“Aligning Foreign Policy with Domestic Interests”
I am delighted to address all of you at the concluding session of the second Gateway of India Dialogue in Mumbai. This dialogue is part of our effort to encourage creation of platforms in India for discussions on international issues of the day—and with its focus on geoeconomics, it is apt that it is being held in Mumbai. I must say that after last year’s Dialogue, I am happy to see higher levels of participation, which has also reflected in the quality of discussions we had yesterday and earlier today. I would like to thank Gateway House for organising the Dialogue in association with us.
Let me start by sharing some numbers with you. India is now in the 39th position out of 138 countries on the World Economic Forum’s Global Competitive Index. This is a jump of 16 places for the second consecutive year. In the UNCTAD ranking of investment attractiveness, it moved up six ranks from 15th to 9th. It is projected to rise to 3rd position this year. Foreign Policy magazine has ranked India as a number one FDI destination. Ernst & Young has labelled India as the most attractive investment destination.
These numbers reflect our potential. There are also other numbers which reflect our performance. FDI flowing into India has increased to $45 billion in 2014-15 and to $55 billion in 2015-16. Overall, this is an increase of 43% for the current two-year period as against the two years preceding this government.
These are facts and numbers that speak for themselves: they speak of a government that is committed to transforming India.
The underpinnings of any country’s foreign policy are inextricably linked to its domestic imperatives. Its goals and objectives are primarily set with their effect on the domestic situation in mind. Its success, too, is mainly premised on the way it drives domestic growth and development. Even the so-called strategic elements of foreign policy, focused on peace and security affairs, or on securing a favourable balance of power, are eventually all relevant largely to the extent that they create strategic space for development and enable the transformation of a country aimed at prosperity and the well-being of its people.
Even though such an approach to foreign policy would be a natural one for a developing country like India, this is not how it unfolded during much of the last seven decades since India’s independence. Despite the vision of our founding fathers, who saw India’s economic and commercial interests as closely interlinked with its broader global engagement strategy, the intervening years saw a development model being pursued in India that limited the salience of business and economic interests in our engagement with the world. With India undertaking reforms in the 1990s, there was a definite reset in our approach. But, older habits of doing business and our outmoded instincts, both in business and government, made such a realignment in our approach difficult to put in operation immediately–even if some gradual progress was achieved.
In the last two-and-a-half years, there has been a recognition that foreign policy and domestic economic policy must acquire a more seamless rhythm–both advancing each other, and buttressing each other at the same time. It is a deeply held belief of this government that without unleashing our economic strengths, advancing India’s interests globally will remain an unfulfilled task. And concomitantly, India’s domestic transformation cannot be accomplished without leveraging fully the potential of its foreign engagement.
This recognition of foreign policy as an instrument for domestic growth and transformation is not unique to India. Countries in South East Asia and China have demonstrated it over the last two to three decades. The U.S. and Japan, too, at different times in the past have leveraged it successfully. Sitting on the cusp of an impending economic transformation in India, we cannot but grasp these lessons immediately and start implementing them diligently.
Prime Minister Modi’s articulation last year of an ‘India First’ strategy in our foreign policy is an affirmation of our objective to secure India’s strategic interests. But more importantly, it also recognises that foreign policy is an essential instrument to usher in prosperity and growth within the country. ‘Diplomacy for Development’ has become the new mantra of the government. To say that ‘We mean business’ today within the foreign policy establishment would not be an exaggeration. Increasingly, we see economic agreements and investment decisions becoming subjects of discussions, decisions and announcements during high-level interactions. The success of our global engagement strategy is getting judged increasingly by our ability to attract investments, expand market access, ensure infusion of technology to build modern infrastructure and introduce best practices to advance our domestic development initiatives.
Through the proactive diplomacy of the last two-and-a-half years, we have brought out the inherent attractiveness of India based on the 3 D’s–Democracy, Demography and Demand. More importantly, we have articulated our domestic objectives more clearly, and in concrete terms, through announcement of flagship development programmes, like Digital India, Start up India, Smart Cities, AMRUT, Namami Gange, Skill India and Make in India. This has enabled foreign policy to focus on these initiatives with the specific objective of finding and bringing new partners from abroad. It has also become easier for our international partners to see them as talismanic symbols of opportunities that are beckoning them to India.
A major preoccupation in this regard has been to showcase the investment potential of India as a manufacturing destination. The visit of the Prime Minister to Hanover to showcase Make in India or to San Francisco to unveil Start up India are manifestation of a more direct, business-like approach to our diplomatic outreach. But this aspect has been the centrepiece of actually all his engagements, especially to countries such as Japan, China, the UK, France, Russia, South Korea, UAE, Singapore and others.
