7 August 2014


Gautam Mukherjee
Thursday, 07 August 2014
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Since foreign investment in infrastructure development and manufacturing is a major priority for the Modi Government, it will have to turn to Japan and China since the US and European economies are moribund

Looking at these six years after the George W Bush presidency, when it seemed like India and the US were going to be honest to goodness strategic partners at last, it can be said that all such hopes were clearly misplaced and have gone up in smoke. The US and India do not have much strategic use for each other today, reviewed three quarters of the way through the Obama Administration.

Instead, India is now quite rightly looking at a new world order spearheaded by BRICS (Brazil, Russia, India, China, South Africa), which could develop, amongst other mutually beneficial platforms, new global trading and reserve currencies, rather than just the US dollar. India drawing closer to an almost defunct South Asian Association for Regional Cooperation, and the possibility of full Indian participation in other South East Asian fora at the invitation of China, is also very significant. If the West has no use for India beyond lip-service, the East may well be the way to turn.

The US has always struggled at home with its isolationist world-view, and is now more or less confused about its global role, if any, beyond its de facto military dominance. But its economy, though clear and away the biggest, is moribund; and likely to remain stagflated for decades, given its trillions of indigestible debt that weak future growth just cannot dispel.

The massive deficit financing and note printing at present could also lead to another economic collapse bigger by far than the one in 2008, according to some gloom and doom ‘Black Swan’ economists. This, even as it paradoxically remains the mecca of technological excellence and, therefore, an attractive trading partner for its ideas, goods, and services.

India, as it stands, is not capable of being a geopolitical bulwark against Chinese power in South Asia, and the US and its Nato allies do not have the will or the money to promote this in a economically beleaguered era. With the US and allied withdrawal from Afghanistan, and earlier from Iraq, there may be a yawning power vacuum in highly disturbed regions, but the US and friends have chosen to think of it as a national problem, and not their concern anymore.

This is fairly typical of American foreign policy throughout, and often repeats itself, making for much suffering and creating it an unreliable ally, beyond, the essentially Caucasian and core Nato and Anzac groupings that has pulled together so far since WWII.

These responsibilities too are reckoned to be more strenuous now though, and not as iron-clad and automatic as all that. This is because the pockets are no longer deep, and, because of tepid response to American initiatives on the part of its protectees, tactfully called ‘allies’ all this time. Pakistan too is no longer important in the US scheme of things, except for its threat as ‘Terrorist Central’. The entire theatre has been ceded pretty much to China as the dominant regional and global power.

The US under President Obama has shown much greater inclination to negotiate mutual hegemony with China. This despite its ‘on paper’ military obligations to Japan and Australia coming under pressure with increasing regularity, as China tests its power.

Prime Minister Narendra Modi, going to Washington, DC, in September, cannot expect much. There will be no massive American investment into India, even in defence production because of intellectual property perceptions and security concerns. America will want to sell us armaments outright instead. Nuclear power and shale gas will also stay on paper.

As foreign investment into infrastructure development and manufacturing is a major priority for the Modi Government, it will have to turn elsewhere, to Japan and China, to make this happen. The Chinese example makes it clear that if we want double-digit growth over a consistent decade or more, we must invest in infrastructure, construction and manufacturing. Our domestic resources are grossly inadequate for this and foreign investment is crucial.

But the situation is looking up. Two early indicators of economic recovery in this country historically, are the stock market and property. Both are poised for growth in India now, with the stock market having proved itself to be the path-finder. And this, without benefit of a global bull-run alongside, though the West is indeed awash in liquidity. Over $21 billion of foreign investment has come into the stock market in 2014 so far, taking the Sensex from 20,000 to 26,000, with a view that it is headed for 40,000 by the end of 2017.

Those entities that work in the Indian property market including international agencies such as Knight Frank have gone on record stating that developers and construction industry insiders are confident that demand and sales will recover soon. The Union Budget push to real estate investment trusts to help finance a construction revival is also expected to attract at least $10 billion in short order.

With the BJP-led NDA winning a substantial majority for the first time in 30 years, the mood has changed quickly from gloom to euphoric hope. This, on the back of both domestic and foreign investment cheering expected reformist measures, such as an updation of labour laws, sharply improved governance, movement on infrastructure bottle-necks, growing manufacturing sector, and higher foreign direct investment limits in the process for a whole slew of sectors. International rating agencies such as Standard & Poor, Moody’s and Fitch have stopped threatening downgrades, despite still high fiscal deficits, low GDP growth tending higher at last, and many other indicators of an essentially stagnant economy on a recovery path.

In the 60-plus days since assuming power, the Modi Government, to the surprise of some who may have been expecting more flamboyance, has quietly set about restoring confidence, toning up governance and maintaining continuity. It has avoided controversial moves, preferring to go in for the low-hanging fruit of better administration to perk up the economy quickly. This, while simultaneously initiating a massive infrastructure and reform based programme, for various sectors including farming, defence, insurance, e-commerce, power and housing designed to transform the country in the medium term.

Big-ticket foreign investment in manufacturing and infrastructure is expected to commence, arising out of Mr Modi’s forthcoming visit to Japan, and his later meeting with President Xi Jinping of China. Some other US, Israeli, French, South Korean and European interest in select areas such as white goods, automobiles, defence production, nuclear power plants, agricultural modernisation including food processing and cold chain development, the Indian Railways, power and alternate energy, roads, and ports should also come shortly. Some progress on single brand retail will contribute its might, and the bilateral moves made so far within the Saarc region may also accrue some mutual commercial and economic benefits.

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