Don't Underestimate India's Cunning Narendra Modi





With Prime Minister Narendra Modi’s state visit to Washington this week, many Americans were made aware for the first time of the gregariousness of the Indian leader who took the reins in Delhi in May 2014.  But not in terms of the energy he has poured into, and the successes generated from, his initial programmatic reforms of the economy of the world’s second most populous country, indeed an economy whose growth rate has been exceeding that of China.  Rather, the conventional press headlines and photos of the visit centered on what seemed to be a frivolous big bear hug Modi gave to U.S. President Donald Trump.
 

In fact, the bear hug shocked the U.S. President, ironically in the same way are people whose hands Trump initially shakes in conventional fashion but are then pulled into Trump’s clutches up close and personal. Modi gave Trump a taste of his own medicine.
And, then Modi caught Trump even more off guard in their substantive discussions by deliberately not tabling at all the issue of moves by the U.S. to clamp down on H1 visas, which control the flow of Indian (and other foreign) workers for jobs with firms on U.S. soil.  Nor did Modi raise his displeasure with the U.S. administration’s backing out of the Paris global warming accord. Trump and his team—ready to pounce on Modi at his very mention of these issues—were left scratching their heads.

In my book, it was smart for Modi to keep this White House on its toes. The starkly different positions on the H1 visa and climate change issues were well-known on both sides and nothing would have been gained by Modi to mention them in this setting. There were only downside risks.  Instead, it allowed Modi to create an environment for his non-governmental meetings with U.S. businesses and investors—usually the most important part of state visits anyhow—where the stellar performance of the Indian economy could speak for itself.
 

But don’t let Modi’s conduct at the White House fool you.  They were not frivolous; nor is he.  He knows full well that his work is cut out for him in trying to overhaul a supremely complex, multi-layered, and largely still ossified economy that has not been subjected to any serious systemic reform by an Indian leader during our lifetimes.

Like the bear hug in Washington, at home Modi has made some clever premeditated and sometimes deliberately unanticipated economic policy moves during his short time in office.  He has also been developing a blueprint that if well-executed could arguably begin to fundamentally modernize the Indian economy. But realistically this is a big “if”, especially in light of a slothy, shadowy and highly protectionist parliament that is decades out of date with today’s global economy, yet which with Modi will have to deal to get reform legislation passed.
 

There is little question that India has experienced a high annual growth rate in real GDP during the time Modi has been in office: the country’s growth rate rose from 6.5% in 2013 to 7.9% in 2015, although growth slowed to 6.8% in 2016.  However, the IMF projects India’s GDP growth to rebound to 7.2% in 2017 and increase further to 7.7% in 2018.  In contrast, China’s GDP growth in real terms fell from 7.8% in 2013 to 6.9% in 2015, further decreased to 6.7% in 2016, and is projected by the IMF to register an additional decline to 6.6% in 2017, and fall even further to 6.2% in 2018.  These data show why India is regularly referred to as a faster grower than China.

To be sure, part of India’s economic performance reflects the country benefitting from low world oil prices.  After all, India imports about 80% of its crude oil needs.  (China, which imports about 65% of its crude oil needs, also has had its growth buoyed by cheap oil.)

@uptimistpeters

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