Mr Modi’s World

Nahendra Modi is the first Indian Prime Minister who came to power with the explicit objective of claiming India’s place amongst the world’s great powers. He was determined from the outset to put diplomacy to the service of India’s economic development, to strengthen ties between India’s increasingly influential diaspora and the motherland, and to take India’s foreign policy in a new direction – less defensive and more assertive, as befits a great power with global ambition[i]. This involves, amongst other things, a build-up in India’s armed forces.

Coming to power in May 2014 as the first Indian leader of a majority government in three decades, he had unusual political authority and acted quickly to restore the diplomatic momentum that was lost in the second term of the UPA government of Manmohan Singh. From the first he sought to warm up relations with America, to end the deadlock with Pakistan and China, to sustain the old friendship with Russia which goes back to the Cold War (Russia is still a major arms supplier) and to deepen the economic partnerships with Japan and Australia. In addition, he boosted India’s neighbourhood policy – that is relations with the small states of the Himalaya and of the Indian Ocean and set out to reconnect with India’s diaspora – especially those in the USA, Canada, Australia and Britain.

For the first 42 years of India’s independence (from 1947-89) Indian politics was defined by three things. First was the ascendency of the Congress Party under the Nehru dynasty (Jawaharlal Nehru, his daughter Indira Ghandi and her son Rajiv Ghandi) – except for 1977-80 when an anti-Congress coalition gained power after the excesses of Mrs Ghandi’s “Emergency”. Second was the quest for economic autarchy through state socialism. And third was a foreign policy based on the principal of “non-alignment”, which in practise meant cosy relations with the Soviet Union, frosty relations with China (with which India had a war in 1962) and scorn for the post-colonialist West.

All this came into question with the fall of the Soviet Union in 1991. By this time it was glaringly apparent that the old economic order was failing to deliver and that other Asian nations were leagues ahead of India in terms of economic development. The 1989 elections had already reduced Congress to a minority in the Lok Sabha, and no party regained a parliamentary majority until Mr Modi’s BJP did so in 2014. A long period of coalition government shifted the emphasis of economic policy towards export-led growth. Over this period, sometimes called the Second Republic, India opened itself up both economically and diplomatically. Breakthroughs were achieved in the previously dire relations with China, the USA and Pakistan (though the Kashmir issue simmers on). But it was only with Mr Modi’s accession in 2014 that India became the active partner in animating relations with those three powers.

With Barack Obama’s visit to India in January 2015 as the guest of honour at India’s Republic Day parade, India and the US became as good as military allies. There was a raft of accords covering everything from the transfer of American nuclear technology to bilateral trade relations. The US-India Investment Treaty was designed to stimulate long-term investment in infrastructure and manufacturing. The 2015 level of US-India trade of around US$100 billion per year is targeted to rise to US$500 billion by the end of the decade. Moreover, India and the US pledged to work together on such joint concerns as intellectual property, cyber-security, climate change (both Obama and Modi are persuaded that this is a top-priority), and, of course, Islamist terrorism, especially in so far as Afghanistan is concerned.

As for Pakistan, Mr Modi has made it clear that Kashmir is a purely bilateral matter between India and Pakistan and that he is not prepared to negotiate with terrorists. Several rounds of “cricket diplomacy” have resulted in reduced levels of tension, though a lasting settlement to the border dispute is still far off.

Boundary disputes have also marred Indo-Chinese relations. These disputes have been managed rather than resolved. But the Indians realise that they must do business with their gigantic northern neighbour, the world’s second largest economy. Delhi found it hard to disguise its defensiveness regarding the New Silk Road – the Chinese proposal for the so-called BCIM Corridor that will integrate India’s north eastern provinces (principally Arunachal Pradesh and Assam) with Bangladesh, Myanmar and China’s Yunnan province. And Delhi is even more suspicious of China’s invitation to join the proposed new Maritime Silk Route between the Indian Ocean (India’s backyard) and the Pacific Ocean.

China is also upgrading the Karakoram Highway which links Kashgar in China’s most westerly province, Xinjiang, with Pakistan’s Northern provinces. The dream is to construct a highway that will connect Western China to the ports of the Arabian Sea. India has had therefore to reappraise its historic view of the Great Himalaya as an impenetrable protective barrier, her own version of China’s great wall, and to promote her own plans for regional connectivity. Indeed, India’s developing response to the rise of China, economically and militarily, will be the major theme of its diplomatic agenda for the foreseeable future. While now enjoying cordial relations with America, India will still flirt with Russia and with the other emerging regional power, Iran, where she sees that she can advance her interests by so doing.

Mr Modi has also acted to patch up relations with Australia, which India previously regarded as too close to America. Through assiduous courting by both sides, bilateral relations are now flourishing. Australia has resumed shipping uranium to India for civil nuclear purposes while more and more young Indians head for universities down-under (much to the chagrin of the UK tertiary education sector!).

As I have written elsewhere, India has a great deal of catching up to do before she can rival China head-on. But with India growing now at eight percent and China at “only” six percent, the catch-up has begun.

What are investors to make of all this diplomatic activity – the swan serenely gliding over the water while its little webbed feet work like crazy underneath? I believe that all of these developments point to greater “connectivity” between India and her neighbours – highways, bridges, railways, airports and the utilities that support them. Mr Modi has already unveiled an ambitious infrastructure programme, including a bullet train network using Japanese technology to link the great commercial cities of Delhi, Mumbai, Kolkata and Chennai.

One India Fund with an infrastructure and information technology bias is the Neptune India Fund (MUTF_GB:NEPT_INDI_C_1384PWG)[ii], run by Kunal Desai out of London, which has £76.8 million of funds under management.

Mr Modi is likely to be around for some time to come. If Mahatma Ghandi will always be the Father of the Nation, Mr Modi could yet go down in history as the man under whose leadership India joined the great powers.

[i] See Modi’s World: Expanding India’s Sphere of Influence by C Raja Mohan, Harper Collins India, 2015.  C Raja Mohan has been the foreign affairs correspondent for The Indian Express since 2004.

[ii] Check it out at: http://www.neptunefunds.com/Private-Investor/1/Funds/India-Fund