Harold Dickerson (LinkedIn):
With Secretary of State Hillary Clinton wrapping up her visit to India, would you characterize the visit as a positive one? Do you feel the visit will foster a stronger push to create closer U.S.-India relations?
Secretary Clinton’s visit was a step in the right direction. For a visit that was a last minute decision, the outcome seems to have been much better than anyone could have expected. Both parties seem to recognize that a healthy relationship is crucial at this time, and wouldn’t be possible without high level discussions from both governments. It also was a good way to find some common ground ahead of the U.S-India Strategic Dialogue coming up in June, especially in a year that has been chilly for the relations of both countries. For Secretary Clinton, it was also an astute move; she could prove to Indian policymakers that the U.S foreign policy apparatus still cared about relations with India, even at a time when Washington is unable to come to consensus on domestic issues, let alone complex foreign policy matters.
It was also a move to show that Washington was attempting to reduce its own complacency in regards to the U.S-India relationship. While India certainly hasn’t been the easiest partner at times, it just seems like Washington hasn’t fully understood how to approach India until recently. With the Iran nuclear crisis, the Obama administration looked as if they were expecting India to automatically follow Washington’s line against Tehran, which as we saw in India’s approach, it didn’t. India’s multifaceted diplomatic interests shape their overall Iran policy, especially considering the fact that the stakes are remarkably high for them. For Delhi, opposing Iran would have meant even higher energy prices, regional instability, and the potential that China could snap up discounted oil and a willing ally in one go. If anything, Secretary Clinton’s visit proved that Washington has finally learned a key lesson; the pivot to Asia will also need to account for the complex interests of America’s Asian partners. Working with India isn’t going to be like working with NATO allies and the approach has to be very flexible for anything to be accomplished.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
In regards to a stronger push, the visit itself wasn’t going to accomplish anything substantive, and it’s unrealistic to think that something “big” will be done this year to change that. Both governments are in gridlock, and the Obama administration isn’t going to waste time in an election year pursuing an ambitious trademark foreign policy achievement a la the India nuclear deal. Perhaps the meetings in June will reveal some smaller agreements in the realms of energy and security, but outside of that, we shouldn’t’ expect a massive initiative towards closer relations.
Jennifer Acre (LinkedIn):
India’s economy has been slowing lately if measured by GDP growth over the last several quarters. Do you feel India’s economy can pick up steam and continue its remarkable story of growth over the next few years? What challenges could hold India’s economy back?
There’s no doubt that there’s still a lot of potential in the Indian economy. It’s incredible that despite the headwinds from the Eurozone, high inflation and energy prices, and falling foreign demand, the Indian economy could still post above 6 percent GDP growth for 2012. The real question is how India wishes to proceed now that it’s clear that the blistering 8 percent to 9 percent GDP growth per year levels is both unsustainable and unattainable in this current economic environment.
While many wish that the government would use all of its policy levers to speed up growth, it’s unclear if that’s the best approach. Following the global financial crisis, the government did just that, and that method worked during a period of chaos. Having the government pull out the checkbook again and sign off on large fiscal stimuli just doesn’t seem prudent, and will only further spike inflation while not bringing the results that people are looking for. Even though Finance Minister Mukherjee’s recent budget did indicate reduced government spending, it was sparse on details and left a lot of questions in its wake.
Mukherjee did leave one key policy avenue open for the government in energy efficiency policy. As we’ve seen this year, one of the biggest drags on the Indian economy has been energy prices. It’s pushing the rapid increase in India’s current account deficit, squeezing domestic demand because consumers are spending more at the pump, and making India’s economy dependent on geopolitical whims. It’s also an issue where the government would be able to access existing avenues of financing, and scale up projects that are currently working. This would have the potential to increase India’s energy independence while fostering domestic industry and employment. Of course, it wouldn’t speed up growth in the short term (which is what many want), but it would be a fantastic option to secure sustainable growth in the medium to long term.
Another possible avenue would be through the liberalization of laws concerning foreign direct investment (FDI). The business community was hoping for a loosening of the regulations surrounding FDI, but the new taxes announced in this year’s budget definitely put a damper on expectations. In a weak rupee environment that has the potential to help exports, the government should be encouraging foreign businesses to invest in India, not creating disincentives through back taxes or superfluous regulations. The government still hasn’t provided details regarding these new laws, but allowing for easier FDI would be a positive move.
Thomas Hons (LinkedIn):
In one of your latest pieces in The Diplomat you explained“India’s 1991 near-bankruptcy left it at the whims of the (IMF) Fund, perhaps contributing to some of the biases that have reflected its policies so far.” In what ways does India’s past history with entities like the IMF guide its domestic economic policies as well it’s economic and trade policies abroad?
For policymakers, India’s 1991 near-bankruptcy and IMF bailout only justified a continued emphasis on organic, domestic growth that was not subject to the whims of foreign governments, or multinational institutions. For twenty years, policies were set to liberalize industries, but to ensure that further intervention that could compromise Indian sovereignty was prevented. It’s partially one of the reasons India is less reliant on an export heavy growth strategy, especially in comparison with China or South Korea.
The problem is that the India of 2012 is behaving like the India of 1991 through its nonintervention on matters of economic and trade significance. Two decades ago, India didn’t have to participate in debates of global significance because it was largely self-reliant. Today, India has to take part in global discussions on key issues like climate change, and international finance because it does impact the country’s domestic situation in nearly every shape and form. While the government may stand by non-intervention, the reality is that the 21st century’s power structure is being defined by the partnerships between governments, multinational institutions, and corporations, something that India’s government has not come to fully accept.
Danielle Unson (LinkedIn):
What role does Indian politics play in its current economic success? Do you feel the fractured nature of India’s current political makeup hampers India’s possible rise to possible great-power status?
Politics have been a component of India’s success story, but certainly not the reason for its modern day power. The 1991 liberalization was forced not because of political will, but because the country was literally brought to its knees due to poor economic conditions. Once the liberalizations began, a lot of the pent up domestic demand was finally released and businesses flourished accordingly.
While India will certainly exist as a major player in the international system, the greatest threat to its “great” power status is the levels of political and economic fragmentation seen today. The fragmentation in itself will hinder governance, and promote short-sighted policies that do little to address fundamental, long-term issues confronting the state. Ironically enough, the fragmentation is mostly a result of India’s unique economic experience following its liberalization. A lot of the income gains in the past two decades were captured in urban areas, with rural areas having improved but not nearly to the extent the cities have. The backlash from voters came in the most recent elections, which has contributed to the unique party breakdown that you see today in state legislatures. Of course, the government will have the urge to resort to heavy handed income redistribution, but that policy will be largely wasteful and do more harm than good. To ensure better unity and a more harmonized economic growth, the government will definitely have to pursue policies that promote international investment, while also building the incentives and means for rural citizens to have access and opportunity within education, health and job training.
Additionally, India’s great power status could be hindered by a narrow minded foreign policy apparatus. One major reform that will need to happen is the removal of non-alignment as a major strategic policy, which in itself does India no good in the present environment. India will need to also develop a strategic plan to address its involvement internationally, and perhaps develop a means to fast-track major international policies quickly. This is especially important because as we saw during the negotiations during the U.S-India nuclear deal, passing that type of meaningful foreign policy within the Lok Sabha was an arduous, difficult task. The government will need to find ways to hasten the decision making process, and come to terms with the new found economic and political power that it now has.