province’s deeply conservative social fabric and the strong presence of Islamist parties such as Jamiat Ulema-e-Islam (Fazl) (JUI-F). The CII’s statements on family law, women’s rights, educational curricula, and cultural practices often have a strong impact in KP, where local political elites and religious leaders frequently invoke its authority to oppose reformist initiatives. Scholars observe that although the CII is officially advisory, in practice its opinions “shape the boundaries of legislative debate” in places like KP, where government institutions grapple with social conservatism and the legacies of militancy. As a result, the Council’s widened role has reinforced traditionalist trends in KP, restricting progressive laws on gender and education, while also providing religious justification for policies that further solidify Islamist influence in provincial politics.^[23]

Since 2013, the co-option of Islamists in the province has propelled the PTI to power; today, despite the restrictions on its activities, PTI-backed Independents have formed a diverse political coalition to govern the province, often conflicting with the party’s leadership in Islamabad.

Balochistan epitomises Pakistan’s governance crisis, where political marginalisation, resource exploitation, and heavy securitisation converge to fuel chronic instability. Despite being the largest province and rich in natural resources, it remains the poorest, with grievances over exclusion from decision-making and inadequate revenue-sharing.^[24] Recurrent insurgencies, enforced disappearances, and militarised responses have deepened alienation. Recent attacks on Chinese interests linked to the China–Pakistan Economic Corridor (CPEC) highlight how Balochistan’s discontent undermines state legitimacy and poses a strategic liability for Pakistan’s regional ambitions.

Balochistan remains Pakistan’s most intractable internal challenge, marked by chronic underdevelopment, political exclusion, and recurring insurgency. Although it is the largest province in terms of territory and is endowed with vast mineral and energy resources, its population faces some of the worst socio-economic indicators in the country, characterised by persistent poverty, inadequate education, and limited access to healthcare. Grievances are rooted in long-standing perceptions of exploitation—Islamabad’s control over natural gas revenues since the 1950s and more recent projects under the China–Pakistan Economic Corridor (CPEC) have heightened local resentment over resource extraction without equitable benefit-sharing.^[25]

The state’s reliance on militarised governance, including enforced disappearances and extrajudicial killings, has deepened mistrust and alienation, creating cycles of rebellion and repression. Insurgencies led by Baloch nationalist groups have ebbed and flowed but remain a low-intensity conflict, occasionally destabilising Gwadar and targeting Chinese investments, thereby complicating Pakistan’s strategic and economic ambitions. Politically, the province is fragmented: mainstream parties often lack legitimacy at the grassroots level, while nationalist groups are systematically marginalised, leaving little scope for democratic reconciliation. This disconnect highlights that Balochistan’s crisis is not just local unrest but a key challenge for Pakistan in handling ethnic diversity, resource allocation, and federal governance.

Pakistan’s government recognises that many of its internal conflicts are intractable and that the basis of Islam is unstable, making economic growth essential. It remains hindered by structural weaknesses; however, it has negotiated a staff-level agreement with the IMF and approved over $2 billion in funding. It has also negotiated a trade agreement with the US, which is expected to benefit its fledgling industry. Pakistan’s economy follows a boom-and-bust cycle.^[26] Funding from Western lenders triggers a consumerist cycle, which eventually results in increasingly unsustainable import bills that lead to a foreign exchange crisis. However, at present, Pakistan’s falling inflation and rising activity in the Karachi Stock Exchange suggest the country is experiencing a boom cycle.

In sum, Pakistan survives in a paradox:^[27] instability amidst resilience. However, the challenges of state capacity are increasing. Pakistan’s current difficulties highlight the uneasy balance between apparent strength and real weakness. The Sharif government’s use of religious symbolism and military victories aims to project unity and legitimacy, but beneath this façade lie lasting divisions: Baloch alienation, the instability in Khyber Pakhtunkhwa, the fragmentation of Mohajir politics, and the entrenched control of dynastic elites in Sindh and Punjab. The shift between tough security policies and rhetorical appeals to Islamic unity has done little to genuinely expand the state’s ability to address these issues through inclusive governance, fair resource distribution, or institutional reform. Simultaneously, the country’s economic weakness—marked by cycles of debt, dependence, and brief periods of growth—worsens internal instability, even though renewed IMF support and new trade prospects with the United States temporarily ease pressures.

