Indian Politics Reshaping International Business

With the ongoing slowdown destroying entire generation’s chances of living at developed nation levels of income, the newly-elected Modi government seems to be well-prepared for the challenges to be thrown in his path of revival of Indian economy. Fast-tracking the decision making process by government has so far supported that so-called “good days” might not be too far for the Indian population.

The huge investments as well as mergers & acquisitions going on in all the sectors indicate the returning faith of various business houses on Indian economy. Government’s plan of stake sales in public sector companies like SAIL, CIL and ONGC for increasing the participation of private companies in Indian economy shows Narendra Modi’s confidence on private sector. A lot of major foreign players are highly interested in entering the Indian market. The government has taken a large number of initiatives to make India a business friendly nation.

Multinational companies (MNCs) are finding it tough going in China. Last month, Beijing launched a dramatic investigation into Microsoft’s allegedly monopolistic practices by raiding four of its offices. A few days before, KFC and McDonald’s were in the spotlight. Starbucks, Nestle, Volkswagen, Jaguar, Google, Mitsubishi… the list of companies finding themselves at the sharp end of the stick is growing.

Coming on top of slowing economy, rising costs, growing infringement of intellectual property and regional tensions, this pattern of harassment is creating consternation in the boardrooms of many western and Japanese companies. These firms are beginning to worry about their exposure to China, which remains a hugely important market. This anxiety is India’s opportunity.

Japanese contribution to China’s spectacular economic development has been immense, with Japanese companies providing both capital and technology on a massive scale. China’s emergence as a major power with expanding economic and military capabilities is beginning to change the contours of the economic and security architecture in the Indo-Pacific region. On the economic front, China is already a central component of a region-wide trade and investment network. On the security front, it competes with a still pre-eminent United States and would prefer to inherit the dominance that the latter has enjoyed for the past several decades.

Neither India nor Japan view the prospect of a China-centric Asia as compatible with their own long-term interests, and see merit in working together and with other concerned powers to actively shape the emerging architecture towards an open, an inclusive, a transparent and, above all, a balanced structure.

With West Asia in turmoil and a growing cold war between Russia and the West, rising nationalism in China may be just the opportunity for India. Russia’s souring relationship with the West provides India the opportunity to grab a slice of the Russian market in items that have been traditionally supplied by Western countries.

Setting up a $100 billion development bank by the BRICS emerging market nations is a clear indication of their agenda of reshaping the Western-dominated international financial system.

With nearly 15 million young people entering the workforce every year and creaky pre-Independence era infrastructure, India cannot progress without massive infrastructure investments and a global manufacturing sector that employs millions. Narendra Modi’s visit to Nepal for reducing China’s grip over Nepal by offering a $1 billion concessional loan will be a huge boost for Indian infrastructure companies.

India’s desire to increase nuclear capacity 3-fold from the present level by 2024, Rs 100,000 crore deal with France for fighter jets, naval activities with US and Japan, raising FDI limit in defence sector are all directed towards making India a self-sufficient nation in terms of national security, in case tensions build up with China or Pakistan. The recent development of strong ties with Bhutan places India in a stronger position than before.

To become even a middle-income country, India must take its place besides China as the world’s factory and that means making India a competitive location relative to other hungry nations such as Vietnam, Bangladesh and Mexico that are all vying to take business away from China. It also requires that we integrate ourselves with the global trading system.

Yes, opening up FDI limits in insurance and defence represents progress. But the budget fell short of many expectations.

The PM appears to be focusing his energy on improving execution which is, of course, critical. But there is little evidence yet of substantive policy shift. This is why many global CEOs, while hopeful, are still taking a ‘let’s wait and see’ approach to investing in India. At such a moment, India’s shocking behavior at WTO, euphemistically called “tough diplomacy”, is not going to help. There is a difference between taking a tough stand and irresponsible behavior.

To be taken seriously, it is essential, but not sufficient, to have a strong economy. India must also be seen as a responsible global citizen on matters of trade and security. Bringing WTO to the brink on the grounds of self-interest is not responsible.

There will be many issues where our self-interest conflicts with the existing international system. Take climate change or the matter of pharmaceuticals where intellectual property protection must be balanced against affordable access to life-saving drugs. In all these matters, India must take a principled stand, create alliances and seek win-win situations rather than take a unilateral decision.

Destiny has given India a reprieve. Security concerns, geopolitics and a strong reform-minded prime minister are converging in India’s favor. If we play our cards right, India can be the next China. It’s important to not blow this opportunity. We may not have another for a very long time.