Model Answer
0 min readIntroduction
India’s foreign policy has undergone a significant transformation in recent decades, increasingly prioritizing economic interests alongside traditional geopolitical concerns. While historically focused on political alignment and security, India’s engagement with the world is now demonstrably driven by trade, investment, and economic cooperation. This shift is reflected in the growing economic content of India’s foreign trade, evidenced by a surge in economic diplomatic engagements over the last decade. The ‘Neighborhood First’ policy, ‘Act East’ policy, and initiatives like ‘Make in India’ and ‘Digital India’ have all contributed to this trend, fostering deeper economic ties with partner nations and positioning India as a key player in global value chains.
India’s Economic Diplomatic Engagements (2014-2024)
The last decade has witnessed a proactive approach by India in leveraging economic diplomacy to enhance its trade and investment prospects. This has manifested in several key areas:
1. Free Trade Agreements (FTAs) & Comprehensive Economic Partnership Agreements (CEPAs)
- UAE-India CEPA (2022): This landmark agreement aims to boost bilateral trade to $100 billion by 2030, reducing tariffs on a wide range of goods and promoting investment.
- Australia-India Economic Cooperation and Trade Agreement (AI-ECTA) (2022): Focuses on reducing tariffs on key Australian exports to India and vice versa, with a particular emphasis on agricultural products and intermediate goods.
- India-European Union FTA Negotiations: While ongoing for over a decade, renewed momentum has been observed, with potential for a significant boost to bilateral trade.
- Negotiations with the UK: India and the UK are actively negotiating a comprehensive FTA, aiming to double bilateral trade by 2030.
2. Regional Comprehensive Economic Partnership (RCEP)
Although India withdrew from RCEP in 2020, its engagement with the ASEAN region remains crucial. India continues to strengthen its economic ties with ASEAN through initiatives like the ASEAN-India Free Trade Area (AIFTA) and the India-ASEAN Connectivity Master Plan.
3. Investment Promotion & Sovereign Wealth Fund Cooperation
- Attracting FDI: India has actively courted foreign direct investment (FDI) through policy reforms and investment summits. FDI inflows have increased significantly, reaching $84.835 billion in FY23 (DPIIT data).
- Cooperation with Sovereign Wealth Funds: India has engaged with sovereign wealth funds like the Abu Dhabi Investment Authority (ADIA) and the Singaporean GIC to attract long-term investment in infrastructure and other key sectors.
4. Development Assistance & Capacity Building
- Lines of Credit (LoCs): India has extended Lines of Credit to several developing countries in Africa, Asia, and Latin America, supporting infrastructure projects and promoting trade.
- India-Africa Forum Summit: Regular summits have strengthened economic ties with African nations, focusing on capacity building, technology transfer, and investment.
- ‘Team 9’ Initiative: Launched in 2019, this initiative focuses on collaborative projects in areas like healthcare, agriculture, and renewable energy with African nations.
5. Digital Economy & Technology Cooperation
- Digital India Initiative: Promoting India as a hub for digital technologies and attracting investment in the IT sector.
- Fintech Cooperation: Collaboration with countries like Singapore and the UK on fintech innovation and regulatory frameworks.
| Region | Key Economic Engagement | Impact |
|---|---|---|
| UAE | CEPA (2022) | Expected to boost bilateral trade to $100 billion by 2030 |
| Australia | AI-ECTA (2022) | Reduced tariffs on key exports; increased investment flows |
| Africa | Lines of Credit, Team 9 | Infrastructure development, capacity building, increased trade |
| ASEAN | AIFTA, Connectivity Master Plan | Enhanced trade and investment; regional integration |
Conclusion
The economic content of India’s foreign trade has undeniably grown in the last decade, driven by a proactive and multifaceted economic diplomacy. The focus on FTAs, investment promotion, development assistance, and digital cooperation demonstrates a strategic shift towards leveraging economic engagement for national interests. While challenges remain, such as navigating complex trade negotiations and addressing global economic uncertainties, India’s continued commitment to economic diplomacy will be crucial for achieving its economic growth targets and solidifying its position as a major global economic power. Further diversification of trade partners and a focus on building resilient supply chains will be key to sustaining this momentum.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.