Economic Diplomacy

Relevance

”GS 2: India and its Neighbourhood, Groupings & Agreements Involving India and/or Affecting India’s Interests”

Introduction

• The primary objective of India’s foreign policy is to “promote and maintain a peaceful and stable external environment by which domestic tasks of inclusive economic development and poverty alleviation can progress rapidly.
• It is thus clear that the goal of our foreign policy is the economic empowerment of our citizens and this, in turn, is intrinsically linked to the world outside as we seek to access resources, markets and technology, achieve food and energy security, and ensure skills and jobs for our citizens.
• Hence, economic diplomacy becomes an important instrument to achieve the objectives of our foreign policy. As a consequence, for many of our embassies abroad, our economic interests have increasingly become the prime mover of our relations with the host country.

What is Economic Diplomacy?

• Economic diplomacy is the art of serving economic security and strategic interests of the country by the use of economic instrument in conduct of State to State relations.
• There is nothing new or unethical about it. The Indian classic on diplomacy, namely, Kautilya’s “Artha Shastra” has recognized the relevance of “Saam, Daam, Dand and Bhed” in conduct of diplomacy.
• Economic diplomacy is designed to influence policy and regulatory decisions of foreign governments as well as those of international organizations.
• It goes beyond trade and investment to the resolution of multiple causes of international conflicts.
• Economic diplomacy is necessarily performed by the official representatives of the State but with the changing scenario today the private sector has an important role to play and function to perform in its successful implementation.
• Some of the basic objectives of economic diplomacy in brief are – promotion of trade and investment, achieve objectives in multilateral trade negotiations, energy security and realization of political objectives through economic action.

Classical Diplomacy vs Economic Diplomacy

• Classical diplomacy has always been about building, maintaining, and leveraging a country’s foreign relations to advance a country’s national interests. It involves the management of political challenges, tensions and conflict situations through negotiation, persuasion and compromise.
• But since the end of the Second World War, we have seen the emergence of what is called economic diplomacy, using diplomatic skills with economic tools to advance a country’s business, political and strategic goals.
• From there on flowed the belief that good political relations would lead to closer collaboration in economic areas and as a corollary that economic cooperation could not optimally thrive in a political vacuum.

Importance of Economic Diplomacy

• Strong economic relations can have a significant influence on political relations, as can be seen, today in China’s success in widening the geographical reach and partnerships of the Belt and Road Initiative (BRI) where it is reaping the political and strategic benefits of its economic relations.
• Economic diplomacy has acquired even greater salience in the post globalized world given the interconnectedness of national economies and the realization of governments that they have to work closely with industry and civil society to be competitive globally and accrue economic benefits nationally.

The North-South Dialogue and Economic Diplomacy

• The North-South Dialogue refers to the process through which the developing and newly independent nations of the “third world,” predominantly in Asia, Africa, and Latin America, engaged the industrialized countries of North America and Western Europe in negotiations over changes to the international economic system during the 1970s.
• After World War II, many nations of Latin America became increasingly frustrated with U.S. trade and tariff policies. At the same time, nationalist movements in Asia and Africa helped lead to widespread decolonization.
• Membership in the United Nations had risen from 51 countries in 1945 to 100 in 1960 and 150 by 1979. The sudden influx of new countries changed the balance of power in the General Assembly and made possible the establishment of the United Nations Conference on Trade and Development, or UNCTAD, in 1964.
• UNCTAD created a forum through which the “southern” or “third world” nations could propose economic policies, engaging industrial democracies of the “north.” The term “North-South Dialogue” was used to distinguish this dynamic from the East-West conflict of the Cold War, and to stress the point that development issues were just as pressing as the ideological conflict between communists and capitalists.
• The North-South Dialogue addressed issues pertaining to trade and tariffs, international finance, foreign aid, and the governance of multinational companies and institutions.

How to strengthen India’s Economic Diplomacy?

• For the consistent success of economic diplomacy, India has to ensure steady growth of trade, technology and investment flows.
• India should improve its communications link, both physical and cultural, with the ASEAN region, by consciously involving itself in building roads, highways, airlines, promoting travel and tourism and offer itself as a big hinterland as an alternative to China without showing signs of antagonism towards growing Chinese influence in the region.
• Our traditional economic relations with the Russian Federation need to be revived.
• Nearer home, i.e., in the SAARC, the Government of India needs to adopt a bold strategy of integrating it with India by offering unilateral concessions for free flow of trade, tourism, capital and people so that the political boundaries become irrelevant.
• In East Asia, Japan and South Korea have already become important stakeholders in India. This trend should be further encouraged. Mutually beneficial trade and economic exchanges with China should be allowed to grow.
• West Asia and the gulf should remain areas of Indian interest confined mainly to maintain an uninterrupted supply of oil and safeguard well being of Indians in the Gulf.

Conclusion

Economic diplomacy requires all the finesse and knowledge of traditional diplomacy. In addition, it requires an in-depth knowledge of economic analysis, commercial relations, both national and global trading rules, functioning of inter-governmental organizations, politics of trade & investment, and policy issues ranging from health/environment to prudential supervision of insurance. It also requires an in-depth knowledge of corporate structures and the functioning of major corporations of the host country. India has already been on track and needs to consistently move forward for dealing with present and future challenges.

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