September 2017


Perspectives: The Month Through India’s Eyes

Indian media coverage in the past month focused on a combination of domestic and international issues, in the aftermath of latest GDP data, the on-going Rohingya crisis in Myanmar, and Prime Minister Shinzo Abe’s recent trip of India.  While the Indian economy and the Rohingya crisis yielded divergent views amongst various columnists, coverage on Prime Minister Abe’s visit was uniform, with most publications expressing optimism about the strength of India’s relationship with Japan.


Prime Minister Abe’s India Visit

In December 2015, India and Japan signed a Special Strategic and Global Partnership Agreement, with both countries committing to greater co-operation across defence, trade and investment.  Earlier this month, Japanese Prime Minister Shinzo Abe visited India with the intent of reviewing the progress made under this agreement, while also identifying areas for future collaboration for both countries.  Prime Minister Abe’s trip was covered extensively in the Indian media, with various publications weighing in on the state of Indo-Japanese relations.

In a column titled, “India Japan Relations in Good Health”, Live Mint praised the progress made by Prime Ministers Modi and Abe to forge closer ties between both countries over the last three years.  “Although the bilateral relationship was on an upswing even earlier, the incumbent Prime Ministers Narendra Modi and Shinzo Abe should be credited for giving it an unprecedented momentum.  While the headlines during the 13-14 September visit of Abe to India were hogged by the commencement of the Mumbai-Ahmedabad high speed rail project (bullet train)—a flagship project of bilateral cooperation—Modi and Abe have succeeded in putting the relationship on the fast track in a number of other ways.  In the last three years, a) Japan has been made a permanent participant in the Malabar naval exercises which also involves the US; b) the two countries have inked a nuclear deal—Japan’s first with a non-signatory to the Treaty on the Non-Proliferation of Nuclear Weapons (NPT); c) the India-Japan-US trilateral has been upgraded to ministerial level; and d) a new trilateral at the foreign secretary level has been initiated with Australia as the third country.  In addition to these, the numbers on Japanese foreign direct investment (FDI) and overseas development assistance (ODA) to India have been climbing.”

The Hindu, while agreeing with the view that India and Japan have made important strides in their partnership, argued that more important work lies ahead.  “It is clear that the Modi government has set India-Japan ties on an accelerated geopolitical course that will be a major factor in its dealings with the rest of the world, especially China, at a time when the U.S. is perceived to be retreating from the region. Having made this leap, it is imperative that India and Japan also look beyond their lofty geopolitical aims, at the more basic aspects of bilateral engagement. While Japan is India’s largest donor and the third largest provider of FDI, bilateral trade has steadily declined since 2013, and is down to $13.61 billion in 2016-17 from $14.51 billion the year before. The contrast with India-China trade, at $71 billion a year, and Japan-China trade, at $279 billion, is stark, and the decision to finalise four new locations for special Japanese industrial townships may be only one way of addressing the difficulties businessmen face in India. With the opulent pageantry and 8-km roadshow in Gujarat over, it is time to get down to brass tacks and address some of the issues in order to facilitate closer ties between India and Japan, even as the two leaders and militaries forge closer bonds.”

The Indian Express put forward a similar point of view.  “Under Abe and Modi, Tokyo and Delhi have expanded their maritime security cooperation, agreed to work together in promoting connectivity and infrastructure in third countries in India’s neighbourhood.  They are pooling their resources — financial and human — to develop the Asia-Africa Growth Corridor.  While all this is impressive, sceptics will argue that without a significant defence relationship, the talk of an alliance between India and Japan remains meaningless.  Although military exchanges between Delhi and Tokyo have expanded over the last few years, the two sides are far from a credible defence partnership that can shape the regional security architecture in the coming decades.   That negotiations on India’s purchase of Japanese amphibious aircraft, US-2i, have been stuck for years underlines part of the problem.  The time is now for Modi and Abe to demonstrate that they can overcome the bureaucratic inertia that limits the defence possibilities between India and Japan. Modi and Abe have certainly raised the expectations for a potential alliance between Delhi and Tokyo. But they can’t afford to fall short on implementation amidst the current geopolitical churn in Asia.”

