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India's economic diplomacy commentary

Published by The Straits Times, Singapore on 2004-08-24

SECUNDERABAD (India) - Not long ago, a wealthy businessman in this south-central city invited friends from Mozambique to join him at the Secunderabad Club, a remnant from the British Raj where the lawns are immaculate, liveried butlers glide about bearing silver trays loaded with choice whiskey, and the menu still features traditional English staples like Yorkshire Pudding and Spotted Dick.

His visitors seemed impressed by the area, which contains numerous technological and industrial parks that have brought fresh prosperity through large-scale employment of university-educated youths, many of them from nearby rural regions. Mozambique, they said, was in dire need of educational and employment facilities in its vast, underdeveloped rural hinterland. But existing

And so, however informally, began a process that eventually led to India giving Mozambique a US$20 million line of credit for rural electrification. The Secunderabad businessman's conversation with his foreign friends may have only tangentially influenced his bureaucratic contacts in New Delhi to give favourable consideration to Mozambique - but the episode illustrates an emerging trend in Third World international relations, the use of economic diplomacy in strengthening ties between developing nations at a time when bilateral and multilateral aid is shrinking.

The aid that the world's 30 wealthiest countries give annually to the 135 nations of the Third World is at a record low. In 2004, the figure is expected to be barely US$40 billion, down US$35 billion from 20 years ago when the United States and the erstwhile Soviet Union, vying for the political and sentimental support of poor nations, competed with each other to bestow financial and military largesse on the post-colonial Third World whose growing populations created rising expectations of liberation from poverty.

However, four things happened in recent years: One, economic recession in rich countries and their disenchantment with corruption and fitful progress in many Third World states led to a shrinking of foreign aid; two, the collapse of the Soviet Union meant that a steady source of economic assistance to poor countries, particularly in Africa and Asia, virtually ended; three, aid from international institutions such as the United Nations also declined as these organisations suffered from mismanagement and poor performance.

But the fourth development was the most positive: emerging countries such as Brazil, India and South Africa acquired enhanced technical capacities in promoting infrastructure growth, manufacturing, and also in social development issues such as reproductive health and education. These countries began sending technical experts to poorer Third World states to enable them to accelerate their sustainable economic and social development. The three countries have even formed a development-aid consortium known by its acronym as the IBSA Forum.

According to Dr Haryono Suyono, a former Indonesian cabinet minister, there are almost a million experts from the more developed Third World nations - including India, Brazil and South Africa - currently seconded to poorer countries through bilateral arrangements.

The emergency of economic diplomacy provides these poor nations with more than technical expertise. It gives them access to instant hard cash, particularly at a time when the Third World's collective external debt is touching US$2 trillion and few rich governments and financial institutions are willing to give concessional loans to them.

India, for example, has extended more than US$1.5 billion in credit to countries including Cambodia, Vietnam, Senegal, Bolivia, Jamaica, Mozambique, Ghana, and Malaysia. Angola recently received US$25 million in credit to rebuild its war-ravaged railway lines. Uganda, Kenya and Cote d'Ivoire, have also been beneficiaries of India's economic diplomacy.

It can afford to give concessional loans of up to 20 years - the typical rates vary from 1 percent to 1.75 percent - because India's own foreign-exchange surplus is at a record high of US$121 billion, and its growing exports offer sufficient margins to pay interest on its external debt of US$75 billion without having to dip into its reserves. India has so far given lines of credit to 36 countries, including 13 in Asia, 14 in Africa, 3 in Latin America Caribbean and 6 in CIS region. Since 1994, rupee credit has been discontinued and only dollar credit is given. In addition, India's Export-Import Bank - which was established in 1982 - has extended credit to 24 countries.

"With the negotiation of liberal trading arrangements with key developing nations - especially in Asia - large-scale national investments in the hydrocarbon sectors of other countries, focus on developing transport infrastructure in the neighbourhood, and the focus on mega projects such as natural gas pipelines cutting across our borders, India's new role as an economic donor has significantly transformed our foreign policy template," says Mr C. Raja Mohan, a leading foreign-policy analyst in New Delhi.

Mr Raja Mohan adds: "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."

That standing, however, faces intense competition from China, which already enjoys a formidable head start in extending credit and aid to Third World countries, particularly in Africa and Asia. More than 25 years ago, for example, Beijing built the Tanzania-Zambia Railway (TanZam); it's constructing roads in Myanmar; it's assisting in the reconstruction of Cambodia and in pushing rural development in Vietnam. China is even making economic inroads into Latin America and the Caribbean; with annual trade surpluses of more than US$200 billion, its line of credit is estimated to be US$8 billion, four times that of India.

"Ultimately, the purpose of economic diplomacy is to develop stronger political alliances," says a top official at India's Ministry off External Affairs in New Delhi. "Of course India expects mileage from its economic diplomacy, just as China does. We are hopeful of support from the countries that we assist in international forums on issues that are vital to us. But we're not driven by entirely by political expediency or by competition with China. We're saying that India is a big economic power now, to be reckoned with globally - and that we have resources and expertise with which we can help less developed nations. We want to be seen as their partners in sustainable development."

Pranay Gupte,
Senior Writer and Global-Affairs Columnist


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