Gautam Mukherjee
For a country that only joined the limited set of trillion dollar economies in 2007, is only at some two trillion dollar in size now, the prospect of attracting a trillion dollars in foreign direct investment from America between now and 2030 is exhilarating, if a little difficult to envisage. This particularly, when America has never done this before. But now, it well might, unwilling to be left out, and ironically, into an India led by Narendra Modi, till recently disqualified from even receiving a visitor’s visa.
America’s investment, after decades of close interaction with China, stands at $600 billion. So part of the reason for this sudden uptick in prospect is because a million, or for that matter a billion, or even a trillion, is not what it used to be. Chris Wood of CLSA, a leading international investment firm, calls Modi the most business-friendly leader in the world today. CLSA, like several other global investment majors, is ‘overweight’ for investment in India. Wood expects the GDP percentage rate per annum to double in the next five years to over 10 per cent.
Meanwhile, France wants to build missiles in India. Japan is willing to bring in $35 billion on the back of ‘red carpet’ treatment, and likewise China is planning on investing $100-$300 billion over the next five years. Others like Israel, Russia and Germany are expected to make their offers. India has emerged as probably the biggest development opportunity on earth at present.
China wants to seize the day by solving the trust deficit, including the lingering border and Line of Actual Control issues, in order to contribute substantially towards transforming our infrastructure. This lists a lot of things, as well it might, because we need to update, enhance and modernise almost everything to catch up to the developed world.
China will help in overhauling the Indian Railways, the poor electricity generation/transmission set up, our water management, inclusive of dredging ponds/rivers and linking them, putting in humongous solar power batteries, ramping up our fledgling food-processing industry, with e-retailing, the high-tech dodge of the FDI in multi-brand retailing controversy, and so on. The Chinese will also help India realise its vision of turning into a manufacturing hub for domestic markets and exports.
The old World War II vintage Stilwell Road to Mandalay and on to China is also back on the cards. China calls it ‘The Silk Route’, euphemistically, though it actually isn’t the historic overland Silk Route from Europe. Nevertheless, reviving this regional artery to the East may lead to great deal more regional cooperation, reaching beyond the South Asian Association for Regional Cooperation, echoing the weave and weft of British-India that once ranged from Burma to the Gulf including Afghanistan.
Some think-tankers have suggested it is best for the Gulf countries to also get on board this emerging conglomeration on land and sea. Like the new Balkans, both independent and dependent on each other, there is a compelling point in regional cooperation, as the US and its Nato partners withdraw into their own troubles at home.
Pakistan, its Taliban, the Islamic State in Syria/Iraq, the incorrigibles under Mullah Omar in Afghanistan, and their joint and several ‘medieval mind-set’ struggles, are, despite the barbarism, an obsolescence playing out. There is no future in jihad, no matter how hard it is pushed by its votaries. It is illustrative that America has gathered 40 countries against the Islamic State, including several West Asian nations. But America itself is growing irrelevant in the area, and its sporadic interventions are unlikely to achieve very much in the long run.
Meanwhile, the weak performance of the BJP in recently held by-elections suggests that the grass-roots public is keen on the Government concentrating its energies on economic progress rather than any of its traditional, communally polarising issues. And that the sole vote-catcher in the saffron fold is the charismatic Modi himself.
This is also a momentous week for the stock markets, reflected by a weakness in its performance despite the prevalent bull market. Chinese President Xi Jinping’s visit may result in a number of good economic announcements, but these have already been discounted, and the market is latching on to its worries instead.
What will be the impact of the Scotland referendum? The closeness of the likely voting indicates that even if Scotland stays in the United Kingdom, it will become much more autonomous. This will also affect Northern Ireland and Wales and their future attitudes. Britain as a major ally of the US in the European theatre, will never be the same again. If Scotland secedes, the destabilising effect on the debt-ridden UK, the EU, the US, and then the world, will be considerable.
And then, there is the meeting of the Federal Reserve Bank of the US. The world will be watching for straws in the wind.When will the ‘tapering’ end? When will US interest rates start to rise and by how much? Is there going to be any change in the anticipated timetable of June 2015 for this? Will it mean a flight of capital from the emerging markets? This, even though India, going into its festive season, is thought to be the best investment destination in the emerging markets right now.
At home, is Governor Raghuram Rajan of the Reserve Bank of India, improving liquidity only in micro doses so far, going to start cutting interest rates? The economy is clearly recovering and inflation is coming down. It is now at its lowest in five years already, and diesel subsidies too may soon be gone. Oil prices, very important to India, which imports 80 per cent of its needs, are sharply down and unlikely to spike upwards again except for disruptions in supply. There has been a diversification of sourcing from farther afield, and a strong push towards development of alternate/ green sources of
energy.
The global demand-supply dynamic for petroleum is now permanently changed, most importantly because America, once a 50 per cent consumer, is now self-sufficient. This is a profound strategic difference, with far reaching consequences. Things are different in a way not seen since the hugely inflationary multiple oil price shocks which began in the 1970s.