Prime Minister Narendra Modi’s first budget was a disappointment, his first winter session of Parliament was an embarrassment, his passage of a slew of ordinances was touched by a hint of panic, and it’s still unclear if key economic legislation like insurance FDI and the general services tax will even get past his second budget.
Yet, foreign capital continues to flow. Greenfield foreign investment remains low, though it has at least rebounded from the bottom-scraping levels it reached last fiscal. Once you took out the usual end-of-the-year profit taking, the FII flow into India has been remarkable. And it continues to come in.
The Indian investor remains cautious about the stockmarket. The Indian corporate investor is even more wary. Having been burnt by the previous six or seven years by the last government, they are all waiting for concrete evidence of policy change before they put more money into expanding factories and plants.
Yet the foreigners keep coming.
One reason for this is that there aren’t too many places a foreign emerging market fund manager can put his money. As one equity player in London once told me,” There are a billion pounds in floating emerging market funds that have almost only India to go to these days now that Turkey, Brazil, Russia and a few others are belly-up. The FIIs, he told me, were buying and selling to each other so the Indian investor didn’t really matter.
Two, many overseas investors understand the damage done to the Indian economy by the United Progressive Alliance regime, especially the last five years of the Manmohan singh government. The fiscal deficit remains out of control. Bad loans are clogging up the banking system. The energy sector remains paralysed.
If anything, many of the institutional investors see how this would take a long time to unwind.
What worries them more is the tomtomming of calls for interest rate cuts by various senior government officials. This unnerves long-term financial investors, like pension funds, who focus on the broad parameters of the economy and policy and not short-term measures to get a quick burst of growth. For them, cutting interest rates prematurely is a sign of bad policy, that Modi wants to suborn an independent central bank, and means inflation would come back sooner than later.
They thus applaud Raghuram Rajan’s stance. As a Citibank study noted, India was a good place to be because of three things 1) Rajan, 2) the fall in global commodity prices and 3) Modi’s absolute majority in the lower house. No mention of Arun Jaitley or the key personnel in government.
In other words, Modi’s seeming “haste makes waste” method of governance gets him applaud with foreign investors who seen in this exactly the sort of long-term, stable policy mindset that they want.
Even on foreign policy, New Delhi is working on an ad hoc, ultra-pragmatic approach to diplomacy – and this is earning him points. This lack of geopolitical vision is actually acceptable now because there are no major government to government threats in the region. Sparring on the borders yes, but the chance of even a Kargil type situation is minimal. Modi is doing exactly what a Wall Street investor would want him to do in foreign policy.
It has not escaped notice that Prime Minister Narendra Modi’s many perambulations around the world have, so far, ignored Europe – if refueling stops for his aircraft are ignored. Read more
Vladimir Putin, nine years ago, described the Soviet Union’s collapse as the “greatest geopolitical catastrophe” of the 20th century. While one argue whether that was much of a catastrophe given how dysfunctional the Soviet Union had become in its last few decades, from a Russian perspective that might make sense. Read more
Why did Narendra Modi go to Fiji and hold a summit of nearly a dozen South Pacific nations – including the half-island state of Papua New Guinea?
The idea was put to him by the Indian foreign ministry, one of the few times in recent times they have impressed the prime minister one suspects. Why did Modi lap it up?
Different theories abound.
One is that he has a vision of mobilizing the Indian diaspora for both domestic political and foreign policy ends. It helps that the Indian minority in Fiji is so small that they are no longer part of a political struggle between the Indian migrants and the Fijian natives. But it is hard to see how this remote island and its small population will be of much use to him.
Another is the great geopolitical game supposedly being played between India and China, and sometimes the United States. India struggles to extend its military power beyond the Straits of Malacca. Melanesia and Micronesia are beyond even its navy’s imagination. Neither India nor, I suspect, China has a chapter on the South Pacific in its Grand Strategy Blueprint.
In fact, Modi was sensibly modest in what he offered the islanders. India cannot match the aid commitments of players like China and even New Zealand. But, says Jenny Heyward-Jones, Micronesia expert of Sydney’s Lowy Institute, “they are tailored to areas India has a comparative advantage…and have a reasonable chance of development impact in the island countries.” Tele-medicine, for example, makes sense given the distance between the islands and limited medical infrastructure.
I believe Modi going to Fiji is really an example of a larger pattern of leaders of two-tier countries building larger global profiles. Shinzo Abe is now one of the most travelled Japanese prime ministers in history. And it isn’t just about reducing Chinese influene. He also went to countries on India’s periphery where New Delhi’s diktat is still stronger than those issued by Beijing. And Chinese leaders have been everywhere.
At the heart of this is a simple fact that the West’s influence in the world has dipped a lot the past few decades. In addition, emerging economies have to hardsell themselves across the world to investors.
Modi understands the importance of narrative. He does at home anyway and I presume he gets it overseas. When he went to the United States he needed to change the narrative on India following five years of dismal UPA government. And he did, more successfully than many others who tried like the leaders of Turkey and Brazil, as one president of a prominent US think tank told me.
By putting aside one day in Fiji, probably holding an Indo-Africa summit at some point, even doing a tour of Latin America in a few years, Modi will keep adding to this new India narrative.
Some of this may have an immediate diplomatic benefit, as the world squares for another round of climate change negotiations. The South Pacific islanders, who face extinction, are hardliners against carbon emission won’t necessarily be won over by Modi’s climate change pitch. As Heyward-Jnnes notes, “climate change is an existential threat..its the one thing that unites them, even against their friends.” But hopefully they will at least understand where India comes from when it pushes hard against carbon pressures.
Prime Minister Narendra Modi shocked the international system when his government blackmailed the Doha round of the World Trade Organisation by saying, in effect, “give us a permanent food security solution or we will block the unrelated trade facilitation agreement (TFA).” Read more
Many Indians ask me how India can avoid a bloody nose if it cozies up to Japan. Some were surprised when Prime Minister Narendra Modi denounced some unname Asian country’s “expansionist” ways and said the continent could not have “18th century” ways of behaviour. “How can he expect China not to react badly?” I was asked. Read more
Those who have lived in Calcutta, it is likely they ran into red and yellow mini-buses declaring “Indo-Japani Gate” as one of their destinations. I have never seen the gate and am not even sure where it is, but it was a landmark well known to most in the city. Read more
Asia-Pacific is geopolitical shorthand these days for Sino-Japanese. At least that’s the impression I got while attending the 26th Asia-Pacific Roundtable of the Institute of Strategic and International Studies in Kuala Lumpur, Malaysia. Read more
The first three taxis I took in London this week were driven by South Asians — and they each provided an interesting sense of how India is perceived by its own diaspora and those of neighbouring states. Read more
I don’t know whether Narendra Modi will become prime minister — though I suspect so — and I don’t know whether he’s given much thought to foreign policy — my sense, is that he hasn’t beyond the economic dimension. Read more