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The role of India’s foreign ministry in the 1991 economic reforms, and how it has adapted since then

India’s economic diplomacy has to pull itself up by its bootstraps to keep up with global challenges 

July 16, 2021 / 03:01 PM IST
Representative image (Source: ShutterStock)

Representative image (Source: ShutterStock)

The flurry of print and digital media articles or television programmes recalling the momentous decisions this month 30 years ago have made few references to the one wing of government which was involved at every stage of dealing with the grave economic crisis of 1991 and the consequent liberalisation by Prime Minister PV Narasimha Rao, which changed India for ever.

There was an external dimension to most things that happened three decades back. The Ministry of External Affairs (MEA), through its diplomatic missions abroad, was deeply involved at every turn of coping with the economic crisis and its reform fallout. There would have been no movement of 46 tonnes of gold for mortgage from the vaults of the Reserve Bank of India to the custody of the Bank of England in July 1991 without an active role played by India’s High Commission in London.

Before Michael Camdessus, then Managing Director of the International Monetary Fund (IMF) met Rao in October 1991 to advise the embattled Prime Minister on reforming the economy, the IMF head had several rounds of discussions in Washington with then Ambassador to the United States Abid Hussain.

Although India has a full-fledged office in the IMF headed by an Executive Director — in addition to a similar office in the World Bank — Camdessus preferred that he was briefed on his preparations for meeting Rao by Hussain. Conceded, this was partly because Hussain was a Member of the Planning Commission for five years before moving to Washington and he had served as Commerce Secretary earlier.

The South Block headquarters of the MEA promptly responded to the reform challenges and the sweeping changes 30 years ago by creating a Multilateral Economic Relations Division in the ministry to deal with all matters pertaining to India’s economic relations in an external affairs context. Such a response was swift. But the initiative failed to realise its full potential because India did not have a cadre of economic diplomats specialised in such work.


Such a handicap is not confined to staffing the economic division in South Block. At the World Trade Organization (WTO), India has often had to scrape the bottom of the civil service barrel because India has few trade policy specialists. After the WTO was set up during Rao’s reform years, on January 1, 1995, the Indian Foreign Service (IFS) and the Indian Administrative Service (IAS) scorched Raisina Hill, the seat of power in New Delhi, over which service should head the country’s representation to the only international organisation dealing with the rules of global trade.

Peace was eventually brokered: an IAS officer sits as India’s Permanent Representative to the WTO, but his deputy is from the IFS. Diplomats with commercial experience at Indian missions have usually fitted into the deputy’s role well. However, the IAS officers have often headed for the WTO headquarters with little more than a desire to live in Geneva for three years as a qualification. As IAS generalists, they struggle to learn one of the most complex international jobs that the domestic civil service is tasked with. Such a cavalier attitude to trade policy negotiations serves the country poorly.

To prepare IFS cadre for economic work, slots have been set aside in several economic ministries in New Delhi. The Ministry of Finance used to have two IFS officers when Rao launched his economic reforms, at the core of which was North Block where it is headquartered. Now, most times it has one. Another department which was at the centre of dismantling the licence-permit raj, the Ministry of Commerce, has a Joint Secretary-level post reserved for the IFS.

The Ministry of Defence (MoD) too has provisions for diplomats being posted there: the rationale has been that the posting would give IFS officers an opportunity to learn the ropes of defence acquisitions in which Indian missions abroad are heavily involved, certainly in the early stages of this process. In practice, these officers have ended up contributing to MoD’s work at headquarters in dealing with foreign embassies in New Delhi and their principals in foreign capitals from the defence sector. This story has been repeated in the Ministry of Petroleum and Natural Gas.

Sadly, such postings, which were intended to be learning opportunities for the IFS to produce first rate economic diplomats have not realised their full potential just as the Multilateral Economic Relations Division in the MEA has had limitations imposed on it by bureaucratic turf battles. Consequently, the country’s economic diplomacy has suffered.

When vacancies in economic ministries are circulated within the IFS, many of these posts go abegging. There have been occasions when not a single diplomat volunteered to serve outside their parent MEA: sometimes these posts lapsed and had to be revived so that training-on-the-job slots in economic diplomacy are not wasted. While at the headquarters, the IFS officers shun economic ministries because three years out of MEA entail loss of networking opportunities for a good foreign posting when their turn comes to go abroad.

A generation of diplomats who grew up analysing trade wars and devising the best protection for Indian interests amidst such conflicts is giving way to a new generation which is required to analyse trade agreements, instead. The policies which Rao initiated this month three decades ago is still a work in progress. India’s economic diplomacy has to pull itself up by its bootstraps to keep up with global challenges in this area.
KP Nayar has extensively covered West Asia and reported from Washington as a foreign correspondent for 15 years. Views are personal.

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