5 days ago
Balancing Prosperity and Protection: India's Place in a Complex Global Economy
Over the 33 years since I first walked into the American Embassy on Shanti Path in New Delhi, there is one change that looms over all the others — the rise of global Indian companies innovating and adding value around the world. Groups like Tata, Mahindra, and Reliance have become global players and widely known marquee brands — something that was hard to imagine in the days of 'license Raj' and an Indian economy defined by scarcity.
I have been thrilled to be an observer and sometimes a participant in the rise of global India – a development that has seen the Indian GDP grow by a total of 1100 percent since the early 1990s. This rising India phenomenon has given Indian companies a significant stake in the system of international economic norms and increasing openness that the United States had championed since 1945. This successful globalization also gives Indian companies a stake when countries like Russia or China use economic power as a tool of coercion – as in China's exploitation of its monopoly in rare earth materials and permanent magnets, or Russia's manipulation of gas markets.
Around the globe, countries are grappling with how to balance the prioritization of economic growth and cooperation with the imperative of protecting their country's security. This is a legitimate trade-off, particularly as countries seek to protect specific industries considered vital to their economic and national security. As countries increase their use of economic tools for national security-related ends in recent years, however, the dividing line between valid national security considerations and economic coercion for vindictive or political ends is blurring.
There have been many cases in recent years when the use of economic tools has been more akin to arbitrary economic coercion. Examples include the Russian government's takeover of the Domodedovo Airport, claiming the strategic asset was at risk of foreign influence, notwithstanding the fact that its assets were owned by Russian businessman Dmitry Kamenshchik and his companies . Similarly, Russia's cutoff of gas supplies to the European Union, beginning with Bulgaria – one of the most vulnerable European states – was an effort to break European solidarity following Russia's full-scale invasion of Ukraine in 2022. Other notable examples include the Maldives' cancelation of a contract with India's GMR Infrastructure Ltd for modernization and operation of the country's main airport (for which it was later ordered to pay $270 million in compensation by an international tribunal), and China's new rare earth export regime, which has effectively blocked most exports to United States and European companies.
The common thread is clear. These actions damage investment environments by creating the perception (or reality) of risk. The result in many cases is a significant decrease in foreign investment (Russia and the Maldives), and in some cases, a wholesale global effort to diversify supply chains away from the offending country (China).
India stands to gain as it rejects such examples and reinforces its reputation as a reliable destination for investment. This is not the India I first got to know as a junior political officer in 1992. Since those days, India's economic transformation has been powered in large part by the trust it has gained in its business-enabling environment, allowing it to attract vast amounts of investment and spur the unprecedented growth of jobs and its economy. Now India is in a unique moment; it is already a global leader in services, and thanks to a move to reduce supply chain reliance on China, it is poised to emerge as a manufacturing powerhouse, with the workforce and skills to match its ambitions.
At the same time, India faces a familiar dilemma: how to protect its national security without appearing to take arbitrary action against individual companies or engage in economic coercion. This challenge is perfectly illustrated by the case of Celebi, which recently had its security clearance and operating rights revoked by the Government of India.
While the government must act in the country's security interest, and I know better than most that Indian courts will always fiercely defend their constitutional independence, it is important that this case is pursued in a manner that is seen to uphold due process. We all understand that the matter is now before the courts, which must be allowed to proceed without interference. But the government's next steps, if not carefully approached, risk being viewed as economic coercion when viewed from the outside. In particular, there is a risk that this action could be seen as an act of retribution against a Turkish company (Celebi) with a diversified set of foreign investors, in response to actions taken by the Turkish government.
Notably, Indian companies and investors hold substantial assets in Turkiye, and both Indian investors abroad and foreign investors in India expect economic tools to be used with care and fairness. Hastily considered actions against companies like Celebi risk undermining the remarkable progress that India has made as a destination for foreign investment, marking a step backward, which echoes the examples we know from Russia, China, and India's own experience with the Maldives.
Fair processes and the rule of law in the commercial environment within India are crucial for the country's success and will likely yield benefits in two major ways. First, foreign companies and investors will have the confidence to invest in India if they do not fear arbitrary or capricious action. Second, Indian companies working around the world will reap the benefits of goodwill and stable investment environments elsewhere – free from the tit for tat economic coercion that arbitrary and unfair processes experienced by international companies within India might spur. Additionally, if India treats foreign companies and investors in India fairly, the Indian government will have a strong foundation to stand on if it needs to go to bat for its own companies in other jurisdictions. This is extremely important: India today is globally exposed and has overwhelmingly benefited from a rules-based system.
All countries are making decisions based on national security, but need to do so in a way that appropriately weighs economic factors, ensures due process, and sustains investor confidence. This is the path to ensure India's economic miracle sustains itself for the long-term and to cement India's position as the major player it desires to be on the world stage and in the global economy.
