India can become the economic driver of the BRICS

Headlines concerning a slumping rouble in Russia, infrastructure issues in Johannesburg, and slow growth in both Brazil and China might not be the bearer of bad news for everyone. For India, such a time represents an opportunity in the face of global economic woes. It has not been a good year in economic terms for the BRICS. Nevertheless, a refreshing upward trajectory of SENSEX (a free-float market-weighted stock market index of 30 well-established companies listed on Bombay Stock Exchange), coupled with investors keeping a close eye on Narendra Modi’s platform of long overdue reforms, creates a possibility that India may well be the economic driver of the BRICS.

Modi’s active lobbying of overseas investors crossed hemispheres from Japan to the United States, with more state visits planned in the near future. This would indicate that Modi may be lenient in opening up harsh restrictions in reference to Foreign Direct Investment into the country that has hindered India’s ability to appeal to foreign investors eager to make a play in what is expected to be the 3rd largest economy within the next 20 years. The semantics of such reform could not be embedded in a better environment given the state of oil prices and healthy inflation. Yet despite the promises made by Modi to put a stop to the thick red-tape and bureaucratic corruption, little more than crowd-pleasing rhetoric has managed to surface thus far.

While the economy was and has been the focal point of Modi’s campaign and subsequent administration, it could be said that the rise in speculation about Modi’s reforms is the root cause of the SENSEX’s performance. If that is true, then such reforms need to be enacted relatively quickly in 2015 while Modi and India are still enjoying the spotlight and attention of the world. Such changes will require time to implement, but the BJP’s control via its own party members and alliances presents Modi with the opportunity to pass reforms with no worries about it being stifled or held-up in parliament. Still, the biggest obstacle may be passing reforms that address the concerns of foreign investors, but at the same time don’t thwart the promises made to the domestic population that wants Indian companies to be in control.

Modi’s “Make in India” campaign emphasizes just that, and while it is not unreasonable to believe that both goals can be accomplished at once, the Indian government’s practice of talk but little actions is one known too well to its citizens and Diasporas. Internal struggles, like the present battle that has embroiled the Reserve Bank of India Governor Raghuram Rajan against the central government, notably the Ministry of Finance, over how to deal with interest rates, amid other concerns cited by Rajan, which include autonomy from government pressure and skepticism fuelled by Rajan over the very ambitious “Make in India” campaign.

Reforms are clearly necessary, and while Modi’s plans may result in crowd applause and positive testimonials both in and out of India, the speeches are not enough to ease FDI restrictions and give a boost to the manufacturing sector. If India wishes to remain a darling of the BRICS, its actions must speak louder than its words.

By Arman Sidhu

Arman Sidhu is a political commentator based in Phoenix, USA. He is a former Reagan Fellow at the Goldwater Institute.

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Categories: Asia

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