Changing rules of economic diplomacy

Central Asia loves its historical links with India. These republics see India through the eyes of Babur, the first Mughal emperor, since he is their icon. I was pleasantly surprised at the number of Alaghs in that region, something I discovered when I was a minister.

India’s position in these larger global meetings, such as BRICS and Shanghai Cooperation Organisation, has to be meshed with its economic and security concerns. In the decade before BRICS was set up, India had started to grow rapidly. Many of its existing institutions went through changes that triggered faster growth, or emerged from the requirements of quick changes. These experiences shaped India’s responses in global fora.

Our perspectives changed on institutional changes in financing mechanisms, with command economy principles giving way to fiscal and monetary instruments in strategies of reform. Trade policy is shaped by agriculture and livelihood concerns.

In investment and finance, trade, agriculture, energy and other renewable resource concerns, India’s development experience defined her position. India participated fully in global debates and developed ideas and strategies: “Poverty is the biggest polluter” at the first UN environment meet in Stockholm, 1972; “25 per cent of world industry in the third world” at the third Unido at Lima, 1975, “Population and development” at Bucharest; and so on.

By the end of the eighties, development and security paradigms were changing. With G20 coming upon the scene, Prime Minister Rajiv Gandhi was to develop the idea that India would grow fast as part of a globalising world. There was a refreshing, youthful emphasis on technology and the newer organisations and social institutions in which it would be embedded. These were seen as approaches to deal with low growth, poverty and shortage of non-renewable resources.

There was a break with the past, but the global media recognised this much later, after India pursued three objectives. The first was stability for reform. The second was improving the global and national architecture for deepening financial markets for inclusive growth. The third is the links of these two with trade policy. Its phased process of reform, ending with the goal of complete capital account convertibility, stated initially by this writer as planning minister in the Ninth Plan and now reiterated by the Reserve Bank of India governor, was meant to protect the country from the wild swings of global financial markets. This became evident after the East Asian meltdown, as laid out by the RBI in its 2005 Case Study of India for the G20 .

The RBI’s chief was to state later that at the G20 meeting under India’s presidency in Delhi: “for the first time, the international community through the G20 endorsed the idea of the voluntary ‘Principles’ for prevention and solution of sovereign crises, which I had myself suggested when it appeared that the sovereign debt restructuring mechanism was not workable”. India chaired the process for transparency in global financial flows; this is now terribly important, as the recent scams show.

The second idea put out was to encourage the world to let countries to reform at their own pace. In India, the challenge is to reduce the budget deficit while raising sufficient resources for infrastructure and rural development. Tax reforms and public sector reforms are areas of concern. Employment generation and better access to education and health remain important. India wants the rules to be clear but the paths flexible. A major problem for India is the harmonisation of financial rules across countries.

India must constantly reinvent the art of following its own interests and championing the growth lobby of the poor. In the wake of periodic financial storms, such as in 1998 and 2008, its concerns were to stabilise its growth process.

It is not accidental that India’s finance minister said at Gyeongju, South Korea, almost a decade ago that attempts at coordinating current account deficits are important and competitive devaluations must be avoided. Now again the RBI governor has raised this as an objective.

India reversed the decline in the agricultural growth rate but the present agricultural growth rate of a little over 3 per cent is incapable of sustaining high growth. The limited success of its water management programmes, hostility by globally networked NGOs to newer seeds and pesticides, and the shortage of land now staring the country in its face have all made the problem more urgent.

India increasingly demands both grain and non-grain food and agriculture. Its agricultural demands are growing faster than the growth in food output. While most countries are being mildly protectionist in the stimulus period to protect domestic jobs and output, India has slashed tariffs and subsidised agricultural imports. Economists have argued for mild tariffs on agricultural imports to protect agricultural incomes and for incentives for domestic production. But the government’s concerns on food inflation do not permit such nuanced policies.

However, permanent interests don’t change radically. India will increasingly agree to place non-tariff interventions in the negotiation basket, like limits on the interventions of its large parastatals in domestic agricultural markets. However, it will probably not give up the stance that public support to infrastructure development, including markets, communication and agro-processing investments, and for the development of agricultural technology, should not be counted for “aggregate measure of subsidy”.

India is going through a renaissance of newer forms of organisations for its agriculture, agro-processing and rural infrastructure like self-help groups, and producer companies of farmers and cooperatives. Many develop strategic alliances with corporate and public agencies. The newer strategies its agricultural policymakers have developed here are largely in the public private partnership mould, but these would require handholding by the state. Global negotiations will have to support these initiatives.

The writer is the chancellor of Central University of Gujarat and a former Union minister