India’s Economic Diplomacy in the 21st Century

Economic diplomacy is the use of government recourses to promote the growth of a country's economy by increasing trade, promoting investments, collaboration on bilateral and multilateral trade agreements, etc.

Challenges to Economic Diplomacy

• Compartmentalized bureaucratic structures within ministries prevent coordinated actions.
• Capacity constraints affect integration of economic and strategic goals.
• Inflexibility during trade negotiations affects economic interests.
• Lack of engagement between government and businesses.
• A rapidly rising development assistance program inadequately implemented and leveraged.
• Lack of dispute settlement mechanisms and rigid tax regimes.
• Worsening balance of payments deficit despite growing trade volume.
• Continued weak engagement with the Indian diaspora.

Capacity-building across Government Institutions and Business Associations

• Facilitate regular inter-ministerial meetings at the cabinet level.
• Facilitate more frequent dialogue between government and business associations.
• Update Indian arbitration and tax laws to encourage international business investments.
• Goods and Services Tax (GST) to ensure fair pricing mechanisms and uniform taxation structures.
• Double the annual number of IFS officers joining and encourage contractual appointments and lateral hiring within the MEA.

Market Integration and Trade

• Create an Economic Intelligence Unit based within the Ministry of Finance or Ministry of Commerce to promote trade.
• Assume a more active role in international institutions for financial reform, regulation and coordination.
• Internationalize the rupee by, for example, fostering the use of bilateral local currency swap agreements.
• Double resources allocated towards constructing high-capacity road and rail networks within India and also to India’s bordering countries in order to facilitate the export of Indian goods and greater connectivity to India’s Northeast.

Expanding Regional and Global Links

• Appoint an officer at large Indian missions to better engage with the Indian diaspora.
• Gain market access through triangulated efforts with multinational companies.
• Encourage Indian national and sub-national leaders to engage in economic diplomacy.
• Focus efforts to increase economic engagement with specific markets.