Skip to main content

Euphoria now – apprehensions to follow

The media can scarcely contain their excitement over the US presidential elections. Newspapers and television have been swamped with reports and speculation about likely policies of a Democratic White House under Barack Obama. Commentators and foreign governments are literally relieved that a new and refreshing approach is likely to be forthcoming in areas of economic strategy and international relations. All of this they think would lead to a better world. In India too, the press have echoed global sentiment about Mr Obama’s victory. Perhaps this euphoria may need to be tempered as future events unfold.

Republican administrations in the United States have, conventionally, been favourably disposed towards India. George Bush may not be remembered for doing wonderful things, but from an Indian perspective his presidency was perhaps the best that India could have hoped for. He changed US policy towards the subcontinent, de-linked New Delhi from Islamabad and genuinely recognised India as a long term strategic ally. The nuclear agreement, for instance, would have been unthinkable under a Democratic government. Mr Obama, on the face of things, will not be as amenable. For a start there are indications of renewed American interference in Kashmir, which South Block has always resented.

Some of Mr Obama’s advisors seem to think that the Pakistani problem cannot be addressed without a solution on Kashmir. The Pakistani army they believe will never fully cooperate in the war against the Al Qaeda unless they see progress with India and a substantially reduced Indian presence in Afghanistan. There is the risk of the US administration reverting to the old ways of treating Pakistan in a manner that is unrealistic and often self-deluding. Mr Obama’s intention of appointing a special envoy on Kashmir will raise hackles in New Delhi and undermine years of painstaking effort that vastly improved bilateral relations.

The Democrats now in control of both the White House and Congress may be tempted to reopen the debate on nuclear non proliferation. Mr Obama would be keen on ratifying the Comprehensive Test Ban Treaty and examine a verifiable ban on the production of new nuclear weapons materials. Whilst his intentions may well be honest, they may not necessarily suit Indian interests. In the very least several Washington think-tanks that were forced into eight years of hibernation under the Republicans will resurface and bring with them their anti-Indian rhetoric. They will in the least insist that the Hyde Act is completely adhered to in word and spirit, in the implementation of the Indo-US nuclear agreement.

Then there is the risk of a hardening American position on world trade and its overtones on India. Trade unions and American jobs are understandably important to the Democratic Party’s political constituency. There is therefore some concern that America’s trade negotiation process will take a tougher stance. Mr Obama is opposed to a free trade agreement with Colombia (an old and trusted US ally) on some flaky grounds of a poor record of violence against unions. He has called for the imposition of higher taxes on some multinationals that outsource abroad. If this is implemented, it would send shudders through the Indian BPO industry. He may perhaps not swing as much to the left as some might suspect, but a depressed economic environment will expound fears of a restrained import regime affecting both goods and services. The professed relocation of American jobs to China and India will influence White House thinking and increasingly so as large US automotive companies edge towards near bankruptcy. When trade relations are so intrinsically linked to foreign policy, one may be prone to, as it were, building upon the other.

Most of the arguments presented in this piece are hypothetical and the risks portrayed may never play out. But the fact is, they are there and it’s important both for governments and industry to remain cognisant. The next few months will make things clearer after the initial euphoria of a refreshing new President has given way to some hard actions on the policy formulation front.


Popular posts from this blog

Uday: a federalist success story

At our 21 st Annual CEO Roundtable in Thimphu last week, there was spirited debate over the performance of the current administration. A participant suggested that the Ujjwal Discom Assurance Yojana (Uday), a scheme to reform India’s downstream power sector, for all its fanfare was actually a failure of sorts and that India’s renewable energy programme, specifically on solar energy, was lacking on many counts. Whilst it was my intuitive belief that both claims were unsympathetic, I thought it would perhaps be in order to examine the facts in detail and subsequently provide an assessment. This paper, accordingly, presents an analysis of the first of the two issues – the Uday programme. The second will be addressed in a subsequent piece. The electricity distribution crisis: background Electricity distribution has been disastrously managed over the last three decades and in 2015 was on the verge of absolute collapse. Under-priced power, operational inefficiency, broken equip

Farm Loan Waivers

Farming damage In 2008, when the Government of India announced a Rs 60,000 crore farm loan waiver, the decision horrified economists and the financial markets. The waiver, amounting to 1.3% of GDP, would cripple national finances and damage the credit culture. The moral hazard of penalising prudent borrowers would be systemic and enduring. However, its proponents argued that it would free farmers ‘from the suffocating clutches of endemic debt’ and, in the process, also provide a quick consumption stimulus to the economy. Subsequent events proved both assumptions awry and the folly of the decision was absorbed in a hard and painful way. Nevertheless, a lesson was learnt and federal Governments have since avoided a repeat. However, it would seem that it is now the turn of state Governments to blunder. In the last few months, Uttar Pradesh, Maharashtra, Karnataka and Punjab announced waivers of agricultural loans in their states to the tune of Rs 80,000 crore. Fortunately, the

The Employment Conundrum

Over the last three months, I have had the opportunity of engaging with our clients across various forums and cities. What provided a platform for this interaction was my briefing on four critical initiatives that we believe will, if properly implemented, serve as game changers with a palpable impact on economic output. The question that consistently came up almost everywhere was on the perception of jobless growth and consequently, rising unemployment within India. This has possibly been based on recent press reports and television debates that consistently cite certain headline statistics. These suggest a fall in employment levels between 2011-12 and 2015-16 compared to vigorous growth in earlier years, since 2004-05. Even on the surface, this conclusion does not gel fittingly with other statistics. For instance, indirect tax collections and consumption expenditure, which are both proxies of aggregate spending and wellbeing, do not corroborate falling employment. Tax collections