Journal of Critical Reviews ISSN- 2394-5125 Vol 7, Issue 11, 2020 INDIA’S FOREIGN POLICY: A TRANSFORMATION FROM ‘LOOK-EAST’ TO ‘ACT-EAST’ Ashish Chaturvedi1, Dr. Hari Prapan Sharma2* 1Assistant Professor, Institute of Business Management, GLA University, Mathura. 2*Assistant Professor, Institute of Business Management, GLA University, Mathura, Jyoti Nagar Mathura – Uttar Pradesh India. [email protected] Received: 13.04.2020 Revised: 20.05.2020 Accepted: 11.06.2020 Abstract Foreign trade relations are a result of foreign policy measures adopted by a country. In this field, India has witnessed a rapid change after the economic reforms of 1991. The foreign policy which was previously west oriented has been replaced by a more inclusive and nuanced policy which propagates the improvement of trade, diplomatic and security ties with eastern countries. In this regard, ‘Look- East’ policy was implemented in 1991 which was transformed as ‘Act-East ‘in 2014. Through this paper, the authors attempt to explain the chronology of this shift in foreign policy. A brief historical summary along with the reasons and transformation from Look-east to Act-east has been attempted to explain. The recent developments and their possible impact have been attempted to cover in the study. The authors have attempted to provide a lucid understanding of a complicated element of India’ foreign trade and International relations policy which may act as a ready reference for scholars/ academicians and curious readers who wish to understand the nuances of the south-eastern foreign policy of India Keywords: Act-East, Look-East, Foreign Policy, Foreign Trade, International Relations. © 2020 by Advance Scientific Research. This is an open-access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/) DOI: http://dx.doi.org/10.31838/jcr.07.11.156 INTRODUCTION advancement8. Countries located eastward to Asia Pacific regions When India got independence in 1947, a new foreign and such as Australia and New Zealand also displayed economic economic policy came into effect which was based on non- revival during the same tenure alignment and a mixture of capitalist and socialist tendency. The economic model was officially labelled as “mixed”, however, the Indian economic and foreign policy surprisingly ignored the tilt was heavily towards socialism1. The reasoning which was eastern parts of the world and kept focussing its stance, both in given in favour of the decision was that India was deliberately terms of opposition and support, towards the west; noticeably avoiding taking the side of any of the poles; USA or USSR, which the USA, Europe and USSR. Indian defence, atomic energy and emerged in the post-war world order. The careful mixture of the space mission were driven by the support of socialist USSR. In economic model was done to ensure the hostility of none. The return, the Indian government propagated the theory of balance, however, did not last long as in 1954” Mahalanobis socialism by encouraging protectionism, larger inclination Model” was implemented which practically meant the creation of towards the public sector and massive nationalization of the 9 a welfare socialist state2. The economic shift tilted Indian financial services sector . On the other hand, the relationship economic and foreign policy towards USSR and away from the with the USA was deteriorating. The nuclear test of 1974 USA. The situation changed dramatically after the Chinese worsens the relationship as the United States of America puts invasion and subsequent defeat of India in the year 1962. several sanctions on the country. However, India was heavily 10 Between 1962 to 1966, attempts were made to improve trade dependent on the USA for agricultural support . All these and policy ties with capitalist countries as well but the attempt changed dramatically after the crisis of 1991. did not last long as the regime under Indira Gandhi opted for absolute socialism in the decade of 1970s3. Even the word THE 1991 CRISIS AND SUBSEQUENT REFORMS “socialist” was added in the preamble of the Indian constitution. In the decade of 1980s, the trusted ally of India, USSR begins The decade of 1970s was the decade of economic turmoil to crumbling. As a result, the Indian economy started to face dire India. The war of 1971 distorted the budget by increased consequences. The current account balance, which was in expenditure and huge fiscal deficit which, along with massive surplus thanks to the support provided by the soviet faction, famine and drought, increased unemployment and inflation rate4. started showing a massive deficit. India was heavily dependent The economy was staggering at 2%-3% economic growth rate on USSR for its defence requirements as it was the major source continuously since the Independence which was paradoxical of affordable military equipment and arsenal. As a result, the since poor countries are expected to show a faster rate of growth. military