The last time US President Barack Obama visited India was in November 2010. The UPA then was in the second year of its triumphant return to power in New Delhi; in 2009-10, India’s real GDP had increased 8.6%; and, if not exactly the darling of global investors, India was still a favourable destination for businesses. So it wasn’t surprising that along with President Obama and his high-powered White House team, there was also a heavyweight contingent from Corporate America, including the CEOs of GE, PepsiCo, Boeing, Honeywell, United Technologies and a host of others. Especially on the business front, President Obama’s five-day visit raised a lot of hopes then — hopes that remained largely unfulfilled.
Because shortly after that visit, things began turning pear-shaped for India. For one, by 2011, GDP growth had begun declining. But, more importantly, global perceptions about India began changing. First, there were the scams — beginning with charges of financial irregularities in the Commonwealth Games, which was followed by the 2G telecoms scam, and then another one involving the allotment of coal-mining licences. Also, there was the levy of a retrospective tax on telecoms firm Vodafone and a perception that policy making, particularly on economic reforms, had stalled. Credit rating agencies began downgrading the outlook on India, and investors’ interest in India waned. In effect, Obama’s 2010 visit turned out to be little more than a spectacle and photo ops.
His second visit, dramatically timed with India’s annual show of military strength — Obama will be the chief guest at Delhi’s Republic Day celebrations (a first for a US prez) — may bear more economic fruit. Not merely in terms of the things that India would want such as more US investment, or more permanent rules for H1B visa seekers, or a less rigid US policy towards outsourcing to India. Nor just in terms of the things that the US would like such as FDI in India’s insurance and retail businesses, and greater, less fettered, access to its vast markets. But also in terms of results that are not immediately tangible.
India wants to sharply raise FDI to expand manufacturing and build large-scale infrastructure but those are not areas where the US is a big player anymore. In manufacturing, it is China that rules the roost; in infrastructure building, Japan and China are way ahead. Yet, the US still provides cues to the rest of the world. The way Wall Street or the credit rating agencies or US firms look at India sends signals that shape the perceptions of other global economies. As the world’s biggest economy, America’s view of emerging markets is a dependable guide for other players.
A senior Indian diplomat describes PM Narendra Modi’s international diplomacy as a way of “courting the world to start the fire at home”, similar to what China did during the Deng Xiaoping years (1978-91), or the Asian Tigers did between the 1960s and the 1990s, or, to stretch the point a bit further in history, even what Meiji-era Japan did in the late 19th century, when it moved from being a feudal society to a modern one. Broadly, this is an approach of market-driven reforms and a greater connection with the world. Implicit in Modi’s outreach to the US, Japan, Australia and even, to some extent, China is also an attempt to readjust and rebalance India’s traditional relations with the rest of the world.
Modi’s visit to the US — the official meetings as well as the exuberant unofficial events — has reignited US interest in India and many believe that could be the starting point for both countries to build on. There is a flipside to all of this, of course, and that is about geo-politics and strategy that go well beyond mere economics. The rise of China and its coercive diplomacy in South Asia; the threat of terrorism for India from its immediate borders on the west; and the challenges that the US faces in West Asia or from further east, all of these would also determine the direction that India’s US ties may take.