January 19, 2001


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G Parthasarathy

South Block is well conditioned to promote our economic interests

Within the next few weeks India's sophisticated and savvy Foreign Secretary Lalit Mansingh will leave New Delhi to face the challenges of dealing with the new Bush administration and with Washington's power centers in the White House, Capitol Hill and Foggy Bottom. He will be succeeded by Chokila Iyer -- a soft spoken, but strong willed foreign service diplomat, who is respected by colleagues who know her, as a person who can put forward India's viewpoints effectively and firmly, especially in dealing with our neighbours.

While public attention is naturally focused on the personality and activities of the foreign secretary, few people realise that it is really the secretary in charge of economic relations at South Block who plays a crucial role in ensuring that Indian missions abroad effectively promote the country's economic interests. It is also largely through him that the government is advised about current economic trends abroad and the functioning of multilateral economic groupings in the contemporary globalised world economic order.

During the Cold War, our economic priorities lay in promoting economic self-reliance through import substitution rather than through promoting efficiency and competitiveness by submitting the Indian economy to the rigours of global competition. While China was able to attain high rates of economic growth and a highly competitive industrial structure by adopting a path of economic liberalisation in 1979, we commenced moving in this direction only 12 years later.

Thus, while China attracts Foreign Direct Investment of around $ 50 billion annually, we are still struggling to get an annual inflow of around $ 4 billion. The realisation is only now dawning on us, that even as we remained rooted in the socialist rhetoric of the 1950s, the pragmatic Chinese have emerged on the world scene as a major player economically. They have also used their vast economic resources to become a military power that even the United States cannot afford to ignore.

The 1990s did, however, see a sea change in our diplomatic priorities and in the functioning of our missions abroad. In earlier years, secretaries dealing with economic relations at South Block like B K Sanyal and Romesh Bhandari focused attention predominantly in promoting Indian joint collaborations and exports abroad in the Persian Gulf, East Africa and elsewhere.

New dimensions were, however, added to the economic priorities of Indian diplomatic missions in the post-liberalisation era. Embassies and consulates also became actively involved in investment promotion work as India sought to develop an investment friendly approach to the world. Both Prime Minister P V Narasimha Rao and Finance Minister Manmohan Singh deserve major credit for the manner and speed with which they brought about this sea change in the functioning of Indian missions abroad.

But one should not forget that if their efforts succeeded, it was in no small measure due to the efforts of secretaries like A N Ram and Sudhir Devare. (Devare is scheduled to retire in a few months.) They ensured that the external affairs ministry and missions abroad became well-informed and were able to deal with the challenges of persuading audiences abroad about the new economic directions that the country was irrevocably committed to pursuing. They also ensured that the MEA was well equipped to contribute positively on issues involving the WTO.

More importantly, Indian missions abroad were able to continuously advise New Delhi about the policy changes that needed to be effected in key areas like power, mining, roads and telecommunications to make the country a viable investment destination.

While it was only natural that India should look towards OECD countries like the USA, Germany, France and the UK for sourcing its requirements of foreign direct investment, the last decade has seen a new recognition of the importance of the countries of East and South East Asia. The Asian Tigers, as they are known, have emerged as valuable partners in our quest for accelerated economic growth.

Mercifully, talk about new 'Look East' policies has not remained mere rhetoric, but been translated into a growing and dynamic partnership, particularly with the members of ASEAN. The recent visits of Prime Minister Vajpayee to Vietnam and Indonesia reflect the importance that we now attach to our economic and strategic ties with our South East Asian neighbours.

It may be of interest to note that over the last decade investment approvals for even a country as small as Singapore has almost equalled that for major players like France and Italy. Further, with important discoveries of natural gas, ASEAN members like Vietnam, Myanmar, Indonesia and Malaysia could well emerge as major energy suppliers for our eastern and southern states, especially as Bangladesh seems politically immobilised and unable to decide how to utilise its large potential of natural gas.

The prime minister is scheduled to visit Malaysia and Japan next month. Most Indians found the tone adopted by Japan in the aftermath of our nuclear tests as unwarranted, especially given the fact that Japan bases its own security on the American nuclear deterrent. There has also been a tendency on the part of the Japanese to presume they can play a role in dabbling in subcontinental differences.

But, these now appear to be things of the past, with a series of high-level exchanges culminating in the visit of Prime Minister Mori setting the stage for a possible new beginning. But, Japanese business must learn that if it is to succeed in India it cannot function in the same manner as it has done in the crony capitalist environment that prevailed earlier in some South East Asian countries.

South Korea is now emerging as a far more dynamic investment partner in India than Japan, even in sectors like the automobile industry. Japanese business would be well advised to see why this is happening and be more forthcoming in areas like technology transfer and indigenisation, if Japan is to emerge as a major economic player in India. Given the high respect that South Korean President Kim Dae Jung has won internationally and the growing role of South Korean investment in India, one hopes that New Delhi will move expeditiously in promoting more high-level exchanges with Seoul.

South Block is now well conditioned to play a key role in promoting our economic interests in a globalised world economic order. But if we are to improve our standing especially in developing countries, it is imperative that the budget for technical and economic co-operation that now stands barely at Rs 40 crores should be rapidly increased.

There is growing interest in our information technology skills and our long-term economic interests will be well served by substantially extending more training assistance in IT related areas to developing countries. We will also have to step up developmental assistance to neighbours like Nepal, Bhutan and Myanmar if we are to fully tap the potential for expanding co-operation in key areas like energy, transport, communications, tourism and trade.

It is essential that the entire process of economic reforms should be expedited and made more transparent, if we are to get our missions abroad to facilitate a process of rapidly increasing the flow of foreign investments. It makes little sense to reserve vast sectors of productive activity for the so called small scale sector when we face the prospect of being swamped by products from countries like China that are far more pragmatic on such issues.

We also need to recognise that investment in crucial areas like mining, energy, power and telecommunications will not be forthcoming in adequate measure till our pricing and other policies become rational, realistic and transparent. Finally, like many of my colleagues, I have had to often listen to long discourses abroad from foreign companies and NRIs about why they avoid India as an investment destination, because of what they say is the all pervasive corruption. While we may wish to gloss over this issue, we will sooner, rather than later, have to address it effectively, if we are to be respected in the comity of nations.

G Parthasarathy

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