By Todd Royal
Prime Minister Narendra Modi is turning India into an economic powerhouse. This is why the United States (US) should make India the “special relationship,” in the Asian hemisphere similar to the one the US has with Britain. Modi came to office with great promise but faced difficult economic challenges. Growth had plummeted to 5.9% that was down from a 9-year average of 8.2% while inflation had averaged 9.7% for over two years. Corruption had also overtaken the outgoing government’s ability to complete large infrastructure projects and make structural reforms to the government and private sector that was constricting India’s ability to compete with China and other industrialized nations economically.
But New Delhi has succeeded by dropping inflation to 4.3% and growth has averaged 7.3% since Modi came to power in May 2014. Demonetization unleashed the young, vibrant, intelligent Indian worker powering this growth. Moreover, Modi replaced byzantine levels of central-and-state-level taxes with a single good and services tax (GST). These effective measures have introduced trust in the government’s handling of the economy and societal issues like never before in India’s modern history.
Taken together – long-term growth, prosperity and cultural enlightenment – are now the trajectory for India. And the US in many ways needs India every bit as much as India needs the US to check China and deliver high-tech goods and services the Indian economy desperately needs. Energy in this budding partnership is where both countries are seeing economic gains and geopolitical partnering by putting in a gradual program blocking Iranian oil to Indian refineries.
US Energy Secretary Rick Perry met with his Indian counterparts in April to enhance bilateral energy cooperation. Outside of military partnerships – energy, particularly, the US energy sector – is where the Trump administration is outlining benefits for both nations. Secretary Perry said, “India offers an ‘amazing opportunity’ on clean coal, carbon capture, cooperation in oil and gas power, and renewable energy.”
Perry also highlighted in the last three years how India increased oil imports of US crude from 300,000 to 8 million barrels, “and is a huge market for American energy products.”
But Perry’s comments about how the US could benefit from India in the area of nuclear energy investments and Indian brainpower was very interesting by stating: “If we don’t keep our ability to be a player in a technological sense, if we lose our ability to be a player in the nuclear power business, it’s going to have a long-term impact.”
Civil nuclear cooperation has been a backbone of US-India relations since 2006 under the George W. Bush administration. The cooperation expanded and under a 2016 deal, Westinghouse was committed to build six AP1000 reactors in Andhra Pradesh. Perry had to assure his Indian counterparts the reactors would be delivered since the US Company is emerging out of bankruptcy protection. Western governments and investors worldwide are noticing Modi’s economic plans are working and India is arguably one of the best emerging markets to do business with in the world using the US-India nuclear partnership as an example.
The World Bank Ease of Doing Business ranking for India went from 140 to 100 between 2014 and 2018. Modi can be credited for this success since it’s known he regularly attends and presides over meetings of senior staff member and ministries in charge of projects that affect India’s ability at efficient governance and economic progress. These government policies have brought relief to job applicants by streamlining the use of digital services to store diplomas and, 40 million poor rural households have replaced dirty wood-and-coal-burning stoves with clean liquid petroleum gas instead.
But it’s the fight against corruption being brought under control since demonetization took place on November 8, 2016 that is changing India’s future. This move by Modi ended the legal status of 500 to 1,000 rupee notes immediately while also “temporarily wiping out 86% of the nation’s currency in circulation.” While negative sentiments over the policy abound – like black market currency finding its way back into the Indian economy – the positives have outweighed the perceived injustices that were thought to have taken place.
India’s banking sector has also closed hundreds of thousands of shell companies, disqualified an equal number of company directors and demonetization, “led to a 25% decline in the value of real estate eroding a substantial amount of black wealth held in building and structures.” Modi has shown Indian citizens, the US and international investors that New Delhi by increasing income taxpayers and flagging illegal transactions. Demonetization has eroded the ability of frauds, cheats and crooks to keep gaming the Indian economy.
Efficiency under Modi has improved by replacing the Indian Planning Commission with the more modern National Institution for Transforming India (NITI). The NITI is a governmental institution that actively promotes Modi’s market-friendly agenda. This allows New Delhi and outer Indian states to work together and seek one another’s advice formulating sound economic policies.
Three other “special projects are worth mentioning. First, biometric cards ( the Aadhaar government ID program) issued to all Indian residents, “for a strong digital identity scheme affecting banks, payments, security, compliance and financial inclusion – and is already seeing results.” Second, Pradhan Mantri Jan Dhan Yojana (PMJDY), Modi’s People’s Wealth Scheme, “which is a government program that aims to expand and make affordable access to financial services such as bank accounts, remittances, credit, insurance and pensions in an affordable manner.” Both programs are controversial, but these policies have brought over one billion citizens into government-assured banking services. Lastly, toilets are being built throughout India via the Swachh Bharat Mission – to curb and eliminate open-air defecation – and clean up India’s cities, towns and rural areas.
Modi’s other “structural reforms,” include:
“Deregulation of gasoline and diesel prices, further opening to foreign direct investment (FDI), greater labor-market flexibility, shifting to Direct Benefit Transfers (DBT), Goods and Services Tax (GST) and the Insolvency Bankruptcy Code (IBC) producing bankruptcy law.”
For all Modi’s accomplishments there are still obstacles to overcome. International trade is still falling short over Indian tariffs and trade barriers in textiles and apparel, which slows growth through lukewarm investments in those sectors. Additionally, over 45% of India’s workforce remains in agriculture, which is a sign of an un-mature economy that needs that high of a percentage of its citizenry in low productive employment. But India has the ability and the wherewithal under Modi to expand global exports and overcome these obstacles.
The US needs to understand that Modi is the leader they are searching for to balance China using the classic realist model of soft and hard power that India offers. Especially, the soft power that Modi embodies by not opposing economic globalization and the incredible progress made by his government the past four years. Many of these soft power economic policies may not yield results this year but in the long run have a valuable impact to India, the US and balancing China’s Asian hegemonic reach. Acceleration in prosperity for India is the best way for the US to continue being a global leader through supporting Modi’s economic reforms and ability to balance China in the Indian Ocean, Central and Southeast Asia.
*Todd Royal, M.P.P. is the Managing Partner for Energy development, Oil & Gas, and Renewables for Ascendance Strategies, a global threat assessment and political consulting firm that is based in Los Angeles, California