Three banknotes in front of sheet of paper with a graph on it symbolizing economic relationships. Photo: iStock
Three banknotes in front of sheet of paper with a graph on it symbolizing economic relationships. Photo: iStock

As the global order transitions from unipolar US dominance to a complex multipolar system, countries are increasingly finding themselves in each other’s crosshairs with nationalist politics emerging as a crucial determinant for foreign policy.

As a consequence, imposition of knee jerk economic sanctions, erection of trade barriers and boycott of foreign products and corporations rather than dialogue are the preferred lingua franca of modern day diplomacy.

The trade war between the US and China, US backed economic sanctions against Iran or the recent calls for actions against Turkish and Malaysian companies in India are all patterns that conform to this global template.

This phenomenon is leading the international order towards economic anarchy characterized by a mutually destructive cycle of retaliation followed by counter retaliation that shrinks the flow of investment and trade across borders.

India’s commercial interests have been subject to collateral damage from diplomatic rifts. India faced economic isolation globally after its nuclear test in the late 1990’s.

Recent differences over Kashmir have led Pakistan to suspend trade ties and close the air routes for Indian carriers, and spread the hashtag to boycott Indian products to undermine India’s commercial interest worldwide.

India had to bear the brunt of sanctions imposed by Washington arising out of its animosity towards Iran. Sacrificing its long standing ties with Iran, India had to halt the import of Iranian oil that was the third major source consisting of 14% of India’s total imports in the year 2018.

Reciprocally, Iran also trivialized India’s role in Chabahar sea port despite India’s pivotal role in its development.

Since last month’s conclusion of the United Nations General Assembly, there are ominous signs that India is considering economic retaliation against countries including Turkey, Malaysia and China over their critical stand on India’s actions in Kashmir and their friendly ties with Pakistan.

Social campaigns are being mounted in India to boycott Turkish airlines, Malaysian tourism and Chinese products.

New Delhi is mulling punishment of a Turkish company by keeping it out of a naval contract estimated to cost $ 2.3 billion and by increasing the import duties on Malaysian palm oil. India imported 3.9 million tonnes of palm oil from Malaysia, constituting around 27% of Malaysia’s total export, during January-September 2019.

Besides the Malaysian producers, this embargo could badly affect the Indian refineries – and Malaysia can also retaliate by reviewing overall trade relations with India, not to forget the welfare of the large Indian diaspora in the country.

Amidst this row between India and Malaysia, trade bodies of both sides, Solvent Extractor Association of India and Malaysian Palm Oil Board, signed an agreement in late September to enhance their trade relations, significantly implying that oil fraternities do not permit diplomatic differences to stand in the way of their business ties.

In the era of globalization, it is economic interest rather than national identity that determines the behavior of corporations that crave business-friendly environments.

Hence, moves designed to punish foreign companies in India in a game of one-upmanship to settle diplomatic differences is a self-defeating strategy that does little to alter the behavior of erring countries and does more harm to the inflow of investment and trade, threatens domestic livelihoods, widens the current account deficit and puts our diasporas at risk.

These knee-jerk reactions also jeopardize the well-being of Indian companies housed in those countries. More than150 companies with Indian capital have registered businesses in Turkey.

There is near unanimous consensus that the Indian economy is going through a period of struggle. Our growth has plunged to 5%, the lowest in the last six years, and India slipped two spots to the seventh position in global GDP rankings released by the World Bank for 2018.

India’s current account deficit climbed to $57.2 billion in the last financial year 2019, which was a mere $22.1 billion in FY 2016.

Foreign direct investment in India has declined 8.6% from $46.4 billion in 2016 to $42.4 billion in the last calendar year 2018, while outward investment dwindled 27.9% in the same period.

The Global Competitive Index 2019 also has downgraded India 10 places to the 68th position.

To emerge as a $5 trillion global power, India must avoid being distracted by diplomatic skirmishes and focus on dialogue and bilateral economic cooperation to resolve political differences and boost growth at home. This is best demonstrated by India’s newfound bonhomie with oil rich Gulf countries that are home to millions of Indians.

During the Cold War era, there was mutual suspicion between India and many Gulf Cooperation Council countries. The latter’s positions on Kashmir, especially statements from the Organization of Islamic Cooperation, were an irritant.

Over the decades as economic ties expanded and India’s stature as an economic powerhouse grew, the relationship also bloomed and their posturing on issues sensitive to India has also become more nuanced.

The evolving global situation indicates that moves aimed at applying “economic pressure” are not a zero-sum game; they prolong confrontation rather than achieve foreign policy objectives.

Historically, India has been at the receiving end of economic sanctions or alienation from big powers. As a mature democracy, India must not indulge in short-sighted actions against companies headquartered abroad for short term domestic political gains.

India’s strategic calculus must recognize that strengthening bilateral economic cooperation and intensified dialogue are our best bet for improving ties and resolving diplomatic differences.

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