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Annual Forecast 2016: South Asia

Dec 28, 2015 | 12:56 GMT

Afghanistan will struggle to contain various insurgencies, but the main story will be India, which still boasts one of the world's fastest-growing economies.

India Struggles With Reform

Losses in the Delhi and Bihar state elections in 2015 will weaken Indian Prime Minister Narendra Modi's mandate to push his reform agenda through parliament in 2016, stymieing legislation on taxation, real estate, access to electricity, labor reform and land acquisition. His Bharatiya Janata Party (BJP) is unlikely to gain many seats in 2016 in the parliament's upper house, where it remains in the minority. Among upcoming state elections in Assam, Kerala, Tamil Nadu, West Bengal and Puducherry, only Assam has the potential to deliver a BJP victory. Low oil prices will help sustain the economy's growth rate of 7 percent into 2016, but deficiencies in energy infrastructure, a high fiscal deficit and underutilization of capacity in manufacturing will hamper further growth. Moreover, difficulty in passing the Goods and Services Tax Bill — a sweeping piece of landmark legislation aimed at simplifying India's convoluted tax code by imposing a single levy on all 36 states and union territories — will constrain economic growth. (The opposition center-left Indian National Congress has stalled the bill in parliament.)

State-owned banks, burdened by $100 billion in bad debts, will keep making a slow recovery in 2016 but will not be strong enough to start lending in force again. Labor unions and bureaucrats will continue opposing the government's plans to divest shares in state-owned enterprises. Additionally, Modi will struggle to address the schism between the BJP's traditionalist Hindutva wing and the party's more pragmatic middle-class and pro-business base as the Congress party capitalizes on rising tensions nationwide over the issue of intolerance related to Hindutva.

The main goal of India's foreign policy in 2016 will be securing foreign direct investment. Modi will resume a vigorous travel schedule in support of his "Make in India" campaign and "Act East" policy, seeking to strengthen bilateral ties with the Association of Southeast Asian Nations and with France, Japan and the United States. Relations with Nepal will begin to stabilize as the two nations work to implement a three-step political agreement that addresses the concerns of the ethnic Madhesi community over Kathmandu's recently adopted constitution. The largely Hindu Madhesi felt the new constitution would not give them proportional representation and imposed a blockade in protest — an action Nepal accused India of tacitly aiding. Despite Nepal's efforts to appease the Madhesi, the strategic implications of this episode will endure; Kathmandu will move closer to Beijing as a hedge against possible future aggression from New Delhi, weakening India's influence along its periphery. (China already has close ties with Pakistan, is a significant investor in Afghanistan and Sri Lanka, and has a defense cooperation relationship with Bangladesh.) Tensions between India and Pakistan are unlikely to escalate beyond the occasional skirmish over Kashmir. India's security concerns about Afghanistan will drive New Delhi toward a limited dialogue with Islamabad.

Pakistan Pursues Security

Supported by a three-year, $6.6 billion International Monetary Fund loan and buoyed by low oil prices, Pakistan's economy will maintain its current growth rate of 4 percent in 2016. However, a weak business environment and a lack of reforms in the country's distressed energy sector will inhibit further growth. The Iran-Pakistan pipeline and the Turkmenistan-Afghanistan-Pakistan-India pipeline will see little progress in spite of growing political support for them. The same is true for a $46 billion China-Pakistan economic corridor, a series of projects designed to link China's western Xinjiang province with the port city of Gwadar on the Arabian Sea. (Balochistan, Pakistan's large southwestern province in which Gwadar is located, is home to a Balochi insurgency that needs to be calmed before the corridor can be functional.) Relations between Islamabad and New Delhi will remain stable as Pakistani Prime Minister Nawaz Sharif continues directing the military's attention toward battling domestic Islamist militants — something that will work in Modi's best interests, too.

Sharif will continue pursuing his campaign to establish a stable security atmosphere in Pakistan in the hope of making his country an attractive destination for much-needed foreign direct investment. Pakistan's army chief, Gen. Raheel Sharif, will carve out a prominent role for the military in 2016 and serve as a key facilitator in talks between the Taliban and Kabul. Pakistan will continue to calibrate a delicate balance among Russia, China and the United States, as well as between Iran and Saudi Arabia. Islamabad will monitor the Saudi security situation with respect to Yemen and will even send military advisers to Riyadh, but it will be careful not to become too involved lest it invite Iran's disapproval.

Peace Talks With the Afghan Taliban

Afghan security forces cannot militarily defeat the Taliban on their own, even as the insurgency continues fragmenting. For countries like China and Pakistan, which fear the potential consequences of longer-term instability in Afghanistan, peace talks will likely remain the sole desirable option in 2016. But several factors, particularly Taliban disunity, will prevent any meaningful talks from concluding — if they emerge at all — in 2016.

The impact of Taliban battlefield successes in 2015 — even those that were short-lived, such as the fall of Kunduz in September — will carry over into 2016. Kabul's security forces will face a broader, albeit less unified, insurgent front as the number of districts throughout the country under the control of the Taliban or other militant organizations rises amid the inevitable spring offensive. This will challenge the cohesion of the national unity government, potentially spurring regional warlords like Gen. Abdul Rashid Dostum to act with increasing autonomy from Kabul to secure their own interests. Furthermore, Afghan Taliban violence will likely foster anti-Pakistan sentiments within Afghanistan that will further challenge Pakistan's role in any future talks between Kabul and the Taliban.

The Islamic State and the Evolution of the Afghan Insurgency

More than a year after the emergence of the Islamic State banner in Afghanistan, the number of Afghan militants claiming allegiance to the group remains comparatively small. Their presence may grow in 2016, but the Islamic State brand name must contend with the historical tribal, ethno-sectarian, cultural and militant dynamics in Afghanistan. These relationships will dictate the Islamic State's behavior and evolution in the country more than any potential guidance from, or developments within, the Islamic State in Southwest Asia and North Africa.

Currently, the Islamic State in Afghanistan largely consists of former Tehrik-i-Taliban Pakistan fighters (who are thus inherently against Islamabad) and disenchanted Afghan Taliban members. Despite increasing fragmentation, the Taliban movements under Mullah Akhtar Mansoor and Mullah Mohammad Rasool will remain by far the most militarily powerful and widely operating insurgent groups in Afghanistan throughout 2016. Violent competition between the Islamic State and Afghanistan's other militant groups will likely continue in 2016, but the intensity of fighting between rival groups in Afghanistan will vary from region to region in the areas where the Islamic State operates.

Afghan Insurgents Raise Regional Concerns

Taliban allies like the diffuse Islamic Movement of Uzbekistan militant umbrella group will find greater mobility and a role within Afghanistan in 2016. This development will lead to growing concerns among Central Asian states and Russia over security along Afghanistan's northern border since the potential for Afghanistan's insurgency to spill over its borders could rise. Because the Pakistani military offensive has pushed militants into Afghanistan, Pakistan will become more concerned about the increasing mobility of militant networks inside Afghanistan. Thus, border security tensions between Islamabad and Kabul are likely to rise in 2016.

All images are courtesy of Getty.

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