It would be myopic to judge the economic impact of US President Barack Obama’s visit by the number of billions committed in investment, in our view. In free-market economies, governments have limited control over business investments: business leaders are of course part of the travelling contingent, but their decisions are unaffected by what the political leadership desires. In particular, if a business case exists for an investment, businesses are unlikely to hold back and wait, particularly for events centred around hurriedly set-up trips like on India’s Republic Day.
The government’s control is limited to sensitive areas such as defence production, nuclear energy and climate change, where geopolitical and legal issues still matter. On these, there was clear progress, even if it was only about both sides showing the willingness to step away from their long-held positions (for example, on the thorny civil nuclear liability issue). On defence production, an important domestic policy thrust for the Indian government, particularly from the “Make in India” perspective, the Defence Technology and Trade Initiative was a step forward, including an agreement to facilitate cooperation in defence research and development. The two governments reiterated their commitment to work together to achieve a successful agreement at the coming climate conference in Paris.
While it should not surprise anyone that the US government has a limited presence in most economic sectors, one should not also forget that the Indian government’s direct role in the economy (outside of policymaking) has also been shrinking rapidly. It was, therefore, natural that other issues of common interest, such as intellectual property rights (IPR) and “totalisation” (to avoid double taxation of income with respect to social security taxes), were discussed by business leaders from both sides.
But if one starts listing specific areas of progress, one risks missing the wood for the trees. Leaders of large economies must master change management on a gargantuan scale, and effective use of the “bully pulpit” is as basic as it gets.
Take, for example, “Make in India”. Economists and business leaders have been highlighting its importance for decades, but once the prime minister says it, the world sits up and takes notice. The foreign media starts discussing it, global business leaders notice something has changed and begin to talk about what it means for their businesses and institutional investors start asking questions on how to invest in this theme. It was only when foreign investors started asking for the best investment ideas on “Make in India” and we struggled to find direct pure-play beneficiaries that the power of the “bully pulpit” dawned on us. As any good salesman knows, getting the customer to the shop is a battle half-won: she is very likely to end up buying something or, in this case, investing in something.
Similarly, irrespective of the commentary around Obama exposing himself to Delhi’s heavily polluted air or breaking his own security protocol to sit in the open for two hours, his trip was a message — that the two countries are getting closer. Coverage of his trip back home, un-hyphenated with Pakistan, and focusing completely on finding ways to engage on a range of issues, should have done a lot more to make prospective investors become comfortable with India than many agreements would.
The list of events and conferences in the period between the September summit and the current one reflects the large opportunity that exists on multiple fronts. To name just a few: An agreement in November between the Indian Renewable Energy Development Agency and the Export-Import Bank of the United States to create a fund for renewable energy projects; expanding the Partnership to Advance Clean Energy Research and Deployment for five years; the upcoming Isro-Nasa summit for cooperation on space research in the coming week; and a smart cities conclave in November that selected the three Indian cities of Ajmer, Allahabad and Visakhapatnam as pilots.
The economic impact of the trip should thus be better understood several months or years down the line than right now. But it looks like a great start.
The writer is head of Equity Strategy India, Credit Suisse