Monday, Sep 15, 2014

The Modi breakpoint

Creating jobs so that India’s demographic dividend can be realised requires a focus on skills development. Here, too, there are hopes that the UK’s experience can be shared. Creating jobs so that India’s demographic dividend can be realised requires a focus on skills development. Here, too, there are hopes that the UK’s experience can be shared.
Written by Gareth Price | Posted: June 5, 2014 12:08 am | Updated: June 5, 2014 8:05 am

He is viewed with excitement and anxiety in UK, but is unlikely to prioritise Europe.

Narendra Modi’s remarkable win for the BJP will undoubtedly alter the course of Indian politics. The BJP successfully tapped into popular frustration stemming from the lack of coordinated policymaking and the multiple corruption scandals by promising a stronger, more coherent government. His message would seem to have particularly appealed to younger voters. Over the past two decades India’s economic success and more recent slowdown have been overseen by coalitions. Modi is now in a position to streamline ministries to encourage coherence. All of his public statements suggest his intention to improve governance and service delivery, both of which have been affected by the need to manage disparate coalitions.

For countries such as the UK, which want to build their trade and investment ties with India, these moves will be welcome. Poor governance is frequently cited as an impediment to doing business. The largest foreign investments in India have been by British firms, and better governance — coupled with rising expectations — is likely to lead to higher economic growth. Modi is in a position to take some of the more difficult decisions that successive governments have dodged on account of the interests of smaller coalition partners.

On the domestic front, observers are keenly watching whether he may try and reform areas such as labour law. For foreign investment, the expectation is that liberalisation will continue on a sector-by-sector basis, based on Indian needs. Questions remain over whether foreign investment caps in insurance will be lifted, but there is greater hope for the defence sector.

The UK has, and will continue to, work on building links between its Indian-origin population and India. Further, there is widespread support for Modi, and the BJP in general, among the Gujarati section of the Indian diaspora in the UK.

Expectation management may well be a key challenge for the new administration. In large part, the BJP swept to power on the hope that it will change the tone of politics. While corruption is unlikely to disappear overnight, if Modi surrounds himself with clean and competent ministers, it could send a positive signal to those further down. But India is a complex federation and there are clear limits to what the Central government can achieve. Even though it has a majority in the Lower House, the BJP is well short of a majority in the Upper House. And India’s challenges are significant. Creating jobs so that India’s demographic dividend can be realised requires a focus on skills development. Here, too, there are hopes that the UK’s experience — in certifying skills, for instance, can be shared with India.

Despite the relatively positive mood of many in the UK that the new government will bring India potentially brighter economic prospects, questions remain. First, the new government seems likely to prioritise domestic issues. India’s foreign policy is likely to be focused on India’s neighbourhood. With Nawaz Sharif being the first Pakistani prime minister to attend the swearing in ceremony of an Indian prime minister, the initial signs are positive. China will be on Modi’s radar, both for the economic opportunities it presents and for strategic issues such as border disputes.

The new government is likely to follow the Gujarat model, seeking investment in infrastructure. Here, Modi is likely to look east, to countries such as Japan, Korea and Australia, and even China. Western Europe is unlikely to be a priority. If his first visit is to Japan, this would reinforce its growing importance to India — as a strategic partner and a significant investor.

What implications does this have for the West, and the UK in particular? Modi represents a break from the legacy of Congress rule. Unlike many Congress leaders, he was not educated in the UK. And while he may not bear a grudge, intuitively, he would seem less likely to prioritise those countries that refused to grant him a visa following the Gujarat riots.

In the UK, questions are also being asked about the social implications of a BJP-majority government and the ability of Modi to balance the agenda of good governance and social cohesion. Those concerns will only subside or worsen as the government’s actions unfold, particularly on events relating to communal tension or violence.

British observers of the Indian elections probably view Modi’s rise to power in much the same way as many Indians: an exciting prospect for the hope of economic reform, but with anxiety over the consequences of how that might be achieved. India had long been relegated to the “era of coalition politics” — now, for the first time in decades, there is potential for a different kind of decision-making.

The writer is senior research fellow, Asia Programme at Chatham House, London
express@expressindia.com

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