India Is Weaponizing Its Economic Power, Mirroring China’s Playbook

Internal affairs and foreign policy are closely intertwined, and the latter is largely driven by a state’s domestic politics and serves its core national interests. International relations experts say China’s foreign policy is driven by its national interests. While it has not been explicitly spelt out, China’s core issues relate to its sovereignty: Taiwan, Tibet, Xinjiang and lately, even the South China Sea. A 2011 White Paper interestingly listed ‘peaceful development’ and ‘reunification’ as China’s core interests. The concepts have been more frequently invoked since Xi Jinping became China’s president in 2012.

China’s has deployed economic diplomacy in pursuit of this ‘peaceful development.’ It is nothing but economic statecraft, which is the use of economic resources by a regime to fulfil its foreign policy objectives. Sanctions and favourable trade pacts are key tools in the practice of economic statecraft. For example, China slammed France in 2008 over then President Nicolas Sarkozy meeting with the Dalai Lama, saying it had seriously harmed the nation’s ties with France and Europe. The country then put off its annual summit with the European Union and postponed negotiations for purchase of 150 passenger aircraft from France’s Airbus.

The core ideals of independent India’s foreign policy were laid down by its first Prime Minister, Jawaharlal Nehru. As Nehru ruled at a time when the world was divided into two rival blocs, his foreign policy’s cardinal rules were mutual respect for territorial integrity of nations, no meddling in each other’s internal matters, non-aggression, peaceful coexistence and economic cooperation. In tune with that policy, India sought peace and stability in its engagements with the world community.

Nehru conceptualised a policy of ‘positive neutrality’ for India, and became one of the key spokespersons for the non-aligned countries of Africa and Asia. Many critics say that in an arena where there are “no permanent foes or friends,” the steadfast adherence to principles cost India. For example, Nehru was clear that India deserved to be a permanent member of the United Nations Security Council (UNSC), but also that it would not come at the expense of China.

Nehru’s successors have mostly followed the same course, barring a few exceptions -- like when his daughter Indira Gandhi she merged the Himalayan state of Sikkim in the Indian Union, and her son Rajiv Gandhi’s military intervention in Sri Lanka.

But that is now changing. Indian foreign policy strategy now seems to mirror China's international diplomacy. Following the revoking of the special status of Jammu and Kashmir in August, New Delhi made deft use of diplomacy to blunt Pakistan’s objections to the move. But the quiet diplomacy has also been accompanied by some muscle flexing in the business arena.

Turkey and Malaysia, which took a position antagonistic to India’s core interests, are at the receiving end of this new edge in New Delhi’s economic diplomacy. Turkish President Recep Tayyip Erdogan’s speech at the UN General Assembly on Kashmir and his support for Pakistan has brought a cloud of uncertainty over the Anadolu Shipyard’s chances to bag a $2.3 billion project to make fleet support ships to the Indian Navy.

An Indian defense official has reportedly told the U.S. publication Defense News that "punitive action would bar Anadolu from carrying out any business with Hindustan Shipyard (its partner in India) because such a partnership could have grave consequences for India’s security.”

In another clear signal of how India views Turkey’s stance, Prime Minister Narendra Modi also scrapped a planned visit to the country and met the leaders of Cyprus, Greece and Armenia – all of whom share less than friendly relations with Ankara. India also issued a travel warning, which could negatively impact the number of Indian tourists flocking to Turkey., More than a hundred thousand Indian tourists had visited Turkey this year till August.

Taking a leaf out of Beijing’s playbook, which often uses quiet, unspoken sanctions to show its unhappiness, an Indian oil trading association has directed its members to stop buying palm oil from Malaysia.

Malaysia is the world’s second largest producer and exporter of palm oil, following Indonesia, and vegetable oil contributes 2.8 percent of its gross domestic product. India was third-largest importer of Malaysian palm oil and allied products, worth 6.84 billion ringgit ($1.63 billion), last year. While Malaysian Prime Minister Mahathir Mohamad has refused to retract his comments on Kashmir, the country is reportedly considering increasing imports of raw sugar and buffalo meat from India to ease the trade tensions they have caused.

The oil-rich Persian Gulf countries did not voice public protests against the Indian government’s actions in Muslim-majority Kashmir and its communication and the internet blockade. The annual trade between these countries and India is now nearly about $100 billion. For instance, the United Arab Emirates (UAE)’s trade with India surpassed $50 billion last year, making New Delhi the country’s second-largest trade partner. Indians are also the largest foreign investors in Dubai’s real estate market. Even more important, Dubai’s global port operator DP World is planning to develop a logistics hub in Kashmir. Not surprisingly, Dubai just termed India’s actions in Kashmir an “internal matter.”

While Saudi Arabia expressed concern over the situation in Kashmir, its state-owned Aramco bought a $15 billion stake in the oil and chemicals business owned by Reliance, the largest publicly traded company in India. Crown Prince Mohammed bin Salman, the de facto ruler of the kingdom, has pledged to invest $100 billion in India by 2021.

While this diplomatic maneuvering may sound logical, it is a marked shift away from the Nehruvian ideals that have shackled India’s foreign policy and limited its effectiveness in serving national interests for several decades.

With the U.S. and China locked in a trade war, New Delhi is also looking at attract companies that have served the U.S. market to invest in India. For instance, the Taiwan-based Hon Hai Precision Industry Co., better known as Foxconn, is shifting some of its manufacturing – so far concentrated in China – to India. Foxconn makes the Apple iPhones.

Smart leveraging of a large domestic market and a foreign policy that has been repurposed to serve as a tool for serving national interests, have helped weaponize India’s economic clout.

(Kalpit Mankikar is a journalist who is currently pursuing his China studies at the London School of Economics and Political Science.)