However, merely showcasing a huge domestic market or announcing flagship programmes cannot be the only selling point. Sincere efforts are required to convince our partner countries and their leaders that India’s rise is in their own interest and that it is a good investment to make and to build a stake in India’s rise and growth. They must also be assured of a better climate for investments in India.
The government has undertaken this complex challenge through a range of measures through articulation of a proactive foreign policy that seeks to build closer security linkages in the neighbourhood and beyond; create strategic alignments based on convergence of values and interests; develop a broader range of partnerships with key countries; and shown readiness through intent and action to make India a force for larger global good.
On the investment facilitation side, the government has launched a series of initiatives to confirm India’s seriousness to provide a more welcoming environment for domestic as well as foreign investors. For example, fast-tracking of foreign investments from key country partners in this area has been arranged through country-specific cells in Invest India. The Ministry of External Affairs (MEA) has established an Economic Diplomacy Division to serve as facilitation point for Make in India and other flagship programmes. Today, every Embassy has a designated commercial officer. We are the first port of call, not only for Indian businesses going out, but increasingly, for foreign businesses wishing to look at India.
This outreach is a necessary complement of the several path-breaking domestic initiatives of the government. The government has undertaken reforms in insurance, railways, defence and infrastructure to open up new sectors for foreign investment. A central part of this reform agenda has been to improve the ‘Ease of doing business’ and to remove bottlenecks for domestic and foreign investors. Implementing the GST, reform of bankruptcy laws, and negotiating reformed Investment Protection Agreements or tax avoidance agreements to create more predictable and transparent tax and investment environments, are also part of this approach. The abolition of the Foreign Investment Promotion Board in the 2017 budget shows that the government remains committed to this path of reforms.
Another novel initiative is the implementation of ‘cooperative federalism’ in foreign policy. Strenuous efforts have been made to co-opt states as practitioners of economic diplomacy in a cooperative and mutually competitive framework. This is important as, ultimately, many of the critical investment-related decisions vest in the states. And bringing them into the fray can help determine positive outcomes more effectively than merely through efforts at the level of the central government. The MEA has, for the first time, created a States Division to coordinate these efforts. State-level cooperative mechanisms, such as the Provincial Leaders Forum with China, and Russia, provide a platform for state leadership to directly interact with each other.
The Sister City agreement, implemented with China, shows that we have not stopped at the state level: we are taking this agenda to the municipal levels. The competitive ranking in ‘Ease of doing business’ among the states of India is a way to assess how effective this reform agenda has been.
These efforts have translated into impressive investment commitments through MoUs at the government level as well as separate commercial agreements. Tie-ups include almost all areas that constitute our flagship development programmes, from manufacturing to skills development, from Smart Cities to infrastructure development, and from transportation to energy sectors. The launch of infrastructure investment funds with countries, such as the U.S., UAE, UK, Russia and Japan, listing of Masala Bonds in the London Stock Exchange for infrastructure projects, and turning Make in India into a globally attractive platform, as manifest in the launch of the $12 billion Special Finance Facility by Japan, are instances worth noting in this context.
As I had mentioned at the beginning of my speech, the success of these efforts are borne out by hard numbers. Not just commitments, but there has been a remarkable increase in actual FDI inflows. The business confidence in India, too, has risen. India’s emergence as the fastest growing major economy has been appreciated by financial institutions and rating agencies.
When we drill down further into the details, we can see that this change has been accompanied by a sharp focus on specific sectors. In defence manufacturing, a combination of liberalisation of FDI norms in the defence sector and reform of the procurement process in favour of Make in India, have enabled the government to work with partners in countries like Russia, the U.S. and France, to secure commitments by their companies to set up manufacturing facilities in India in partnership with Indian counterparts.
Sustainable urban infrastructure for the hundreds of millions who are expected to move from rural to urban lifestyles in the coming years is another focus area. Our international efforts have been to attract countries that have the surplus finances and technologies to support the government’s mega programmes, like Smart Cities, AMRUT, and Urban Housing Missions. Several initiatives have been signed with the U.S., UK, France, Singapore, Germany, China, and Malaysia, to name a few.
Connectivity within India is a force multiplier. It affords economic opportunities in the form of new investible projects for businesses. At the same time, it creates new nodes for connectivity and integration with the rest of the world. It can promote greater economic activity, and, at the same time, strengthen interdependence that can promote trust and stability.
