Trade as Strategy: India Needs a Formal Economic Statecraft Doctrine

Editorial Summary: The Hindu argues that geopolitics and economics have converged – nations now use tariffs, export controls, investment screening, and financial sanctions as strategic weapons, not merely economic tools. India, sitting at the intersection of US-China competition and West Asia conflict, must move beyond reactive trade diplomacy and develop a coherent economic statecraft doctrine that leverages its market size, demographic dividend, and strategic location while managing WTO obligations and multi-alignment relationships.

The New Landscape of Economic Statecraft

Traditional economic theory treats trade as efficiency-maximising and politics as a separate domain. That distinction has collapsed:

India is both a target and a participant in this landscape – it faces US pressure on Iran oil and Russia imports while simultaneously using tariffs to protect domestic manufacturing.

India’s Current Posture – “Calibrated Policy Promiscuity”

Former Indian diplomat Shyam Saran coined the phrase “calibrated policy promiscuity” to describe India’s approach: maintaining relationships with multiple, often competing powers simultaneously. This explains:

• Buying Russian oil while maintaining QUAD membership
• Hosting the BRICS FM meeting while negotiating ASML technology access with the Netherlands
• Signing CEPAs with UAE and Oman while the India-GCC bloc FTA remains stalled
• Joining I2U2 (India-Israel-UAE-USA) while maintaining ties with Iran

The editorial’s argument: This multi-alignment posture is tactically necessary but strategically insufficient. Without a doctrine – a stated set of principles about when and how India uses economic tools as strategic instruments – India is perpetually reactive.

The Case for an Indian Economic Statecraft Doctrine

What a Doctrine Would Include

1. Offensive tools: Which export controls, investment restrictions, or market access denial India is prepared to use as leverage (e.g., refusing to ratify FTAs with countries that back adversarial states)

2. Defensive tools: Investment screening frameworks (India’s current rules for border-sharing nations post-2020 are a start); critical sector protection (semiconductors, rare earths, pharmaceuticals)

3. Institutional capacity: A dedicated Office of Economic Statecraft (analogous to the US Bureau of Economic and Business Affairs or the EU’s DG TRADE economic security unit) – currently India’s economic and foreign policy functions are siloed between MEA and MoCI

4. Red lines: Explicit conditions under which India would apply economic coercion – and conditions under which it would resist external coercion

India’s Structural Advantages

WTO Constraints – The Trade-Off

A formal economic statecraft doctrine creates friction with WTO obligations:

• GATT Article I (MFN): Most-favoured nation treatment; India cannot give better terms to one country without extending to all WTO members (with exceptions for FTAs/RTAs)
• GATT Article III (National Treatment): Cannot discriminate between domestic and imported goods post-entry
• GATT Article XI: No quantitative restrictions on exports (India has faced WTO challenges on agricultural export bans)
• Agreement on Safeguards: Temporary measures require injury proof

India has used Article XXI (National Security Exception) to justify some restrictions – but overuse can undermine the rules-based trade system India benefits from.

The editorial’s nuanced position: India should use the national security exception strategically and sparingly, reserving it for genuine security interests rather than industrial policy – and should invest in building multilateral coalitions (through BRICS, G20, WTO reform) that rewrite the rules to accommodate legitimate statecraft.

UPSC Mains Analysis

GS Paper 2 – International Relations

Key arguments:

• India’s multi-alignment strategy needs an economic backbone – diplomatic relationships without economic leverage are incomplete
• The failure to ratify RCEP was an instinct, not a doctrine – a doctrine would provide a framework for such decisions with stated rationale and compensation mechanisms
• Economic statecraft requires institutional capacity (dedicated offices, intelligence-trade interface) that India currently lacks

GS Paper 3 – Economy

• Export controls, investment screening, and tariffs as economic tools: costs (efficiency loss, retaliation risk) vs. benefits (strategic leverage, domestic industry protection)
• India’s trade deficit and import dependence reduce its coercive leverage; building export surpluses and reducing critical import dependencies is a prerequisite for effective statecraft

Keywords: Economic statecraft, policy promiscuity, multi-alignment, OFAC secondary sanctions, CFIUS, Article XXI WTO national security exception, export controls, investment screening, IMEC, I2U2, BRICS, India-GCC FTA.

Editorial Insight

The Hindu’s argument is about institutional design: India’s foreign policy machinery was built for a world where trade and politics were separate. The new world – where the US weaponises the dollar, China weaponises rare earths, and Europe weaponises regulatory standards – requires a different architecture. A formal economic statecraft doctrine would transform India from a country that reacts to economic coercion to one that can credibly deploy and deter it. The question is not whether India should play this game – it already is. The question is whether it wants to play it with a strategy or without one.