expenditure as a part of GDP rose from an average of 11 The Indian growth rate was satirically labelled as the “Hindu 2.7% in 1980-81 to 1984-85 to 3.8% in 1985-86 to 1989-90 . growth rate” by several economists5. Since USSR composed around 20% of Indian export, the export growth of India deteriorated significantly (Table 1). Since the At around the same time, the East Asian countries were thriving Indian government in the past had announced a slew of planned for liberalization and open market reforms. Japan which was expenditure and several social welfare schemes coupled with devastated by the nuclear attacks of 1942 was quickly emerging high and economically irrational subsidies, the pressure on the as one of the fastest emerging economies of the world6. South current account was mounting. In the early years, the current Korea was benefitting from siding with the capitalist faction after account expenditure was cushioned by soviet support; however, the Korean War. The great revolution and renaissance of china the decline of USSR increased the expenditure pressure12. The which later resulted in the massive manufacturing surge also decline in investment in the massive public sector deteriorated started during the decade of 1970s7. In addition to all these the situation. events, ASEAN; which was created in 1967 by a group of 10 small East Asian countries, was also displaying a sign of rapid In addition to these events, the Middle East crisis and the subsequent gulf war of 1990 added to the woes. The invasion of Journal of critical reviews 882 INDIA’S FOREIGN POLICY: A TRANSFORMATION FROM ‘LOOK-EAST’ TO ‘ACT-EAST’ the USA over Iraq made the economic conditions highly volatile. permanent members of the Security Council. The primary Since Middle Eastern countries were the major supplier of crude objective of the first Indian prime-minister was to have an oil to India, the lack of supply coupled with a sharp increase in alliance of Asian countries, it is evident from his famous quote, the global prices of oil increased the oil import bill of India from and “The 20th and 21st centuries will belong to ASIA”. However, USD 2 billion to 5.7 billion in 199013. The war also acted as a all these optimism turned into a sense of mistrust and pessimism catalyst of mass migration of Indian immigrants from the Middle after the Sino-Indian dispute and subsequent war of 1962. China East to the native country which hampered the flow of was considered a major enemy and countries such as Japan & remittances which was a major source of revenue for the South-Korea were considered too close to the capitalist front of country14. Despite the economic turmoil, the government the United States of America17. continued the social expenditure by increasing its borrowing which led to an enormous increase in debt from USD 35 billion in The situation changed dramatically after the collapse of the 1984-85 to 66.5 billion in 1990-91 which was around 1/4th of the Soviet Union and the subsequent opening of the Indian economy GDP. All these factors led to a massive downgrade of Indian after the 1991 reforms. India was desperately in requirement of economy by credit agencies hindered the flow of debt liquidity new allies whereas the south-east Asian countries were deeply into the Indian economy which resulted in the famous” Balance apprehensive about the growing emergence of China. Since India of Payment Crisis” of 1991. was now a comparatively open economy and was having nuclear warfare capacity. The south-east Asian countries, especially Table 1: Performance of Export, Foreign Investment and ASEAN countries found it suitable to appease India through Exchange rates economic as well as defence co-operation to mitigate the risk caused by Chinese aggression. Taking advantage of the Indicators Average of 1990- 1991- dynamically changing geo-political scenario the erstwhile Indian 1985-90 91 92 government, under the prime-ministership of Mr.P.V.Narsimha Export Growth (%) 11.4% 9.0% -1.1% Rao, announced the Look-east policy which was designed to improve trade and diplomatic relationship with south-east Asian Foreign 279.2 103 133 countries18. Joint-naval exercises were conducted with Indonesia Investment(USD and Malaysia in 1991 and with Singapore in 1993 for the first Million) time; these exercises were to become a regular event later on. Exchange Rate ( 13.82 17.94 24.47 On the economic front also, India gained a lot from this new Rs/USD) policy. Although in the initial period the USA and Britain were the Source: Reserve Bank of India, 2001 major sources of Investment, Japan became the third-largest source of foreign investment in the period ranging from 1991- Table 2: Budgetary deficit of the Indian Government during 1994. All the major south-east Asian countries such as Hong the 1980s as % of GDP Kong, Thailand and Malaysia were among the Top 20 sources of Year Fiscal Primary Revenue foreign investment in India from 1991-94.