Indian capital and foreign policy - A preliminary exploration

Bandwagoning with unipolarity has been a trend, but there are limits






15 August 2007
The Hindu
Independent India at 60 Supplement

Indian capital, foreign policy
Bandwagoning with unipolarity has been a trend, but there are limits

SIDDHARTH VARADARAJAN

It is customary nowadays to divide the history of independent India’s economic policy into the pre-1991 and post-1991 periods, but what can we say about the impact of liberalisation on Indian foreign policy? Certainly, the diplomatic priorities and strategies of today are not what they used to be in the decades after Independence. But then neither is the world that confronts Indian policymakers the same one that Nehru and Indira Gandhi had to reckon with. Disaggregating the observable changes that have occurred on the foreign policy front is especially difficult because 1991 produced two distinct ruptures — the old domestic order of dirigisme ended, but so did the ancien regime of bipolarity. Indian foreign policy has had to adapt to this fundamental change in both internal and external environments.

On the domestic front, economic liberalisation has not produced a uniform or coherent foreign policy vision but there is a growing realisation of the need to consolidate South Asia as an integrated economic space. Unfortunately, other than the free trade agreement with Sri Lanka and greater physical connectivity within the region, the Indian state has not had much success in this direction.

At the global level, Indian capital tends to favour a policy of greater accommodation with Washington. In structural terms, some of the fastest growing sectors of the Indian economy such as information technology have benefited from forging symbiotic ‘back office’ ties with American companies. In key sectors where liberalisation has yet to take effect such as retail, insurance and financial services, many big Indian corporates have struck alliances with U.S. companies. Indian companies also anticipate making inroads in the lucrative defence and ancillaries sector through offsets if the U.S. is able to establish itself as a major source of weapons for the Indian military. That is why Indian capital takes a benign view of the growing cooperation between India and the U.S. in the defence sector.

This pressure from the business elite gains added policy heft from two other sources. First, the urban upper middle class sees closer political and strategic relations with the U.S. as its passport to greater personal prosperity in an increasingly globalised world. Second, to the extent to which the upper echelons of India’s bureaucratic and military elite come from this stratum, this ‘natural’ predisposition towards the U.S. gets further magnified. It is not as if the Indian ‘nomenklatura’ has lost sight of the ‘national interest’. But its quest for global prestige means it is easily flattered and deceived, and has little difficulty buying into the American rhetoric about ‘shared values.’

So strong is this impulse to bandwagon with the U.S. that successive governments since 1991 have had no option but to go along. Even the 1998 nuclear tests — though sold to the public as an affirmation of the country’s strategic autonomy — were used by the erstwhile National Democratic Alliance to signal the willingness of resurgent Indian capital to be accommodated in Pax Americana. Similarly, the United Progressive Alliance government — which came to power with the promise of pursuing an ‘independent foreign policy’ — has had no compunction pushing the Indo-U.S. ‘strategic partnership’ to new and unprecedented heights.

But if bandwagoning with unipolarity has been the dominant foreign policy trend since the 1990s, there are today other structural impulses that serve to place limits on how far India can go down this path.

The first is the role that public opinion plays. Throughout the 1990s, India drew closer to the United States but the rhetorical shell of nonalignment and solidarity was perforce maintained by those running the government. The UPA sought to break out of this shell with its discourse of “national interest” but has not succeeded in carrying the country on issues such as Iran or the visit to Indian ports of American warships while on active, aggressive deployment in the Persian Gulf. In the years to come, harmonising the expectations of the U.S. for greater military cooperation with the popular perception that America is not a benign power will be a difficult task for the Indian government.

The second structural impediment will come, paradoxically, from the same source that triggered the growing proximity with the U.S. in the first place, that is, Indian capital.

It is too early to make generalisations but the recent flood of Indian acquisitions abroad — for example, Tata buying Corus in Britain, Jindal Steel investing $2 billion in an iron and steel venture in Bolivia — is bound to have its impact on Indian foreign policy. Comparative advantage is forcing Indian companies to think of globalisation along new vectors.

India is rediscovering Asia, Africa and Latin America, this time not as the object of political solidarity but as the source of raw materials and the destination for its products. Until recently, major external acquisitions were limited to energy and involved PSUs rather than corporates. But with the growth of the Indian multinational and its expansion – at least in the first instance – to areas where India’s unique strategic identity can profitably be leveraged, it is possible that Indian capital may not see bandwagoning with unipolarity as the most effective business strategy. Of course, some companies may well feel India’s growing proximity to the U.S. opens more doors than it closes, but this is likely to be true only in Europe and parts of Asia.

A close look at India’s trade statistics, for example, tells us the greatest opportunities exist in those parts of the world — for example, West Asia and the Arab world — where it pays to put some political distance between Delhi and Washington.

Will these two factors serve to temper India’s rush to embrace the United States in every sphere, and especially the military? It is difficult to say. Strategic partnerships have a way of becoming self-fulfilling prophecies not only because of the links and interests that get formed between the two partners but also because of the links and interests that are foregone as a result. Understanding this dialectic, and doing so in time, is what will be decisive.

Siddharth Varadarajan is Associate Editor, The Hindu.