Pakistan’s challenge, therefore, is not just to survive immediate crises through force or external aid but to fundamentally change the relationship between the state and society, prioritising economic stability, accountable governance, and social unity over the persistent reliance on militarisation and religious symbolism. Until this realignment occurs, Pakistan’s politics will remain trapped between the illusion of strength and ongoing vulnerability.

Author Brief Bios:

Capt. Alok Bansal is the Executive Vice-President of India Foundation & the Secretary General of Asian Eurasian Human Rights Forum (AEHRF). A seasoned strategic affairs analyst, he has previously served as the Executive Director of the National Maritime Foundation (NMF) and has held research positions at leading Indian think tanks including the Institute for Defence Studies and Analyses (IDSA) and the Centre for Land Warfare Studies (CLAWS). He has authored/ edited 10 books. His work focuses on maritime security, South Asian geopolitics, and internal dynamics of Pakistan. A former naval officer, he served in the Indian Navy for 32 years and commanded two warships. A PhD in international Affairs, he has been a visiting Professor at Jamia Millia Islamia.

Parth Seth is a Research Fellow at the India Foundation. His interest lies in the themes of multilateralism, development, middle powers, and great power competition. He focuses on South Asia, the Middle East and North Africa (MENA), and Chinese foreign policy. While interning at several think tanks, he has assisted researchers in the domains of strategic studies, public policy, and international development. He has written for websites and journals on the themes of South Asia, China, MENA, and the intersection of political philosophy and policy. He completed his postgraduate studies in International Relations from the London School of Economics and Political Science and holds an undergraduate degree in political science from the Ramjas College of the University of Delhi.

References:

^[1] https://tribune.com.pk/story/2561251/world-leaders-congratulate-pakistan-on-independence-day

^[2] https://edition.cnn.com/2024/11/26/asia/pakistan-protests-imran-khan-islamabad-explainer-intl-hnk

^[3] https://time.com/7292408/mahrang-baloch-arrest-balochistan-pakistan/

^[4] https://www.radio.gov.pk/12-05-2025/military-campaign-marka-e-comes-to-victorious-end

^[5] https://global.oup.com/academic/product/righteous-demagogues-9780197756928?cc=us&lang=en&

^[6] https://www.aljazeera.com/news/2025/5/10/pakistan-launches-operation-bunyan-marsoos-what-we-know-so-far

^[7] https://treaties.un.org/doc/Publication/UNTS/Volume%20914/volume-914-I-13039-English.pdf

^[8] https://pakistan.iom.int/sites/g/files/tmzbdl1121/files/documents/2024-05/pak_2023_migrant-presence_fms_final.pdf

^[9] https://www.hurstpublishers.com/book/muslim-zion/

^[10]            “Pakistan Security Report 2024: An Abridged Version”, Islamabad, Pak Institute for Peace Studies, Vol 17, January 2025, No 1, p. 6.

^[11]            Ibid,.

^[12]            Ibid., p. 8.

^[13]             https://nacta.gov.pk/laws-policies/nap-2014/

^[14] https://www.thehindu.com/news/international/pakistan-army-chief-calls-for-turning-country-into-hard-state-in-fight-against-terrorism/article69347261.ece

^[15] https://www.brookings.edu/books/the-idea-of-pakistan/

^[16] https://www.hurstpublishers.com/book/karachi/

^[17] https://academic.oup.com/book/39290

^[18]            Indus is called Sindhu in Urdu.

^[19] https://www.thefridaytimes.com/29-Mar-2025/cholistan-canal-controversy-water-crisis-and-environmental-risks-in-pakistan

^[20] https://www.dawn.com/news/676336/shah-mehmood-qureshi-joins-pakistan-tehrik-e-insaaf

^[21]    Taliban: The Power of Militant Islam in Afghanistan and Beyond Third Edition by Ahmed Rashid

^[22] https://www.brookings.edu/books/pakistan-under-siege/

^[23] https://www.ashwinanokha.com/resources/ijeb%20v21-1-2022-64.pdf

^[24] Waseem, M. (2020). Political Conflict in Pakistan. Oxford University Press.

^[25] https://www.vanguardbooks.com/book/fall-out/

^[26] https://www.thefridaytimes.com/02-Jul-2025/pakistan-s-borrowing-binge-cannot-mask-its-economic-crisis

^[27] https://www.sciencespo.fr/ceri/en/content/pakistan-paradox-instability-and-resilience-christophe-jaffrelot