The Health of the Indian Economy

India’s economic growth unexpectedly slowed to 5.7% for the quarter ended June 2017 – its slowest pace in three years.  The government, and a number of economic analysts attributed a majority of this slowdown to the temporary disruptions caused by demonetisation, and the rollout of the Goods and Services Tax (GST).  However, this decline in GDP growth also prompted a number of columnists to take a deeper look at the state of the Indian economy, with a view towards identifying the nature of its weaknesses, and the actions required to be undertaken to steady the ship.

Former Minister for Finance, Yashwant Sinha, painted a bleak picture in an op-ed in the Indian Express.  He argued that while demonetisation and GST were immediate contributors to the sudden slowdown in economic growth, there are deeper-lying issues that require attention. So, what is the picture of the Indian economy today?  Private investment has shrunk as never before in two decades, industrial production has all but collapsed, agriculture is in distress, construction industry, a big employer of the work force, is in the doldrums, the rest of the service sector is also in the slow lane, exports have dwindled, sector after sector of the economy is in distress, demonetisation has proved to be an unmitigated economic disaster, a badly conceived and poorly implemented GST has played havoc with businesses and sunk many of them and countless millions have lost their jobs with hardly any new opportunities coming the way of the new entrants to the labour market.  For quarter after quarter, the growth rate of the economy has been declining until it reached the low of 5.7 per cent in the first quarter of the current fiscal, the lowest in three years.  The spokespersons of the government say that demonetisation is not responsible for this deceleration.  They are right.  The deceleration had started much earlier. Demonetisation only added fuel to fire.”

The government responded to Mr. Sinha’s editorial with a column of its own, penned by Jayant Sinha, who is a Union Minister, and incidentally, Yashwant Sinha’s son.  The column, which was published in the Times of India, countered current criticisms being levied against the government’s handling of the economy, arguing that “these articles draw sweeping conclusions from a narrow set of facts, and quite simply miss the fundamental structural reforms that are transforming the economy. Moreover, one or two quarters of GDP growth and other macro data are quite inadequate to evaluate the long-term impact of the structural reforms underway… In sum, the structural reforms unleashed by the Modi government since 2014 constitute the third generation of reforms since the first generation of reforms initiated in 1991 and the second generation in the 1999-2004 NDA government.  Unlike the first and second generation of reforms, this third generation of reforms balances a better life for all Indians with the requirements of an advanced, sophisticated 21st century economy.  Virtually every Indian will now have a basic safety net guaranteeing food, electricity, some employment, housing, a bank account, toilets, gas-based cooking, insurance coverage, micro-loans, and an all-weather road.  In parallel small and large enterprises will be able to flourish in a transparent, rule-based environment that provides necessary facilities and financing.  We are creating a robust new economy that will power long-term growth and job creation for ‘New India’.”

An editorial in Live Mint adopted a more balanced stance to the issue at hand. While acknowledging that “the economic slowdown over the past six quarters as well as structural challenges like the banking crisis need the sort of clear economic thinking that this government has not believed in till now”, the article argued that the “risk of an economic collapse seems far-fetched.” It further went on to state that an evaluation of recent business indicators suggested that the economic recovery could possibly recover as early as the next quarter. “The manufacturing purchasing managers index (PMI) moved into expansion territory in August after the slump in July.  The services PMI has been more sticky.  There is some good news in high-frequency indicators such as cars, two-wheelers, tractors, air traffic and railway freight.  The data for cement, coal and steel continues to be disappointing. Foreign trade offers a ray of hope.  These high-frequency indicators suggest that economic growth in the second quarter could see some recovery from the disappointing levels of the first quarter.”

