India’s economic diplomacy - Sleepy Classes IAS Skip to main content

India’s economic diplomacy

By July 14, 2022May 22nd, 2023Mains Answer Writing, PSIR OPTIONAL

Ques. India’s economic diplomacy.


  • According to Tony Wayne, Economic statecraft and economic diplomacy involve using diplomatic skills with economic tools to advance a country’s economic, political and strategic goals. While economic diplomacy has always been an integral part of India’s foreign policy, it has received greater emphasis since the liberalization of the Indian economy in the 1990s. With the onset of the 21st century, Indian business enterprises started playing a more crucial role in advancing India’s economic interests abroad. India under Prime Minister Modi has significantly increased the role for economic diplomacy in its foreign policy agenda.

Success of India’s economic diplomacy

  • According to Harsh V. Pant, the success of India’s economic diplomacy lies in creating an environment for integrating Indian businesses with global markets with government support. GAIL-Cheniere Deal, presents the success story India’s economic diplomacy.
  • India’s relations with nations outside its immediate neighbourhood have been bolstered by a high volume of trade and development assistance, as well as its widely scattered and extensive diaspora. Like India received $87 billion in remittances in 2021 according to World Bank.
  • While maintaining a tough posture at the WTO, India is negotiating a rash of preferential and free trade agreements with a number of countries like USA, Thailand and Singapore. The highly successful Free Trade Agreement with Sri Lanka could become the trendsetter for future economic cooperation in the subcontinent.  India has begun to invest in road-building in Myanmar that will link it to South East Asia which is imperative of India’s “Act-East policy.”
  • Closeness with Russia and Israel is primarily attributed to bolstering defense ties with them. Indian sanctions on Malaysia post Kashmir remark and recent withdrawal from RCEP point towards rising use of economic diplomacy.

In a Workshop on “Mobilizing the State: Indian Economic Diplomacy in the 21st Century” by CPR was presided over by Pratap Bhanu Mehta and scholars like Montek Singh Alhuwalia, Sanjaya Baru and C Raja Mohan were among the eminent panelist. They analyzed the challenges in India’s economic diplomacy which are as follows:

  • Compartmentalized bureaucratic structures within ministries prevent coordinated actions which often leaves ministries ill-equipped to recognize the broader consequences of advocating a particular policy.
  • Capacity constraints affect integration of economic and strategic goals like the number of Indian Foreign Service officers is infamously inadequate.
  • Inflexibility during trade negotiations affect economic interests, like the India-ASEAN FTA has been affected by differences in India’s bilateral treaties with countries like Malaysia, Thailand and Singapore.
  • Lack of engagement between government and businesses.
  • A rapidly rising development assistance program, inadequately implemented and leveraged, like in Afghanistan.
  • Lack of dispute settlement mechanisms and rigid tax regimes hampered India’s reputation, like the recent Vodafone case.

Way forward

  • India can take a leaf out of Brazil’s book in making a strategic decision to allow trade surpluses in favour of its neighbours. The political benefits of such a move are indeed immense.
  • India can leverage its position as one of the largest defence equipment-importers by setting up the NOA (National Offset Authority) to gain cost-effectiveness in its defence import contracts.
  • India should use the G-20 and other fora to make clear that a failure to expeditiously implement governance reforms at the IMF will force India to turn towards other international financial institutions, including the BRICS Bank, thereby decreasing the relevance of the IMF in the longer term.
  • According to Granth Vanaik, India should improve its image of “A Delivery-Deficit Nation” by completing the promised projects on time. India could leverage the Africa’s strength in UN reforms by delivering on time what it promised.
  • Create an Asian buyer’s club of large energy importing countries which would lend a greater bargaining power.
  • The story of India’s economic diplomacy has barely begun. For generations of Indians, the begging bowl has been an important symbol of Indian diplomacy. It is refreshing to see New Delhi now offer large credit lines across the world and help others make progress. To derive the full political benefits of economic diplomacy, the leadership will have to act decisively to break the old mindset, which defines national security and trade policy in separate and narrow terms. If the Government can bring together the disparate strands of its economic diplomacy and give it bureaucratic coherence and political purpose, India would dramatically enhance its standing in the region and beyond in the coming years.

Click here to watch the video explanation of the above question.

Happy Learning!