Eye on Myanmar: Will political instability impact India’s markets?

Political instability can have an impact on the stock markets, anywhere in the world. Global cues have made an impact on India’s stock markets as well, to varying degrees. The recent coup staged by the military in Myanmar and the arrest of its top leaders including Aung San Suu Kyi has some sort of a global impact politically and economically. After a decade of sustained opening up of Myanmar politically and economically, this revert to military rule will be closely watched by not just India, but China and the US as well.

What does it mean for India?

Thus far, the markets in India have not reacted strongly to the developments in Myanmar as bigger developments such as the Budget and vaccine rollouts have kept the markets on a sustained bull run in recent times. The reaction of the Indian government to the coup will have an impact on the political and economic ties between the two nations. The markets may not react immediately but the long-term economic and political ties may create an impact in the future.

The factor that needs to be watched closely following the coup is the stance that the Quad, (Quadrilateral Security Dialogue) including the US, Australia, India and Japan will take over Myanmar. If India is non-commital and refuses to take sides, the military may still see India as an ally. If India takes a harsh stance, it may tip over the military to align or favour China, with the US already coming down harshly on it.

Myanmar shares an over 1640-km border with India and is a key bridge that connects South Asia with Southeast Asia. India has an ‘Act East’ policy initiative of which Myanmar occupies a key position. Apart from gifting the submarine INS Sindhuvir, renamed UMS Minye Theinkhathu, to Myanmar in October 2020, India has also more recently gifted 1.5 million doses of Covishield vaccines to Myanmar. It is India’s bid to strengthen not just defence ties with its strategic neighbour and gateway to Southeast Asia but also a move aimed at ensuring stability and counterbalancing China’s power in the region.

India has also come to Myanmar’s aid on the infrastructure front, with several projects such as Kaladan multi-modal transit transport project, of which Sittwe port is part of and the Trilateral Highway. The Kaladan project is important as it helps the NE states to connect to the Bay of Bengal via Mizoram and also to Kolkata. India and Myanmar have also come to an agreement to jointly work on operationalising the Sittwe port. The port will ensure transportation of goods from Kolkata to Sittwe. India has also announced $2million grants to promote the construction of Haat Bridge to boost connectivity between Myanmar and Mizoram. These projects may be impacted owing to the coup in the form of delays.

A politically stable Myanmar would help India maintain the security in its border areas, especially as India has been concerned over militancy in the north-East who is said to have taken shelter in Myanmar. In May last year, Myanmar handed over 22 Indian insurgent cadres to India. Beating insurgency goes a long way in strengthening India’s own political stability, which is seen in a positive light by the stock markets.

India’s bilateral trade with Myanmar stood at $1.5 billion in 2019-2020, according to news reports and lags behind China which has bilateral trade worth $12 billion for the same period. This means there’s plenty of opportunities for India to boost economic ties with the country. In October 2020, the Indian government gave the nod for import of 1.5 lakh tonnes of urad dal till March 31, 2021. Depending on India’s reaction, Myanmar may either bolster its ties with India and ensure stability or weaken ties with India. Poor ties with India will mean a setback for years of diplomatic work to ensure stability in the North-East and also serve as ‘advantage China’.

China, US and Myanmar

China has a lot at stake in Myanmar; it accounts for one-third of Myanmar’s trade, according to reports. One of China’s largest joint projects with Myanmar is the railway that links Mandalay with Kyaukpyu, a town on the Bay of Bengal and an oil and gas pipeline terminus that extends into China’s Yunnan province.

Foreign Direct Investment into Myanmar stood at $US5.5 billion in the 2020 fiscal year, ended in September, according to news reports. Hongkong and Singapore are top investors, which are assessing the impact of the coup on their future investments. The coup may also impact US trade with Myanmar, which accounted for $1.3 billion till November 2020, according to the US Census Bureau.

Conclusion

India may have to walk the tightrope on Myanmar’s coup, as an isolated military regime in an economically weak country, may look to China. Such a move may further affect diplomatic relations between China, India and the US. The stock markets on their part will welcome stability at all times both politically and economically.