With Donald Trump moving out of the White House, and Joe Biden set to reformulate US trade policy, Narendra Modi finds himself at a critical crossroads. Matthew Feargrieve explains why the Prime Minister of India will have a difficult path to tread in a post- Trump and post- RCEP world, and why the policy of Atmanirbhar Bharat - "self-reliant India"- is not the route to national prosperity.
They say a week is a long time in politics. So what a difference two weeks can make. On 3 November 2020 Joe Biden won the US Presidential election. On 15 November the Regional Comprehensive Economic Partnership (RCEP), a fifteen-nation Asia-Pacific trade deal, was signed. The signing ceremony was done remotely, of course, in these days of plague. But a key regional protagonist - India - was notably absent, both virtually and spiritually.
Fast-forward a few weeks, and the Prime Minister of India, Narendra Modi, finds himself at a critical crossroads. His bromance with Donald Trump ended on 3 November. As omens proliferate about the new President’s desire to reformulate US trade and foreign policy in a values-based way, in a departure from Trump’s ‘business is business’, strictly transactional, approach, Modi has now to recalibrate India’s relationship with the US.
And, with Trump’s anti-China rhetoric still ringing in our ears, India is now not included in (or should that be excluded from?) the RCEP, having been led out of the negotiating room by Prime Minister Modi. Just at a tipping-point, when Sino-American relations may be in for some ameliorating diplomacy.
True, Modi could hardly have helped the outcome of the US election. But the withdrawal of India from the RCEP is another matter. The proffered rationale resonated across many parts of the Indian political and financial spectrum. An internal drive to resist cheap Chinese imports was both easy and difficult to prosecute. Easy, because India imports US$75 billion of goods every year from China, so that big parts of Indian industry are dependent on China. And difficult, for precisely the same reason. Modi gambled, and cast his dice. India would not be part of the RCEP, so as to protect her from a deluge of cheap Chinese imports.
Since 2018, increased political pressure from China has undoubtedly exposed the fault lines in Modi’s personal world-view of India, resulting in a distinctly muddled foreign trade policy. In addition to the advancing tide of container loads of rupee-stretching goods made in China, there has been the ominous threat of amassed Chinese troops at the border. Not to mention the twenty Indian soldiers killed in the Galwan Valley. No wonder that the Prime Minister sought succour in the arms of Donald Trump.
At a psychologically subliminal level, however, Modi looked with deep reservations at the rest of the world, which was (and to some extent still is) in awe of China. And here we find the genesis of the policy of atmanirbhar bharat.
Almost as soon as these words had left the Prime Minister’s lips earlier this year, there was confusion as to the precise meaning intended to be conveyed. Several Ministers were quick to add qualifiers, pointing out that the intended sentiment was one of self-reliance, not self-containment or isolationism.
The associated mantra of ‘Make in India’ is similarly susceptible to misunderstanding, and the phrase has been subjected to some awkward attempts at clarification, which seem only to result in the expenditure of more words without any enhanced precision of meaning. So ‘Make in India’ has been elongated to ‘Make in India for the world’, which still leaves ambiguous her openness to bilateral foreign trade and foreign inward investment.
Perhaps this ambiguity is a deliberate, verbal sleight of hand on Modi’s part. This writer thinks not. It is the verbal manifestation of profoundly muddled thinking. The real meaning of atmanirbhar bharat has at times been obscure even to Modi himself. This confusion in turn manifests itself in labyrinthine policy twists that are entangling major international players, and just at a time when COVID is shifting the political and economical rationale of global supply chains away from China and towards centres with a lower cost base (politically and financially) like India.
Just when India, with its large workforce, could attract meaningful attention from foreign mega-corporations, its schizophrenic policy of ‘self-reliance’ kicks in. So we have reports of Amazon and Apple being frustrated by policy shifts. This frustration will only alienate foreign corporates, at a time when the Indian government should be doing everything to smooth the entry of these players into India.
Silicon Valley has been quick to notice India’s potential as a lower-cost, and less politically sensitive, alternative to China. Earlier this year, Apple announced its plans to shift some of its production lines from China to India, to cater to both export markets and India’s domestic demand. Other technology giants have steadily been building their presence in the country. India needs urgently to attract and consolidate inward investment by players such as these, and to be fearless in exploiting strategic advantage to be scored from any ideological resistance Biden may have to Big Tech.
Foreign companies like WhatsApp, Facebook and Amazon dominate the tech and social media market in India, and supply the most used apps in India. The Modi administration has to reconcile itself to a straightforward fact of life: that there is room both for foreign investors and for home-grown tech and fintech industries, which have so far proved remarkably adept at exploiting gaps left by the multi-nationals.
The Prime Minister and his Cabinet would do well to keep in mind the unassailable advantages that India enjoys as a receptacle for foreign investment, the primary ones being as follows:
1. her population of 1.4 billion, which accounts for 18% of the world’s total population;
2. her young population with its median age standing at just 28; the relative youth of the Indian people being one reason why the spread of COVID has not ravaged the country in quite the way that many health officials (and, admittedly, this writer, as his earlier blog testifies) had predicted; and
3. her workforce being the second largest in the world, after China’s, with growth predictions in the region of 200 million over the next 30 years so that, by 2050, it will have far surpassed China’s workforce in sheer size.
Complementing these advantages is the likely trajectory of education and urbanisation across the Indian subcontinent, both of which are trending upwards with a momentum that is expected to be sustained over the coming decade, dragging up average income and consumption levels too.
There are, of course, some growth inhibitors, a key one being the stagnation of India’s manufacturing sector. Reforms and investment in infrastructure are needed to boost the sector, increase efficiencies and create further jobs. Many of the foundations have already been laid, and the ‘Make in India’ initiative - if it takes root in practical action and not just in political rhetoric - is at least ideologically equipped to build a twenty-first century industrial economy on a reasonably strong footing.
Now, being outside the RCEP is not terminal for the Indian economy. And Prime Minister Modi has more things in common with Joe Biden than shared pride at the Indian heritage of Kamala Harris. Such as their mutual desire to counter China’s growing military might. Here, the CCP’s decision to deploy troops on India’s border, together with its adventurism in the South China Sea, may play into Modi’s hands. Mike Pompeo signed an intelligence-sharing treaty with India as recently as October, with China clearly in its sights.
Narendra Modi now has to grasp that India’s foreign policy objectives, in a post-RCEP and post-COVID era, are not really dissimilar from those of the US and the rest of the developed world. India has to look outwards, to realise through bilateral trade deals its potential as an industrial and tech base and also, more significantly, to realise its ability to join an international counterbalance to China’s global influence. India’s capacity in this regard is, happily, concomitant with its desire to be prosperous, to build its internal manufacturing base and to enjoy inward investment from overseas.
To face this crossroads and to take the right path is to take advantage of a unique opportunity to position India in a commercially robust stance towards China, one with which, fortunately, the rest of the developed world will be aligned. First, though, Modi must rid himself of the defensive mindset that begat atmanirbhar bharat. The US remains India’s best foreign ally, and President Biden will have no time for Modi’s semantic riddles and muddled foreign policy.