Modi has made India much stronger than what it otherwise would have been.
Shekhar Gupta, in his ‘National Interest’ column (ThePrint, 30 June 2018) says that “India’s foreign relations are in tatters and the Modi government has only itself to blame”.
Surprisingly, despite writing that the Modi government “only” has itself to blame in the headline, he goes on to write, and accurately so, that “two external negatives were not the Modi government’s fault: The rise of Trump and a new Chinese assertion”. So yes, the behaviour of the two most powerful countries in the world have changed significantly, but still the Indian government has only itself to blame for foreign policy volatility! It is like saying “Other than that, Mrs Lincoln, how was the play?”
Now, one understands the need for some masala in headlines. Columnists often send in nuanced titles, but editors and publishers occasionally spike them to get eyeballs. Yet, as the editor himself, Shekhar has “only” himself to blame here! More seriously, Shekhar gets almost all issues wrong in the piece – America, China, defence policy, economics and geo-economics – the marriage of economics and geopolitics – which includes trade issues. Also, after decades of complaints about India punching below its weight, it was reassuring to hear someone talking about India consistently punching above her weight, even if Shekhar disapproved of it. That is change we can live with.
The geopolitical aspect
Shekhar begins by mentioning the repeated postponement of the ‘two-plus-two’ high level talks between India and the United States, and uses that as one of his pegs to show India’s diminishing influence under Modi of late. It is true that some say rather defensively that the talks were genuinely delayed both times: because Secretary of State Rex Tillerson was on his way out the first time and perhaps because of an urgent North Korean or Russian meeting this time. These reasons may be correct, but Indo-US relations have indeed been going through a rough patch in recent times.
However, what is the benchmark? Let us consider America’s closest partners, the ‘Five Eyes’ – the other four being the UK, Canada, Australia and New Zealand. Unparalleled intelligence sharing, the bonds of white, Protestant identity (an identification that Trump certainly does not discard) and an English-speaking democratic culture tie these countries together.
Trump apparently compared UK PM Theresa May to a “school mistress”, and refused formal talks with her during the latest G7 summit.
Yet, the US President was not above insulting Australian PM Malcolm Turnbull in January 2017, and Canadian PM Justin Trudeau last month. Trump apparently compared UK PM Theresa May to a “school mistress”, and refused formal talks with her during the latest G7 summit. The Kiwis can only heave a sigh of relief that they are insignificant – else their PM Jacinda Ardern, who just gave birth to a baby girl, would have been mocked as well.
Then there is Trump’s very negative view about NATO and the European Union. Many of these folks have spent blood and treasure with the Americans over decades, and yet we see such discord, even as a revanchist Russia and authoritarian China rise, so pardon me for not being too worried if Trump’s warmth towards India is not, to quote his favourite word, “tremendous”.
Trump has repeatedly unloaded on China as well, both before and after his election. The only major country he has not tongue-lashed to that extent is Russia; whether it is because he wants to do a ‘reverse Nixon’, i.e. use Russia against China, or because of his racial illiberal sympathies, or because he somehow owes Putin – the exact combination is up for speculation. This is not to say that Trump does not have any method whatsoever in his madness. One can do worse than reading Peter Zeihan’s two books (‘The Accidental Superpower’ and ‘The Absent Superpower’) to better understand the drivers of this neo-isolationism.
While Trump was responsible for India’s Iran troubles, the US Congress is responsible for our Russia wrinkles
While Trump was responsible for India’s Iran troubles, the US Congress is responsible for our Russia wrinkles – though Modi has done the right thing to go ahead with the S-400 acquisitions; the US will blink on this one.
Yes, the Nuclear Suppliers Group entry remains – but getting into the other high-tech clubs is a big achievement (China is not a member of the Missile Technology Control Regime; India is). Plus, India, after having uniquely signed a bespoke military logistics pact with the US in 2016, is now negotiating a similar communications agreement. There is no reason to be sure that a UPA government would have gone ahead with these agreements.
