TEN years ago, as chief minister of Gujarat, Narendra Modi had been on course to attend the summit of the global business and political elite at the World Economic Forum (WEF) in the Swiss ski resort of Davos. The previous year, months before the end of his first term as chief minister, he had been at the annual meeting of Champions organised by the WEF in September 2007 in the Chinese port city of Dalian, projecting Gujarat as India’s Special Economic Zone. There, he spoke on “entrepreneurship and why culture matters”. This was before the Wall Street collapse, a time when global focus was on growth hotspots such as India. A phase when Modi was hardselling his state to investors across the world. But in the run-up to the 2008 WEF in Davos, protests by a group of people in the US and later polls in Gujarat — which saw him return to power — derailed that plan.
As he leaves for Davos on Monday, the significance of his visit — 20 years after an Indian Prime Minister last went there — is, therefore, not only linked to his own political journey but also to the dramatic changes in the way the world views the Indian economy. Unlike the last Indian PM to have visited Davos, H D Deve Gowda in 1997, who struggled to manage a weak coalition and whose interest in economic issues was known to be limited, Modi heads a far stronger government with an economy which — even after a less-than-projected growth of 6.5 per cent in fiscal 2017-18 — is still perceived by overseas investors as a growth hotspot, having attracted record flows of foreign funds, especially in 2017. OPINION: Is PM not aware that real jobs will only come when Indian entrepreneurs are persuaded to invest in new businesses?
With a GDP of over $1.3 trillion, India is now in the big league of the fastest-growing economies — with the World Bank forecasting that India will outstrip China in growth this year. All that aside, the global stage in Davos on opening day comes exactly a week before what will be this government’s last full budget ahead of national polls in 2019.
Investors who have poured money into Indian stocks and debt will look for cues — such as staying on the course on fiscal consolidation, spending on infrastructure and what they see as freebies in a year which will be marked by polls in five states. That’s why this Davos engagement will be very different from the ones the PM has had in the past — be it the G-20, or meetings of the ASEAN or other groupings.
This edition of the WEF, the 48th, with the theme ‘Creating a shared future in a fractured world’, features a roster of heavyweights from among the global political elite — starting with the surprise announcement that US President Donald Trump would attend, there will be French President Emmanuel Macron, British PM Theresa May, Canadian PM Justin Trudeau, besides Pakistan PM Shahid Khaqan Abbasi.
Modi’s session, coming as it does a year after Chinese President Xi Jinping spoke about a new liberal global economic order at Davos, is bound to draw comparisons. That appearance, the first by a Chinese head of state, was a huge draw at the forum, which attracts over 2,000 participants from over 100 countries. “No one will emerge as a winner in a trade war,” Xi had said just days after Trump, who had advocated America First, was sworn in. Xi sought to make out a case against protectionism, saying that it was “locking oneself in the hope of protecting oneself from danger, but in doing so, cutting off all light and air”. WEF founder Klaus Schwab had said that in a time marked by uncertainity and volatility, the world was looking at China.
Since then, there has been a synchronised global recovery, with stocks at a record high after the 2008 financial crisis and with global central banks led by the US Federal Reserve set to raise interest rates this year.
Modi, who arrives on January 22, will be delivering the keynote address at the plenary session the next day. The messaging by the PM to a global audience also comes after two disruptive moves in over a year — the ban on high-value notes in November 2016, followed by the launch of the Goods and Service Tax in July last year. The economy now appears to be slowly shaking off the disruptive effects of those moves and most forecasts paint a picture of growth at a higher clip in 2018-19, the last year before the NDA government’s term ends in May 2019.
What has started to worry economists and investors now is the prospect of the government missing its fiscal deficit target of 3.2 per cent of GDP for this year, given the below-par growth and expenditure and the fact that it will no longer have the bonanza of low crude oil prices — now heading closer to $70 a barrel — which it cashed in on for a good part of its over three years. Last week’s announcement by the government to cut its borrowing from an earlier estimated Rs 50,000 crore to just Rs 20,000 crore was greeted by investors, with the Sensex topping the 35,000 mark.
Interestingly, few had pinned hopes on the United Front Government in 1997 when Deve Gowda and his finance minister, P Chidambaram, engaged with investors in Davos. Gowda, who had gone with his family members, had left much of the talking to Chidambaram, and India was not high on the radar of global investors at the time. Yet, days later, the Gowda government budget had surprised many, with dramatic and deep cuts in income tax rates; cutting of corporate tax rate to 35 per cent; and slashing of peak Customs duty from 50 per cent to 40 per cent; besides many other changes and reform measures.
That government “went for broke”, with nothing much to lose, as Chidambaram once said. Whether Modi will signal that his government, too, will go the extra mile this time in pushing the economic and growth envelope is what the bets are on now — both at home and in Davos.