Home Globalisation & Geopolitics The Mandala Theory: How it shapes India’s trade strategy

The Mandala Theory: How it shapes India’s trade strategy

Your immediate neighbour is your natural enemy and your neighbour’s neighbour is your friend
Associate at RHTLaw Asia LLP

Chanakya’s (or Kautilya) Mandala Theory, an ancient Indian concept of foreign policy and security, posits that a state’s security is determined by its position in a network of states.

According to the theory, a state must cultivate alliances with certain neighbouring states to protect itself against threats from states that are its “natural enemies”.

Historically, the Mandala Theory has been very influential in shaping India’s foreign policy and has been very successful in shaping its behaviour with other countries.

Given the importance the theory had in ancient Indian political ideologies, analysts often wonder whether the Mandala Theory can be applied to other domains, such as trade.

In recent years, India has been pursuing an ambitious trade agenda, which includes signing several bilateral and multilateral trade agreements, as well as strengthening its strategic partnerships with other countries.

India’s unbridled drive to ensure trade and economic security seems to suggest that Indian trade policy could be governed by an internal order that outsiders may not be aware of.

In that regard, this article explores the notion that Indian trade strategy is informed by the Mandala Theory and attempts to unpack India’s modus operandi of pursuing regional economic integration and strategic partnerships as a feature of the Mandala Theory.

The original purpose of the Mandala Theory: India’s historical foreign policy

The Mandala Theory is based on the principle of balance of power, where a map around the central figure/territory, (for example, India) is broken up in a series of concentric circles.

The basic premise of the theory is that the immediate neighbour of India (or king in the diagram) is a “natural enemy” of India, and the neighbour of India’s immediate neighbour is India’s “natural ally”.

The litmus test for any state in the centre of the series of the concentric circles is to maintain the balance of power between other nations in the region to ensure that the sovereignty of such a state is not adversely affected.

Historically, the Mandala Theory has been influential in shaping India’s foreign policy. For example, during the Mauryan Empire, India followed a policy of alliances to counter its immediate neighbours or “natural enemies”. This allowed the Mauryan Empire to maintain its independence and protect itself against external threats.

India’s current trade strategy

Conventionally, the Mandala Theory is not applied to analyse trade strategy. Nevertheless, it would be naive to assume that the theory has not left indelible marks on the consciousness of India’s policymakers and leaders.

Thus, exploring the extent to which the theory has permeated into trade strategy would provide insights as to how Indian policymakers think.

India’s current trade strategy seems to be characterised by a focus on regional economic integration and strategic partnerships to foster greater interdependence. This objective seems to suggest that India is pursuing a trade strategy that facilitates its ability to keep its “natural enemies” close.

India has signed several bilateral and multilateral trade agreements, including the South Asian Free Trade Area (SAFTA), a multilateral trade agreement between India and the following South Asian countries: Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka. Notably, of the other seven partners, Bangladesh, Pakistan, Nepal, and Sri Lanka are India’s immediate neighbours (natural enemies).

Interestingly, certain neighbours like Nepal have taken a step further towards greater economic integration by pegging their currencies to the Indian rupee.

Similarly, Bangladesh and India have recently announced that they intend to do away with the dollar as the official currency for trade settlements and carry out bilateral trade denominated in Rupee and Taka. With Bangladesh’s currency being perceived as generally weaker (due to rising imports and falling reserves), it is anticipated that the Rupee will gain predominance in trade settlements between Bangladesh and India. Thereby, further deepening the economic relationship between the two “natural enemies.”

With respect to the neighbours (the “natural allies”) of India’s immediate neighbours, such as Afghanistan, Myanmar, Maldives, Mauritius, India has played the role of an effective ally for many decades.

For instance, India and Maldives have also signed many bilateral agreements, including $500 million in grants and financing to support maritime connectivity and an $800 million line of credit from the Export-Import Bank of India.

Separately, India is a major player in the “hardware” and “software” of Afghanistan. India is one of the top donors of foreign aid grants and top investors of infrastructure projects in Afghanistan (with more than 400 projects underway across Afghanistan, including the construction of the Afghan-India Friendship Dam, and the construction of the Afghan Parliament building). In terms of Afghan “software,” India is providing scholarships to and supporting around 14,000 Afghan students studying in India.

To what extent does the Mandala Theory inform India’s trade strategy?

Although India’s trade strategy is informed by a range of factors, including economic considerations, geopolitical realities, and domestic politics, there are signs which demonstrate that the Mandala Theory has certainly made its mark.

One unintended goal that India is able to achieve via the Mandala Theory applies to trade strategy, which is to soften the reach of its “natural enemies” by creating the possibility of a two-front conflict for them.

By deepening economic ties with its immediate neighbours, India is reducing the risk of conflict with its “natural enemies” by raising the costs that a “natural enemy” will incur in the event of a conflict – economic or otherwise.

By deepening economic ties with the neighbours of its immediate neighbours India is ensuring that its “natural allies” are economically protected, thereby, providing India with the influence and leverage to balance the power of its “natural allies” against the power of its “natural enemies.”

After all, India’s “natural allies” are the immediate neighbours to India’s “natural enemies,” thereby making these countries “natural enemies” of each other.

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Saravanan Rathakrishnan
Associate at RHTLaw Asia LLP

Saravanan Rathakrishnan is an associate of RHTLaw Asia's Corporate and Capital Markets Practice. Funds, capital markets, mergers and acquisitions are among his areas of expertise. Saravanan is engaged in the startup community, consulting a variety of startups in relation to contract terms, regulatory obligations, legal commitments and corporate structure. He maintains a keen interest in finance, economics, and law and has published a host of legal, economic and finance articles.

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