To encourage foreign participation, the government has made connectivity into yet another focus area for its economic diplomacy. On the one hand, it has opened its ports, railways, urban metro and roads and highways projects for FDI up to 100%. On the other, we have entered into several international collaborations, aimed at modernising and upgrading the Indian railways infrastructure in partnership with foreign countries, especially in the U.S., China, Japan, France and UK. These partnerships extend not just to attracting investments for physical modernisation of the railway network, but goes beyond it to seek best practices, advanced technology, feasibility studies, training and capacity building. Current initiatives include: upgradation of speed, redevelopment of railway stations, establishment of a Railway University, training for railway officials, and most notably, building India’s first bullet train link in partnership with Japan.
Naturally, the focus of our connectivity agenda does not remain limited to India, but extends beyond it to our neighbours as only this can help us integrate more closely with their economies and develop value chains in our region. The Motor Vehicles Agreement between Bangladesh, Bhutan, India and Nepal (BBIN); commitment of a $1 billion Line of Credit for connectivity projects between India and the ASEAN region; the Trilateral Highway project linking India, Myanmar and Thailand; and the Kaladan multi-modal transport project, are all efforts in this direction.
To our west, we have tried to open the way for faster movement of goods and people between India, Iran, Central Asia, and West Asia. The signing of the agreements on the Chabahar Port, as well as forward movement on discussions in establishing the International North South Corridor, are high on our connectivity agenda.
Along with physical connectivity, we have also accorded due importance to digital connectivity. Promoting ‘Digital India’ has been the focus of the Prime Minister’s interactions with leaders from the U.S., Germany, UK, and Japan. Major investment commitments in India have been secured from a number of companies, like Microsoft, Qualcomm, Google and others. They have committed to supporting extended connectivity to new areas and regions within India.
Skills development is essential to leverage the demographic dividend of a young country like India. Our diplomatic effort has been to partner with countries such as Japan, Canada, and Germany, where best practices exist to train young Indians for tomorrow’s industries. The apprenticeship model of the western countries, which we seek to introduce in India, requires a particular role on the part of businesses. They will have to take up this task in true earnest as they will be the ultimate beneficiaries in their plans to expand within India as well as spread their reach and influence offshore.
The launch of a pioneering International Solar Alliance in December 2015 embodies the government’s commitment to the development of green energy. The Alliance has been opened for signing of its Framework Agreement in November 2016. Integration of renewables into India’s power grid, development of the civil nuclear sector, and catalysing the growth of the renewable sector have been the main planks in the government’s diplomatic outreach in this sector. Financing arrangements to facilitate U.S. private sector investment in Indian clean energy projects, commitments from the French private sector to contribute to India’s solar power development target of 100 GW, and securing German funding for India’s solar rooftop projects, are important success stories.
While India will continue to emphasise clean energy development, it is important that it continues to secure conventional energy resources at the same time to ensure that energy does not become a constraint to India’s future growth and development. With reliance on import of oil and gas from abroad, the focus of the government has also been on securing arrangements that can ensure India’s future requirements in this area. An important development has been the groundbreaking ceremony of the TAPI pipeline.
With Iran, strengthening cooperation in the oil and gas sector is seen as complementary to our efforts in the development of Chabahar.
With Russia, mutual investments in the oil and gas sector have been promoted–from retail to exploration, and development of oil and gas fields.
The agreement with the UAE to promote strategic partnership in the energy sector, including through UAE’s participation in India in the development of strategic petroleum reserves, is a significant development.
Similar efforts in the energy sector with Saudi Arabia, which include Intent to Invest and set up joint ventures in petrochemical complexes, cooperation in joint exploration, and focus on training and Human Resource development, and Research and Development in the energy sector, are also part of this process.
The list of such initiatives and success stories are multiplying by the day. As we interact and expand our diplomatic canvas, the catchment for such tie-ups, focused on advancing India’s domestic development, will continue to grow. This naturally emanates from a different appreciation of the nature of our interests, which I have outlined earlier.
As the world around is changing rapidly and the global environment presents new challenges and opportunities, we will need to continue to pursue our new approach with nimbleness and creativity. The return to a more protectionist approach on trade, investment and migration is acquiring new supporters, even in the West. Our continuing focus on economic diplomacy will need to be aware of these new developments.
But the idea of business and government working together has finally arrived and will continue to remain relevant in the coming years. Our newly enunciated economic focus, especially in our foreign policy, will persist and continue to challenge us to think globally and strategise more intensively.
I am happy that this forum has provided us an opportunity to deliberate on these issues. I look forward to recommendations on the many ideas and strategies proposed during this Dialogue.
Thank You.
Jai Hind.
Hon’ble Gen. (Retd) Dr. V.K. Singh is Minister of State for External Affairs for the Government of India.
This speech was delivered as the Valedictory Address at The Gateway of India Geoeconomic Dialogue 2017, held in Mumbai on the 13-14th of February 2017.
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