Finally, an editorial in the Hindu also focused on the Indian economy, but chose to emphasise the longer-term policy actions required to help revive growth. “The real antidote to the current slowdown, on the other hand, is known all too well. The various rigidities in the market for land and labour have been holding back the economy for decades now, stopping investors from risking their capital on large-scale projects needed to boost growth.  Further, the overall unease involved in doing business in the country and the even larger uncertainty looming around the rules that govern the conduct of business have seriously held back growth.  It is no surprise then that, as reflected in the sluggish credit offtake numbers, private investment has failed to make sufficient use of the country’s relatively high private savings rate.  But successive governments have found it easier to kick the can down the road rather than enact politically uneasy reforms needed to address the problem facing the economy.  India’s major macroeconomic numbers, despite the recent worsening of the current account deficit, are still quite stable compared to a few years ago.  The government must rise to the challenge and enact tough structural reforms, instead of finding an easy way out through the fiscal door.”


Rohingya Crisis

India’s failure to condemn the security attacks against the Rohingya refugees of Myanmar, which resulted in more than 300,000 people fleeing to Bangladesh, has come under scrutiny by large sections of the international community.  This month, various publications weighed in on India’s actions and the likely foreign policy decisions facing the country going forward.

An editorial in Live Mint advocated adopting a balancing act, explaining that the solution to the problem lies in Myanmar itself. While India cannot let its guard down when it comes to counter-terrorism cooperation with Myanmar, this has to be done by simultaneously staunching the outflow of refugees.  The report by the Annan-led commission, which argues for a citizenship verification process—the Rohingyas have been stripped of citizenship under Myanmar’s 1982 citizenship law—to increase the social and economic participation of the Rohingyas, may offer some useful suggestions. Bangladesh and India can indeed give shelter to some refugees, but there are clear constraints that both the countries face in the form of the resulting burden on their economies, alteration in the demography and potential impact on national security.  India has to do a tightrope walk.  On the one hand, it has to keep Myanmar engaged in counter-terrorism while simultaneously working to contain the flow of refugees and then creating the ground conditions for repatriation of refugees already in Bangladesh and India.  On the other, it has to keep Bangladesh reassured through the process and do so by making public statements.  A perception of India’s unhelpful attitude should not become a reason for Zia upstaging Hasina in the 2018 elections.”

The Hindu echoed a similar sentiment. It is understandable that India does not want a strained relationship with Myanmar at this juncture when New Delhi is exploring ways to enhance its presence and influence in Myanmar and the Southeast Asia region through its Act East policy.  But this does not have to be at the expense of alienating or marginalizing the Rohingya population.  When there are growing calls from the international community to the Myanmar government to end violence in Rakhine state and address the Rohingya conundrum, it would not be a wise strategic move for India to ignore them.  While the government may take a conscious decision to publicly support Myanmarese leader Aung San Suu Kyi, at the same time it should gently prod her government to adopt a positive attitude toward resolving the Rohingya problem with the help of the international community.”

General Bikram Singh, former Chief of the Indian Army, offered an interesting counter-point.  In a column in India Today, the General argued that while India should demonstrate international leadership to help resolve the Rohingya crisis, national security is paramount.  The Indian stand on deporting the Rohingya is justified in the backdrop of its national security concerns. A stable and peaceful internal security environment is of ‘vital interest’ to all nations. However, as an emerging regional power, India is also expected to shoulder additional responsibilities and lead various initiatives of common interest. India’s approach, therefore, has to be multi-dimensional and balanced, one that allows us to not just safeguard our security interests but also showcase us as a responsible international player. It is imperative that-given the internal and external ramifications-there is greater coordination between the ministry of external affairs and the home ministry to effectively deal with the issue and ensure it does not acquire communal dimensions… A nation that is on an upward trajectory cannot afford to ignore the nefarious designs of the ISI or terrorist groups in India. Therefore, while showing our humanitarian concern towards the displaced community, we would do well to ensure that our approach retains the primacy of national security interests.”



©2017 Greater Pacific Capital