India’s move towards economic diplomacy

As Prime Minister Narendra Modi is pushing for closer political and – in line with his national priorities – economic ties with India’s neighbors as well as partners, every one’s eyes are on New Delhi’s new economic diplomacy policy. This strategy will also be in play when Modi meets his Japanese counterpart Shinzo Abe and addresses over twelve hundred business leaders during his trip to Japan next week.

While economic diplomacy is most visible and most watched during high-level visits, the real challenge is to make it operate effectively all year long. Some steps in this direction were already taken under the previous government; the Modi government’s recent actions indicate that it intends to carry this further.

Modi’s visits to Bhutan and Nepal, and the invitation of SAARC leaders to his swearing in ceremony, point to an acknowledgement that for India to prosper, the country needs to engage with its neighbours and work towards a stable and peaceful region. In this context, economic cooperation not only serves the purpose of ensuring India’s progress, for instance through investing in Bhutan’s hydropower sector that generates energy needed by India, but also has political benefits.

In the past, economic diplomacy suffered from limited coordination between ministries. For instance, Kishan S. Rana, a former ambassador and regular commentator on India’s economic diplomacy, points out that India’s efforts at the WTO, primarily handled by the Ministry of Commerce and Industry, were ‘not sufficiently backed with matching advocacy at the key bilateral capitals’.¹

Cooperation between India Inc and the external affairs establishments has also faced some difficulties. In 2004, despite reported Indian diplomatic efforts Angola accorded the rights for an oil exploration bloc to the Chinese state-owned company Sinopec, after having initially agreed to a deal with ONGC.² China offered a $2 billion loan along with the bid, India a $200 million worth project to develop Angola’s railways. Indian companies operating in these locations have complained that ‘even if China gives $2 billion, and India gives $10 million, a smart government could do much more. It’s about building networks in Africa to boost Indian business investment and trade.’³ More recently, in late 2012 when Maldives was embroiled in political turmoil, the Maldivian government cancelled a $500 million agreement with Indian company GMR.

Following these incidents, the UPA government initiated some changes, organising, for instance, meetings between MEA officials and industry representatives to discuss export promotion and investments abroad.⁴ This and similar initiatives have reportedly led to some change in missions abroad, and ‘diplomats have made a more forceful pitch for Indian business overseas.’⁵ The new government is going further and has recently announced that 38 posts for ‘nodal officers’ responsible for trade promotion along with ensuring interaction between the MEA and the commerce ministry would be created in overseas Indian missions. The government reportedly also intends to make more use of various export promotion councils.⁶

In addition, the Confederation of Indian Industries (CII), the Federation of Indian Chambers of Commerce (FICCI) and the Associated Chambers of Commerce and Industry of India (ASSOCHAM), which have played an important role in bringing domestic and international political and business leaders together to create investment and trade opportunities, will continue playing a vital role in the future. During his visit to Nepal, Modi advised Nepali business leaders to work with the CII and FICCI, acknowledging their role in fostering relations.⁷

The last column of the emerging economic diplomacy are the Indian states, which will be encouraged to engage with foreign states, as External Affairs Minister Sushma Swaraj stated during her visit to Singapore in August.⁸ This follows a speech delivered by Modi in Chennai last November in which he voiced his support for federal states to become more involved in external relations. Although some coordination from the Centre will be necessary, this could relieve pressure from missions and help promote business.

The states and other actors, however, cannot replace missions and the political influence that they can potentially exert. In the cases of Maldives and Angola, strong political support was needed. To ensure that such political support becomes a norm rather than an exception, the Indian government has to formulate this thought as a policy, and possibly dedicate divisions within the MEA to this task – this obviously presumes an increase in staff.

While the Modi government apparently acknowledges the role of economic diplomacy and seeks to strengthen it, for instance by encouraging states to engage more, it now needs to ensure that these different actors work together effectively and efficiently to promote India’s interests. This includes finding ways for using diplomatic clout to support businesses abroad.