Geoeconomics - A way for diplomacy?

Geoeconomics, or economic diplomacy, has emerged as a nontraditional mode of diplomatic practice in the post-Cold War era. Economic diplomacy involves using economic tools to achieve foreign policy objectives such as trade and investment promotion, developmental cooperation, market access, and dialogues through multilateral forums. 

Illustration by The Geostrata

The importance of economics in shaping global dynamics cannot be overstated. Countries frequently engage in economic diplomacy to safeguard their interests, promote growth, and improve their position on the world stage. The interplay of economic policies, trade agreements, financial systems, and technological advancements has far-reaching effects on international relations and the daily lives of people worldwide.

The new world order of the post-colonialisation and post-Cold War periods created a divide between developed, developing, and underdeveloped spheres, known as the global north and global south.

The global south encompasses diverse countries from Africa, Latin America, Asia, and Oceania. The Global South faces significant developmental challenges, economic factors like low levels of production lead to low levels of income and result in high economic inequality; population growth—almost 85% of the world's population lives in the Global South, which is home to over 6 billion people, ultimately leading to high rates of dependency burdens, unemployment, and net importers—much of the countries are primary agriculture-based economies; public debt has low-interest rates; and finally, high rankings of HDI.

However, over the past few years, the economies of the Global South have been gaining momentum and have made significant contributions to the global GDP. In 1990, the global south’s contribution stood at 19%, but as of 2022, it has risen sharply to 42%. The rapid growth of the Global South was mainly driven by its strong integration into regional value chains, which was the result of the industrialisation of East Asia.

However, in 2024 India has become the fifth-largest economy and a global economic powerhouse. Goldman Sachs has predicted it will become the world’s second-largest economy by 2075 and it presents itself as a voice for the global south. India is focused on south-south cooperation with its economic diplomacy by entering into multiple FTAs, international forums, and strengthening its bilateral relations.

The article will delve into India’s economic role in regions of Asia, Latin America & Caribbean, the Middle East, and finally Africa.

ASIA

India's geographical location in the region gives it a strategic advantage in participating in the economies of its neighbouring countries and the region. India is part of several regional trade agreements, including the South Asian Free Trade Agreement (SAFTA) within the South Asian Association for Regional Cooperation (SAARC) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC).

Over the past decade, there has been significant growth in trade and investment opportunities due to India's Act East policy. India has been increasing its investment in South Asia, particularly in sectors such as information technology, pharmaceuticals, energy, and infrastructure.

India has been involved in infrastructure development projects in Southeast Asia, including the Kaladan Multi-Modal Transit Transport Project in Myanmar and the Trilateral Highway Project connecting India, Myanmar, and Thailand.

Also, the nation is actively engaged in regional initiatives such as the East Asia Summit (EAS) and the Regional Comprehensive Economic Partnership (RCEP), which aim to promote economic integration and cooperation in the Asia-Pacific region. The West Asian region is strategically important to New Delhi due to its significant contribution in fulfilling its energy needs, contributing approximately 60% of its total crude oil imports and more than 85% of India's LNG requirements.

In 2022, bilateral trade alone between India and Saudi Arabia surged to US $42.86 billion, positioning Riyadh as Delhi's fourth-largest trade partner and Delhi as Riyadh's second-largest trade partner.

LATIN AMERICA & CARIBBEAN

India and the Latin America and Caribbean (LAC) share a dynamic relationship that involves complex collaborations in trade, investment, multilateral forums, diversification of supply chains, and resource partnerships. Trade between the two was about $50 billion in 2022–23 and the Government of India stands to double it by 2027. The nation offered various lines of credit to support infrastructure development projects, 35 Lines of credit were offered out of which 21 were completed.

Both regions have aimed to build up cooperation in sectors of infrastructure, information technology, manufacturing, and agriculture. India has also been actively participating in regional initiatives like the Community of Latin America and Caribbean States (CELAC).

The nation's engagement is also seen through various forums such as the LAC Conclave and bilateral talks to explore opportunities in areas of energy and technology, like the India-SILAC Forum and the India-CARICOM Dialogue

MIDDLE EAST

India is a major trading partner for several Middle Eastern countries. The region is a significant source of crude oil for India, and in return, India exports various goods and services, including pharmaceuticals, engineering goods, textiles, and IT services. India’s trade with the Arab region is at an all-time high of $240 billion a year.

In terms of FDI, the UAE is the seventh largest with $15.3 billion, and Saudi Arabia with over $15 billion. India received close to $90 billion in remittances, contributing to its foreign exchange reserves.

Multilateral forums like the India-Arab League Cooperation Forum and the India-Gulf Cooperation Council (GCC) Strategic Dialogue play a divisive role in economic cooperation between the two regions. 

The Indian Middle East Corridor MOU recently signed at the G20 summit conveys New Delhi’s connectivity diplomacy. It is a sea-rail-sea corridor that connects India with Saudi Arabia, UAE, Jordan, Israel, and the EU that aims to accelerate trade by 40%. It counters China’s Belt and Road initiative and appears as an alternative to strategic alliances and power.

AFRICA

Indo-African interconnection links back to the decolonisation period of geopolitics, as evident in the NAM summits or the Asian-African Conference in Indonesia in 1955. These relations highlighted an economic factor in the new global order.

Trade between India and Africa stood at around $98 billion in 2022–23, a notable increase from $7 billion in 2001. India's total investments in Africa amount to $70 billion, a figure the powerful Confederation of Indian Industry aims to increase to $150 billion by 2030.

The major areas of trade and developmental investment between India and Africa are agriculture, minerals, mining, manufacturing, sustainable and green energy, and drugs.

A major area is the field of pharmaceuticals, for example when India provided made-in-India COVID vaccines to 42 African countries between 2021-23. The African Continental Free Trade Agreement (AFCFTA) presents a great opportunity for Indian private industries to invest in the sub-Saharan region. 

The India Africa Forum Summit (IAFS) is a significant bilateral forum that started in 2008 and is being held to date. The areas of cooperation, which started with economic, political, social, and science and technology development, have now diversified into areas like low-interest financing schemes for governments of the African continent through the Indian Development and Economic Assistance Scheme (IDEAS) and cooperation and security studies of conflict prevention, maritime security, cyber security, etc. 

The IAFS also poses an alternative to China’s initiative of the Forum on China-Africa Cooperation (FOCAC).

Finally, India's most significant contribution to the continent is the incorporation of the African Union into permanent membership of the G20 council at the most recent summit in New Delhi, which resulted in a successful consensus. The Business Engagement Group of B20 India has set up a special Action Council, which has been deliberating on many of the areas where the businesses of G20 nations can support African integration and development. 

CONCLUSION

In this era of euro-centric and west-centric global order, there is much need for a voice from the global south and its immediate time to regard its importance on the international stage. The countries of the region share a historical background and also share their contemporary drawbacks.

In this challenging time, New Delhi emerges as an integral section and a leading voice for the global south. The recent dialogues in the G20 conference convey the same i.e. inclusion of the African Union, and at last New Delhi’s economic power backed by its military capacity assists the new position.

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BY HARSHVARDHAN SINGH RATHORE

TEAM GEOSTRATA

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