Economy a dilemma for globe-trotting Modi

Source:Global Times Published: 2015-5-17 22:23:01

Illustration: Luo Xuan/GT

There are a few days left before Indian Prime Minister Narendra Modi completes his debut year in office, after his inauguration on May 26 last year. And there is certainly reason to celebrate his major achievement: relentless efforts at major power diplomacy.

Over the last 12 months, Modi has not only left his footprints in Washington, Tokyo, Ottawa, Berlin and Beijing, but also hosted heads of states from China, the US and Russia.

There is no denying that New Delhi enjoys a favorable diplomatic climate due to its ideal geographical position, with most key nations worldwide hoping to maintain a good relationship with it.

For instance, Washington has been trying to harness India in its geopolitical strategy to contain China's rise, while Beijing desires to promote friendly ties with its neighbor.

Modi has obviously realized this, that's why he started proactive international engagement soon after he assumed office.

But India has long adhered to an independent foreign policy, with no interest in being manipulated to fight in anyone's corner. It has acted very prudently, which can be seen from Modi embracing Putin while trying to cement closer ties with Washington at the same time.

An important issue that should be noticed, though, is that perhaps the most crucial task for Modi's vigorous devotion to external affairs is in pursuit of more foreign investments for India.

Whether Modi can bring enough inflow of foreign capital for India is crucial for the country's development. India has been experiencing anaemic growth since the economic crisis in 2008. In the meantime, the government is short of money for development. Introducing foreign investments is therefore the only way to reach its economic growth targets.

So far, the forecast for the country's GDP growth is generally optimistic, as it is expected to accelerate to 7.5 percent in fiscal year 2015-16, and 8 percent in fiscal year 2017-18. But there is no data yet to confirm that, and the predicted numbers don't tell the whole story.

Modi is trying hard to attract foreign companies to invest in India. Wherever he goes, he emphasized how favorable India's environment is for foreign investments in the field of manufacturing. But Modi's target will not be easy to achieve, for there are bigger challenges awaiting him down the road.

Even if New Delhi keeps persuading investors how promising it is to do business in India and that the country is committed to fostering a more predictable environment in the near future, the current situation is far from reassuring.

Power failures happen frequently. There is a lack of decent roads and ports for transportation. Labor unrest occurs from time to time. Attracting investments against such backdrop will prove to be a major problem.

For the moment, there is little evidence of success for foreign investments from private enterprises. In the end, if any country tries to encourage investments to India, most of the programs will be led by the government itself, with most of the private business sector skeptical about the whole idea.

Besides, despite the fact that Modi's government has brought in a series of measures to appeal to investors, such as establishing special economic zones, free tax zones and free trade areas, some of these efforts have come up against resistance of local governments. They hold great control over adopting policies for local economic development.

Therefore, although Modi has been travelling all year long, and delivered some fruitful diplomatic results, the biggest lesson is how to improve the country's domestic environment for investors after all these trips and promises. Only in that way will he absorb foreign funds and push the nation's economy back on a healthy track.

The article was compiled by Global Times reporter Li Aixin based on an interview with Zhao Gancheng, director of South Asia Studies at the Shanghai Institute for International Studies.

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