Rebalancing India’s diplomacy

Behind the geopolitical hugs


Instead of being content with doling out multibillion-dollar contracts to other powers, India must learn the art of aggressively pushing commercial interests as a central driver of diplomacy, says Brahma Chellaney


Brahma Chellaney

The Economic Times, January 7, 2011


In a recent span of five months, the head of government or state from each of the five powers with a permanent seat on the UN Security Council visited India. Accompanied by a delegation of business leaders, each came with a similar objective — to secure billions of dollars in new Indian contracts. New Delhi was more than happy to oblige. Each left flaunting the new export contracts.


The summit hugs actually point to a worrying trend: India seems to measure success of its diplomacy by how many billions of dollars of business it gives to a visiting foreign dignitary. In a world in which trade still follows the flag, India functions as if imports can help hoist its flag.


Foreign governments have been aggressively courting India to try to get a slice of its rapidly growing market. With Western and Japanese markets racked by economic troubles, other powers’ export machines avariciously seek a larger market share in India, the world’s second fastest-growing economy currently. Also, with India now the world’s second-largest arms buyer, wooing New Delhi as a defence and strategic partner has become necessary to sell military wares. The $150 billion worth of potential contracts opened up by the nuclear deal are yet another magnet.


The beeline to New Delhi began when Prime Minister David Cameroon arrived with Britain’s largest-ever trade delegation. He also hawked defence wares, managing to clinch one weapon deal worth over $1 billion. US exports to India have expanded five-fold in the past decade, yet President Barack Obama marketed his Indian tour as primarily a mission to create American jobs. He left India mightily pleased, with some $15 billion worth of export deals in his bag and assured of new arms contracts.  


To help France win India’s first contract under the nuclear deal, the environmental clearance of the Jaitapur plant site was rushed through in record 80 days. French President Nicholas Sarkozy’s visit yielded $13 billion worth of deals for him. Besides agreeing to buy high-priced Areva reactors of unproven design and safety, India has promised France a contract to upgrade its 52 Mirage fighters — an upgrade for which Paris has quoted a ridiculous price of $2.6 billion, which is as good as the cost of new warplanes of equivalent capability from Russia. Sarkozy’s take-home goodies also included an agreement-in-principle on coproduction of a short-range surface-to-air French missile system, to be called “Maitri.”


Just as Chinese President Hu Jintao came to New Delhi in 2006 after Beijing resurrected the Arunachal Pradesh card, Premier Wen Jiabao’s recent stopover on his way to Pakistan followed China’s unsheathing of a new instrument of leverage against India — Kashmir. In fact, Wen arrived after his standing at home had been weakened in the twilight of his political career, with the state-run national press censoring on three separate occasions his remarks on political reforms. Yet he came with some 400 businessmen to fortify an asymmetrical trade relationship that has turned India into the raw-material appendage of a neocolonial Chinese economy. While conserving its own natural resources, China is sourcing primary commodities from Africa and India and exporting refined goods to them in return. While its foreign direct investment in India remains minuscule ($52 million in the past decade) and it continues to impede Indian corporations from entering its market, China is undercutting Indian manufacturing through large-scale dumping.


As long as China can continue to strengthen such lopsided economic ties and reap a ballooning trade surplus, it will have little incentive to bridge the yawning political divide. Wen, in fact, did not even seek to address any of India’s security concerns. Yet he wrapped up his visit with a bagful of contracts worth some $23 billion.


At the year-end, when Russian President Dmitry Medvedev came calling, India signed a number of economic and defence agreements worth billions of dollars to shore up its relationship with an old ally. In a changing world, sticking with an old, “tried and tested” friend makes a lot of sense for India.


India, though, needs to recognize that reciprocity and leverage are the twin pillars on which sound diplomacy is founded. Dispensing contracts without reciprocity is a path neither to leverage building nor to developing comprehensive national power. Even when the prime minister travels overseas, he awards contracts to his hosts, instead of returning home with lucrative contracts. Little surprise India is the only major global economy that is import-dependent, not export-oriented. India relies predominantly on domestic consumption to fuel its economic growth.


High import dependency, however, puts an undue burden on the domestic consumer and taxpayer and acts as the main impediment to building comprehensive national power. It also lubricates big-bucks corruption because import deals often offer alluring kickbacks, usually routed directly to offshore bank accounts. More fundamentally, doling out multibillion-dollar contracts as a tool of diplomacy — even as India has gained notoriety for the scale of its stolen national wealth stashed in international financial safe havens — only undermines India’s rising strength.


The import dependency in various sectors has created strong business lobbies seeking to influence foreign-policy options so as to safeguard practices that threaten to pauperize the Indian economy. Such entrenched interests, for example, wish to perpetuate the inequitable trade with China, including the stripping of Indian resources. Also illustrative is defence spending, which India has doubled over the past six years, ploughing more and more funds into arms imports, but without an appraisal of the country’s long-term deterrent requirements. The more arms India has imported, the more it appears to lack the capability to decisively win a war thrust upon it by even the smaller of its two regional adversaries.


India must learn the way foreign leaders aggressively push commercial interests as a central driver of their diplomacy. Promoting exports has to become a key part of Indian foreign policy. Without meaningful political support, Indian industry will remain at a serious disadvantage to its Western and Chinese competitors.  And the country will stay mired in debilitating import dependencies. The next time the PM goes abroad, he should strive to come back with contracts for Indian industry.


(c) The Economic Times, 2011.

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