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#5324, 13 July 2017

Three Years of the Modi Government

Preferring the Bilateral to the Multilateral: Personal Diplomacy and India's Trade Negotiations
Mihir S Sharma
Columnist, Bloomberg View and Business Standard; and Fellow, Observer Research Foundation (ORF), New Delhi

In the three years since Narendra Modi was swept to power with an unprecedented mandate, the conduct of India's foreign policy has been given a new energy. Mr Modi has been an indefatigable traveller, and his administration has sought to build or repair relationships with many of India's neighbours and partners.
It is difficult to claim that any grand strategy underlies this energy, which seems rather to respond to the demands of the moment than anything else; but it could well be argued that Mr Modi sees foreign policy essentially as an extension of his immediate domestic priorities. These can be summarised as the following: first, to ensure fewer constraints on the development of India's economy, and the creation of more jobs in the formal sector to employ the country's ever-increasing population of young people; and second, to raise India's profile and inculcate a new sense of pride in nationhood. 

It is the first of these two priorities that is of concern here. Under Mr Modi's administration, economic relations have taken on a primacy in foreign policy. On his visits to various countries, he has stressed his government's efforts to improve the business climate in India, and has determinedly pitched for an increase in foreign investment. There has been much talk of improving bilateral trade ties with a series of trading partners - though sadly little action. 

Yet even this rhetorical emphasis on bilateral trade ties is not present when the Modi government's approach to multilateral trade is examined. Here, in fact, it is easy to see this government as moving backward when compared even to its predecessor, led by Dr Manmohan Singh. 

Signs of this backsliding were visible early on in Mr Modi's term, when commerce ministry negotiators single-handedly held up the World Trade Organisation's (WTO) trade facilitation agreement, in an attempt to get the rest of the world to agree to India's right to stockpile enormous amounts of grain as part of the public distribution system (PDS). This was sold as a right-to-food issue, but in fact emerged from Mr Modi's conviction that public procurement of grain was an essential tool to ensure his continued popularity in rural areas. It was clear at that very point, just a few months into the new government, that multilateral trade negotiations were not to be considered a priority. 

Subsequent developments were even more disquieting. Commerce Minister Nirmala Sitharaman made it clear that the burst of trade agreements that had been negotiated, signed or initiated over the previous decade or so would need to be reviewed. Partly this was a product of concerns openly raised by various stakeholders over India's  free-trade agreements (FTA) with the Association of South East Asian Nations (ASEAN), which some claim 'benefited' India less than it did the other parties to the agreement. In a sign that Mr Modi's government preferred bilateral to multilateral deals, there has been little movement on pushing this FTA forward into new domains such services, and instead efforts have been made to rework bilateral investment treaties with dozens of countries. 

It is certainly undeniable that movement on other multilateral agreements has been stalled. Negotiations with the European Union (EU) have broken down on various issues to do with protectionist impulses from India's automotive and dairy sectors as well as demands for concessions from the big information technology companies. Since, instead of this complex multilateral enterprise the Modi government has shown a preference for dealing with individual governments, some hope attached to post-Brexit contact between New Delhi and London - though that, too, seems unlikely to prosper in the immediate future thanks to both sides being fairly intransigent on the question of migration. India wants more and easier visas as part of any deal, and the Conservative government in Whitehall is mindful of the fact that many of its voters supported Brexit precisely because they wished for less migration into the UK. 

India has, of course, never been particularly enthusiastic about the great plurilateral trade deals that seemed to be becoming a feature of the global order under the previous dispensation in the US. It had no intention of joining the Trans-Pacific Partnership (TPP), and the commerce ministry even claimed erroneously the TPP was likely to make little difference to Indian exports. This cynical approach may seem to be validated by the rise of Donald Trump, and his dramatic denunciation of such deals - which he followed up by taking the US out of the TPP. But it would be unwise to declare the era of mega trade negotiations over. Even the TPP may have a surprising afterlife - once domestic consensus is achieved in so many countries over regulatory harmonisation and behind-the-border changes, it would be futile to expect that it would have no influence on future negotiation.

Indeed, it is reported that discussions for the plurilateral trade deal known as the Regional Comprehensive Economic Partnership (RECEP), to which India is a party, have begun to feature some of the aspects of the TPP in terms of regulatory issues that New Delhi is least comfortable with. In general, New Delhi's generally negative positions at RCEP negotiations has led to much publicised comments from foreign diplomats about the possibility that RCEP might even move forward without Indian participation. 
The Modi government's preference for bilateral trade discussions over multilateral or plurilateral trade deals is a reflection, perhaps, of the prime minister's penchant for personal diplomacy, as well as a certain smugness in the New Delhi establishment about the indispensability and bargaining power of a fast-growing India. But the larger arguments, from India's point of view, in favour of multilateral and plurilateral deals have not lost any force in the past three years, however much they may have been ignored.

India needs to embed itself in a world trading system that has gone on without it. It needs behind-the-border international deals in order to force its own antiquated regulations and systems to change. And it is far more likely to get a good deal by taking the initiative at the WTO or in forums like the RCEP than through sporadic and inconsistent bilateral negotiations. Hopefully, in the two years that remain of his term, Mr Modi will expand his notion of economic diplomacy sufficiently.

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