Tying Foreign Policy to a Robust Economy

A country needs to set its finces in order if it wishes to be respected abroad. A strong foreign policy therefore starts at home. As Prime Minister rendra Modi tightens his grip on foreign policy with this guiding principle, the focus shifts to the country’s economy. This is where some encouraging trends are emerging, as brought out by the IMF and the World Bank in their latest reports. Unless India falters in its drive to reform, it may just nose ahead of Chi to become the world’s fastest growing economy in two years. After a slow economic recovery in the current fiscal, the country’s growth rate is projected to clock 7 per cent by 2017. The upturn is coming after a period of high inflation and slack domestic investment amidst widespread perception of policy paralysis at the Centre. While the Modi government has begun rolling out measures to lift domestic market sentiment, exterl factors are helping too. Global oil prices are down, remittances from NRIs higher and India exports are recovering. All eyes are therefore on the forthcoming budget — whether it will unveil incremental or big–bang reforms. As Fince minister Arun Jaitley gets down to his budget making exercise, there is much speculation about what he will do to create jobs and ratiolise subsidies, which sectors he will open up for more foreign direct investment, and whether he will at last introduce the goods and services tax (GST). With the Modi government lacking a majority in the Rajya Sabha, much depends on its ability to keep out divisive agendas and take the Opposition along. This will require political confidence building, dented somewhat by the ordince route the Modi government recently took to pass proposals like amending insurance laws to raise foreign investment limit to 49 per cent in insurance companies.

As the dust settles after the US President’s high profile visit to India, the Modi government has shown that it is no longer diffident in pursuing its interest for a closer economic and strategic partnership between the two democracies. India’s non–aligned status in the Cold War days is thus becoming a footnote in its history. Prime Minister Modi has been at pains to emphasise that the country has to develop its world–view to align with its own interests. The unprecedented invitation to SAARC leaders to his iuguration, followed by meetings with leaders of US, Chi, Russia, Japan and Australia, along with the ‘Act East’ policy directed towards ASEAN tions — have gradually revealed his agenda. Now the US is offering to back India’s membership in the Asia–Pacific Economic Cooperation forum, which can take its foreign trade trade to another dimension. In the three bilateral documents released during President Obama’s visit, the resolution was made to promote Indo–US synergy in the entire Asia–Pacific and Indian Ocean regions, that the two countries will be pro–active ‘from Africa to East Asia’. With India facing security threats from Chinese incursions into Ladakh and Aruchal, Pakistani belligerence along the Line of Control in Kashmir, and the expansion of Al Qaeda and ISIS activities into its territory – Prime Minister Modi’s efforts for closer ties with the US assume particular significance. This dovetails perfectly with Washington’s diplomacy to contain Chi’s growing power, coordite its withdrawal from Afghanistan and maintain maritime security in Asia.

Having begun its pro–US tilt, the Modi government is also gearing up for another round of engagement with Chi. Exterl Affairs Minister Sushma Swaraj is already in Beijing, and Prime Minister Modi is likely to follow by the end of this year. India is already a participating tion in the Regiol Comprehensive Economic Partnership agreement promoted by Chi. This brings us back to the IMF and World Bank’s latest projection about the Chinese economy. The Red Dragon’s growth rate may begin to taper off to 6.9 per cent by 2017, even though that would still be substantial considering its wide base. Some economists believe that Chi is slowly falling into the demographic trap, while India’s working population is still increasing. Overall, the global economy is expected to grow by 3.7 per cent next year, with low crude prices providing some relief but weak investment climate continuing to be the bane. Apart from the US and the UK, there is not much growth in the developed world with the Euro zone languishing. In the BRICS grouping, Russia, Brazil and South Africa are not doing well; only Chi and India are contributing to its growth. If India gets its act together on the economic front, it may at last begin to pull its weight in the intertiol are. But it needs to deal with powerful tions and blocs on its own terms, with its own interests firmly in sight.