Mains Practice Questions

Introduction

Economic statecraft refers to the use of economic tools—such as trade, investment, sanctions, and development aid—as instruments of foreign policy to achieve strategic objectives.

• In the 21^st century, with globalization and economic interdependence reshaping geopolitics, nations have increasingly turned to economic statecraft to project influence, secure resources, and achieve strategic goals.

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Evolution of Economic Statecraft in the 21^st Century:

• Shift from Hard Power to Economic Tools: Nations are increasingly using economic tools as a softer, less confrontational means of asserting influence.
  • Example: China's Belt and Road Initiative (BRI) aims to expand its geopolitical reach through infrastructure investments.
• Role of Global Value Chains: The integration of economies into global value chains has made economic dependencies a powerful tool of leverage.
  • Example: The US-China trade war highlights how economic interdependence can be weaponized.
• Geoeconomics in Competition: Economic statecraft has become central in geopolitical rivalries, with sanctions, technology restrictions, and investments shaping power equations.
  • Example: Western sanctions on Russia following the Ukraine conflict in 2022 significantly impacted its economy and international standing.
• Strategic Alliances and Trade Agreements: Economic partnerships and regional trade pacts have become crucial tools for achieving strategic goals.
  • Example: The formation of the Regional Comprehensive Economic Partnership (RCEP) strengthens China's economic clout in the Asia-Pacific.

India's Use of Economic Statecraft:

• Trade Diplomacy: India has leveraged trade agreements and preferential market access to strengthen ties with strategic partners.
  • Example: The India-UAE Comprehensive Economic Partnership Agreement (CEPA) enhances India's presence in West Asia.
• Development Aid and Assistance: India uses development partnerships to build goodwill and influence in developing countries, especially in South Asia and Africa.
  • Example: India’s Lines of Credit to African nations and projects like the Parliament building in Afghanistan signify economic diplomacy.
• Energy Diplomacy: Energy security is a cornerstone of India's economic statecraft, with efforts to secure resources and diversify energy partnerships.
  • Example: The International Solar Alliance, initiated by India, positions it as a global leader in renewable energy diplomacy.
• Infrastructure and Connectivity Projects: India counters China’s BRI through initiatives like the IMEC Corridor.
  • Example: The Chabahar Port enhances India's connectivity to Central Asia, bypassing Pakistan.
• Technology and Strategic Investments: India uses technology partnerships to strengthen ties with key nations and promote its interests in emerging sectors.
  • Example: India's participation in the Quad’s initiative to build resilient semiconductor supply chains reflects strategic use of economic tools.
• Economic Defense Against Coercion: India has focused on reducing dependency on specific nations, such as China, in critical sectors like electronics and pharmaceuticals.
  • Example: The "Atma Nirbhar Bharat" initiative and Production Linked Incentive (PLI) schemes aim to bolster domestic capacities.

Challenges and Opportunities for India’s Economic Statecraft:

• Challenges:
  • Geopolitical Rivalries: India faces challenges from China’s economic expansionism, particularly through initiatives like the Belt and Road Initiative (BRI), which compete directly with India’s strategic interests.
    • Example: China's influence in South Asia, particularly in Sri Lanka and Nepal, through heavy investments.
  • Trade Imbalances: India's trade deficits with key partners, such as China, ASEAN weaken its economic leverage.
  • Economic Dependencies: Over-reliance on imports for critical sectors, such as oil and electronics, limits India’s ability to counter economic coercion.
  • Capacity Constraints: Limited financial resources for large-scale infrastructure or aid projects hinder India’s ability to compete with economically powerful nations.
  • Global Protectionism: Rising protectionist tendencies in global trade create challenges for India's export-driven growth and global trade integration.
• Opportunities:
  • Strategic Regional Role: India's geographic location enables it to play a pivotal role in Indo-Pacific connectivity and trade routes.
    • Example: Initiatives like the International North-South Transport Corridor (INSTC) enhance strategic depth.
  • Strength in Technology and Services: India's IT and pharmaceutical sectors offer significant leverage in economic negotiations and partnerships.
    • Example: India’s global role as the "pharmacy of the world" during the Covid-19 pandemic.
  • Expanding Influence in the Global South: India's development aid and infrastructure projects in Africa, South Asia, and Southeast Asia help strengthen its influence.
    • Example: India’s active role in G20 initiatives and advocacy for Global South issues.

Conclusion

Economic statecraft has emerged as a powerful tool for India to advance its strategic interests in the 21^st century. By integrating trade, investment, aid, and connectivity with its foreign policy goals, India is positioning itself as a major geoeconomic player. However, to maximize its potential, India must address domestic constraints, strengthen institutional capacities, and build resilient partnerships.