Remember, such progress has happened under an Indian leader who was earlier denied a US visa – Modi clearly did not let his ego come in the way of the national interest, as he saw it.
These Indo-US agreements will accelerate our decline in dependence on Russian hardware, though the final goal is and must be self-reliance and indeed defence exports. However, that takes time – and it is incongruent to blame Modi for that; no one before has emphasised an indigenous military-industrial ecosystem so clearly. Then to mention military pension expenditure is a low blow when this government finally gave the armed forces ‘One Rank, One Pension’ benefits after decades. Yes, the defence budget needs to go up faster. Indeed, Modi’s first term has focussed on expanding fiscal capacity and fixing long-term growth prospects; more on that in a bit.
The economics of it
On trade, the idea that Modi giving in on a few motorbike tariffs and a couple of healthcare issues would have satiated Trump is not necessarily true. Given the intrinsic nature of bullying and India’s trade surplus with the US, we could have faced even more demands. When even formal US allies are using retaliatory tariffs as a negotiating tool, India would have looked especially weak to not hit back at all. Otherwise, many would have next alleged Modi’s weakness in front of Trump.
More broadly, the “economic nationalism” that Shekhar talks about is an ambiguous term. From Hamilton, Clay and the other Freidrich (List, not Hayek) earlier to Princeton’s Atul Kohli, Cambridge’s Ha-Joon Chang and others today, many have noted the importance of having an internal free market of sorts, maybe a high-level financial-industrial policy and hard plus soft infrastructure investments combined with some tariffs to grow before fully opening up. The West has been perhaps cynically “kicking away the ladder” by forcing others to embrace zero tariffs, full intellectual property protections and unregulated financial flows on day one. If you take out the kooky conspiracies of the Far Right, and the nationalisation plus licencing dreams of the Far Left, the Clay-Hamilton approach is what a pro-growth, pro-business and yet pro-market “Swadeshi” strategy may well look like.
Indeed, Modi has done just that. By improving the ease of doing business, reducing high-level corruption, marginally increasing tariffs, opening sectors for investment and exploiting the scale of our market, he has incentivised more manufacturing within India when it comes to electronics and other sectors. Demonetisation and GST have helped tax collections, and the slowdown in growth preceded these steps, though it has bounced back handsomely. Real estate and other sectors are being formalised, deficits controlled, welfare leaks reduced, and a hawk was appointed Raghuram Rajan’s replacement as Reserve Bank of India governor with an inflation targeting mandate – all courageous steps. I have explained more fully in my article ‘Short-term pain, long-term gain: The five arrows of Modinomics’ (Swarajya, 3 September 2017).
The fact remains that Modi stared down Xi Jinping in the Doklam crisis, partially because of which the US Defence Secretary James Mattis could not stop praising Modi at the Shangri La dialogue this year.
Even as India has overtaken China in growth, every year China adds more heft in terms of dollar GDP increments, though this too will change. In the last decade, capability gaps have zoomed. Yet, the fact remains that Modi stared down Xi Jinping in the Doklam crisis, partially because of which the US Defence Secretary James Mattis could not stop praising Modi at the Shangri La dialogue this year.
And about India protesting the China-Pakistan Economic Corridor through Pakistan-occupied Kashmir, India has still not signed up for the One Belt, One Road initiative despite enormous Chinese pressure.
Yes, Pakistan has grown more reliant on China – but despite the surgical strikes across the LoC, there are no terrorist attacks in Indian cities as we had morbidly grown used to during the UPA years. Pakistan has been put on the FATF grey list again, Sri Lanka has denied military presence to China in Hambantota, and Bangladesh is being integrated into the Indian economy.
I will end by saying that on one point, I could not agree more with Shekhar – it is indeed time to take a deep breath and introspect.
The author is a fund manager, and co-founder of the India Enterprise Council. He tweets @harshmadhusudan