The government of India’s Prime Minister Narendra Modi is going into 2016 with two principal policy objectives: economic reforms and keeping India’s borders quiet. The prime minister will invest much time and energy in talks with Pakistan, in providing economic bait to China and in improving India’s ties with smaller neighbors, writes World Review expert Pramit Pal Chaudhuri.
Mr. Modi is conscious that his country faces a remarkable window of opportunity in the coming five to 10 years. India’s economy is consumption-driven, so it benefits now from the current global circumstances: low import prices, low interest rates and low inflation. New Delhi sees this as a chance to finally fix two major problems that have hobbled India’s economy in the past. The first is the poor quality of the country’s infrastructure.
India remains a land of shoddy cities, overburdened transport networks, sporadic power supply and bad air and sea links. This has impaired its ability to become a major exporter. The government will continue to look for foreign funding for infrastructure projects as Indian private sector companies are still overburdened with debt. The other financing option, government expenditure, will be partly diverted to farm welfare – a necessity to alleviate the consequences of two poor monsoons.
The second, related problem is the weakness of the country’s manufacturing sector. India’s economic growth is driven by services. But significant improvement in the economy’s productivity and sufficient creation of entry-level jobs for India’s huge population both require a larger manufacturing sector. At about 24 percent of gross domestic product (GDP), India has among the smallest industrial bases of any emerging economy.
Prime Minister Modi has leveraged India’s foreign policy to line up promises of investment from other governments: US$75 billion from the United Arab Emirates, US$35 billion from Japan (the figure does not include a more recent Japan-financed US$15 billion high-speed railway project), US$20 billion from China, and so on. Add the investment proposals from private sector companies in the United States and the European Union and the numbers look even more impressive. The pledges are largely notional but provide an idea of how much India stands to gain if it improved its business environment.
Security and peace is on the flip side of the government’s policy coin for 2016. The focus here will be on India’s immediate neighborhood and the countries that could undermine New Delhi’s growth policies.
One of these countries is Pakistan. During his first year and a half in office, Mr. Modi alternated genial photo ops with exchanges of artillery fire when dealing with his counterpart, Pakistani Prime Minister Nawaz Sharif. By the end of 2015, India and Pakistan have worked out, not without difficulties, a structure for more stable bilateral engagement. It includes soft policy issues, such as establishing a direct communication line between New Delhi and Pakistan’s all-powerful military. The dialogue is not expected to accomplish much, but it will keep the international community and liberal voices in both countries pleased. The Indian prime minister capped this diplomatic offensive with an impromptu visit to Lahore in late December 2015, on the occasion of Mr. Sharif's 66th birthday.
The country most capable of causing problems for India is, invariably, China. Mr. Modi has sought to give Chinese President Xi Jinping sufficient reason to keep the border between the two countries quiet. India has already approved a record number of 19 Chinese and Hong Kong-led investment projects – the kind it disliked in the past. The projects will boost India’s economy and please Beijing, which is desperate to find markets for its enormous industrial overcapacity.
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Publication Date:
Fri, 2016-01-08 06:00
