Economic Diplomacy and its Significance for Foreign Policy


A diplomat is like a bee that picks nectar from a flower without damaging its petals. Diplomacy is an art to effect an outcome that you want and influence to get that done.

The objective of diplomacy in today’s changing scenario is not to increase political clout but to achieve economic understanding. The days when diplomats fought battles behind closed doors for geo-political gains, for their respective nations, is over. Today “Geo-Eco” has taken precedence over “Geo-Pol”. Nations are in the race to become economic power houses as they know that it is the key to becoming a global leader. Economic soundness ensures stability and ability to exercise influence in world affairs.

From Confrontation to Cooperation

Countries are now signing free trade agreements and Memorandum of Understanding (MOUs) to further their national interests. The European countries have their own union and even their own Constitution. Most of the member states have adopted the new currency called ‘euro’. Owing to this, It has become a regional hub for economic cooperation and wields political clout over important world affairs. Its economic stability has made it a power to reckon with along with US and China. The EU after America is India’s second largest trade partner. A few former Soviet colonies too are clamoring to be a part of the ever expanding EU. What better example of economy driven domination than the US which on one hand has close economic ties with China, an authoritarian state, and on the other is trying to bring about democracy in states like Iran & Iraq?

Indian Diplomacy & Economic Reforms

Prior to 1991 the agenda of diplomats in India used to be purely political. India was not a big player in the economic field nor did it enjoy any clout in world affairs. Our foreign policy was limited to Socialist nations around the world. Post 1991 when the New Economic Policy came into effect, things have changed drastically.The LPG policy ( Liberalization-Privatization- Globalization), the brainchild of Mr Manmohan Singh and then PM of India Mr P.VR Narsimha Rao helped India in facing the challenge posed by the developed economies. Today as a result of that as well as a large English speaking population, technical know-how, low labor costs and large manpower, India has become the preferred outsourcing destination for the world. Indian companies are making acquisitions the world over, coming out with IPO’s and setting base offshore. Economic interests have to an extent been behind India clinching the Indo-US Nuclear deal in recent times.

Regional Integration

Economics has become the driving force today. Post Cold War there has been re-organisation of groups as well as reworking within them. The NAM still exists though its focus has shifted more towards economic cooperation. New alliances such as SAFTA ( South Asian Free Trade Agreement), G-8, SAARC ( South Asian Association for Regional Cooperation), G-13 and OPEC have come up. Today there are over 200 regional trade agreements in operation. Trans-national gas and oil pipelines, SEZs ( Special Economic Zones), FTZs ( Free Trade Zones), large scale outsourcing, free flow of finance and technology have all become a reality today.

Having said that it must be noted that ‘Political Diplomacy’ is not obsolete and would never be. For one to succeed the other must exist too. Where politics has failed, economic interests have helped to bridge the gap. The new world order based on economic power has brought about changes far greater than could have been imagined in the last few decades.

Astik Sinha