Why Modi 2.0 means a boost for India’s relations with China and the Arab world

This article is part of the World Economic Forum's Geostrategy platform

Every election shifts the paradigm that little bit, not only when the incumbent loses. Think of 2009, when a coherent UPA-1 became dysfunctional after an election where it had actually bettered its 2004 performance. Of course, the shifts are not necessarily negative and can go either way.

What could be the ones brought on by General Elections 2019? Will Prime Minister Modi double-down on the acrimony and confrontation that marked the election campaign, or will he take a step back and get back to the high road that he had said he’d be on in 2014? He is a master of disguises, everything to everyone, and can play any role if he sets his mind to it—reformer, zealot, fakir, diplomat or statesman. Which one he will choose remains to be seen.

Livelihood concerns, and not security challenges, are existential issues for India

The election campaign did point to a shift of priorities. In 2014, Modi campaigned on economic development, showcasing his alleged prowess in Gujarat, he promised “achhe din” for all. Five years down the line, promises on the job creation and investment front were not met, “Make in India” remained a slogan. So, it was not surprising that the entire election campaign was shifted onto the track of national security.

But this is likely to have been a tactical move, not a strategic one.

The reality is, and Modi knows it, that while India faces a number of security challenges, none of them can be called serious, leave alone existential.

On the other hand, the livelihood issues of hundreds of millions would certainly fall in that last-named category. For them, this campaign offered little or nothing. The PM seemed to have simply shrugged off any responsibility on this score skirting around the bad news by playing around with statistics and actually claiming that its economic performance had been stellar.

So, the agenda for the future is large:

Rough edges smoothed in the second term

A second term offers the opportunity to round off the rough edges of policies introduced in the first. The bankruptcy law and the GST are cases in point. Likewise, an effort has been made to deal with rural distress through the PM-Kisan scheme of direct transfers and public health issues through Ayushman Bharat. These need to be built upon to make a significant impact on the problem.

The obvious challenge of the future, and the one that the government has studiously avoided looking at, or simply fudged the figures it was looking at, relates to the economy. Economic growth hit a five-quarter low of 6.6% in October-December and is slowing down further. Perhaps the best indicator of the situation is the precipitous crash of car and motor-bike sales and more recently, airline passenger traffic.

The government failed on the employment front to start with and now the crisis is deepening. According to the Centre for Monitoring Indian Economy (CMIE) the unemployment rate in the country averaged 8.1% in April, compared to 6.7% in March.

The National Sample Survey Office (NSSO), the government body that conducts household surveys, was not allowed to release its figures, but sources said that their data showed that the unemployment rate was at a 45-year high of 6.1% in 2017-18.

To overcome these challenges, there is need to clean up the economic mess of the past, in particular the banking and non-banking financial sector. Thereafter there is need for deep reform in the economy to promote manufacturing based on the revival of private sector investment, which, in turn, requires reform of the land and the labour sector. Associated with this is the need for pushing on-the-job skilling, promoting health and education. A beginning has been made by the government in all these areas, but what is needed is deepening and strengthening the process.

Foreign policy

Compounding the government’s problems are global headwinds brought on by the China-US stand off and the withdrawal of the Iran oil waivers. There is certainly danger from the volatile situation in the Gulf, the source of 60% of our oil. The big challenge now is to deal with the current US démarchein relation to Iran. Maybe now that the election is over, there is time for an Indian initiative in the region.

In foreign policy, the PM’s energetic travels may not have yielded much. But there has been signal successes in the region most important for us—West Asia.

Befriending Saudi Arabia and UAE and maintaining an even keel in our good ties with Israel and Iran have provided significant payoffs. At the same time, after a period of heightened tensions, ties with China have been brought to well-balanced point. As for the US, the good relations are a signal achievement in the era of Trump.

Modi will certainly seek to further consolidate ties with Saudi Arabia and UAE, which have already yielded significant benefits for the country. This could have a domino effect in relations with the other rich Sheikhdoms of the region.

Improved relations with China but Pakistan remains a challenge

As for China, it presents both danger and opportunity. If India plays its cards well, it can be the beneficiary of the American desire to re-locate supply chains away from China. But for that it requires a manufacturing sector that is healthy and vibrant and capable of meeting the quality and capacity requirements of companies seeking relocation.

Modi is more than likely to maintain an even keel in India’s relationship with China. He is scheduled to hold the second informal summit with President Xi Jinping in September.

If the Wuhan spirit and the Masood Azhar designation mean anything, we may see some more thaw in the Sino-Indian relations, including an Indian participation in the Belt and Road Initiative, maybe though, not in name.

Pakistan remains the biggest challenge since it is linked to Kashmir, and Balakot alone cannot resolve it. Having responded the way we did, the threshold has been simultaneously raised and lowered. By striking Pakistani territory, it makes nuclear confrontation more likely.

On the other hand, Islamabad will have to think hard before it authorises another Pulwama-type action. This could well mean bigger problems, in the one place where the Modi government must accept full responsibility for creating a mess—Jammu and Kashmir.

Opportunity for Modi to emerge as a transformational figure

At some point Modi must confront the fact that the policies of his first administration have been dividing the country. He must, therefore, decide whether he wants to persist with any government-led effort to make a Ram Mandir in Ayodhya, or for that matter take up the issue of ending the special status of Jammu and Kashmir.

More than that, he needs to reflect on whether it is a good idea to marginalise the Muslim community. No country can do well if it has two classes of citizens.

Wherever the country may be, Modi himself stands on the cusp of history. A second term offers him the opportunity to emerge as a transformational figure in the international arena, something he has deeply desired.

But nothing is foreordained. He has many things going for him: indicators that growth will again pick up after the current slowdown; undisputed leadership of his party; a reputation untouched by a scandal and good relations with the powers, big and small (barring Pakistan). But he must heal the divisions in society created by his own rise. In history, there is always the human agency needed to make things work. And often that’s where things come unstuck.

Modi 2.0 will see improved relations with China & Arab world, Manoj Joshi, the Observer Research Foundation