Modi’s gradual economic reform strategy will pay off

Modi’s gradual economic reform strategy will pay off

In this debate series, GRI asked whether Narendra Modi’s policies can fix India’s economy. Robert Shines presents the case for why Modi’s efforts are likely to succeed, as they leverage India’s importance to both the U.S. and China. Read the opposing argument here.

Similar to his U.S. counterpart, Modi was swept into office amid a tide of extremely high expectations.  These expectations were, in part, founded on his record of economic initiatives during his tenure as Chief Minister of Gujarat. 

Since his election as Prime Minister, however, India’s myriad economic problems have been extraordinarily persistent.  These problems include bureaucratic red tape, inefficient state-owned enterprises, and a comparatively weak central government compared to its regional counterparts, among others.

Cross the river by feeling the stones

Modi’s supporters and detractors both seem to agree, however, that while he has initiated some economic reforms, they have only been implemented in an incremental, piecemeal fashion.  Given the enormity of these challenges facing Modi, this piecemeal strategy has been compared to Deng Xiaoping’s adage of “Cross the river by feeling the stones” with respect to China’s initial economic reforms in the 1970s.

Instead of China though, Modi more than likely is thinking of Russia with respect to his incrementalism. Initially after the Cold War, Russian President Boris Yeltsin was all too eager to embrace Western-prescribed treatments for his ailing economy.  Yeltsin’s rapid implementation of these economic policy recommendations only led to the Russian economy eventually worsening, further hastening Russia’s descent from great power status in international politics, with ramifications to this day.

American benefit of the doubt

Recently, former U.S. Deputy Secretary of State William Burns discussed past areas of U.S.-Indian cooperation, such as the historic civilian nuclear deal, as well as future areas to be addressed by a genuine strategic partnership between the two countries. While acknowledging the persistence of India’s economic problems, Burns left no doubt regarding his continued confidence in Modi as the leader to continue gradual, but inevitable, economic reform efforts across the Indian public and private sectors.

This sentiment was mirrored by U.S. Treasury Undersecretary for International Affairs Nathan Sheets at an event sponsored by the Carnegie Endowment for International Peace. During the Q & A session afterwards, Sheets’ Carnegie interlocutor assumed the role of devil’s advocate, pointing out how Modi has failed to live up to expectations with respect to numerous economic reform initiatives. To counter this, Sheets repeatedly referred to the “tone” of the new Indian government.  In essence, Sheets did not downplay the myriad challenges ahead, but instead singled out Modi as the transformational leader still needed at this point in time to lead change from the top and see that they are eventually resolved.

Simply put, this shared strategic and economic vote of confidence by the U.S. is the strongest weapon Modi currently has available in his reform arsenal and highlights the continued interdependence between economics and geopolitics.  The U.S. realizes it can’t balance China on its own without strong regional partners. 

Increased trade and investment linkages between the U.S. and India will allow each to grow faster economically.  This will consequently extend U.S. global hegemony and encourage Indian regional hegemony, which the U.S. apparently has no problem with. This U.S. acceptance of eventual Indian regional primacy can be traced to their shared democratic values, similar to British acquiescence to eventual American dominance in the Western Hemisphere two hundred years ago following the Monroe Doctrine.

Caught between two belts

Even though India has realized it requires U.S. assistance in the form of capital and technology in order for the country to reach its economic goals, Modi is not keen to unnecessarily damage existing ties with China.  This is why, despite interest in further U.S.-Indian economic overtures, Modi has no interest in becoming a formal U.S. ally. Even though Modi may foster limited military ties to states in the region with disputes with China, such as Japan and Vietnam, he is unwilling to take the plunge unreservedly into the U.S.’s “hub-and-spoke” alliance system within Asia.

Conversely, India has sought to engage its rival on several economic fronts.  Even though Modi’s India is not currently part of the U.S.’s Trans-Pacific Partnership, it still is currently a member of China’s Regional Comprehensive Economic Partnership (RCEP) initiative.  More crucially, Modi enabled India to sign up to be a founding member of the Asian Infrastructure Investment Bank (AIIB), despite the U.S. discouraging some of its formal allies from doing so. 

In addition to the above economic integration endeavors, Modi is not willing to jeopardize prospective Indian involvement in China’s “One Belt, One Road” initiative.  The Northern Belt, the Silk Economic Road will traverse India’s sphere of influence in Central Asia, while the Southern Belt, the Maritime Silk Route, will cross India’s domain in the Indian Ocean.  In order for India to further develop economically, Modi is looking to leverage these Chinese initiatives to further integrate India not only with China itself, but also with Southeast Asia, Central Asia, and the Middle East.

Summarily, it is Modi’s patience and resistance to shock therapy prescriptions, as well as his willingness to reap economic benefits from both the U.S. and China that will allow India to reach its economic and geopolitical aspirations in the long run.

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About Author

Robert Matthew Shines

Robert Matthew Shines is a U.S. Foreign Policy Analyst & Project Manager with Bright Group Consulting, where he provides confidential geopolitical forecasting services regarding various aspects of U.S.-China foreign policy. Additionally, he is an Expert | Geopolitical Intelligence with RANE, an information and advisory services company that connects business leaders to critical risk insights and expertise. He is also an Analyst with the Foreign Policy Association where he writes blogs on foreign policy analysis. As a Senior Analyst and Editor with Global Risk Insights, he provides analysis on political risk & geopolitics. Lastly, he is a Writer for Geopoliticalmonitor Intelligence Corporation, an international intelligence publication which provides comprehensive geopolitical analysis. Having previously consulted in Ukraine, his area of focus is U.S.-Russia relations. He received his MBA from the Thunderbird School of Global Management with a focus on U.S.-China relations.