Amidst the din of geopolitical uncertainties, there is hidden business potential for India if a strengthened Modi government accelerates the Ease of Doing Business 2.0.
File image of Prime Minister Narendra Modi. Image credit: Press Information Bureau
The BJP’s victories in the politically significant and populous state of Uttar Pradesh and in three other states are viewed as a harbinger of Prime Minister Narendra Modi retaining political power to shape the destiny of India for the next seven years, till 2029. Such an assumption presently is neither overly-optimistic nor factually flawed in the least, gauging from the present mood of the nation that is fuelling the ruling NDA’s momentum.
Modi’s rising national and international popularity graph, and a longer time span of governance, offers the PM ample political capital and space to complete the ambitious reforms process that could catapult India into the world’s third largest economy by 2029, ensure 100 percent saturation in delivery of social sector schemes, as also transform India’s agrarian economy into an urbanised industrial economy.
Even in the global context, amidst a realigning world order, and one that is moving towards unilateralism, the electoral wins have far-reaching implications on Modi’s heft amidst the weakening writ of multilateral institutions in global governance, as also for internal security. The message going out to adversary and ally nations alike is that the Indian PM is on a stronger wicket to negotiate and navigate with his peers amongst the G-7 or D-10’s leading democracies.
This is happening amidst historically tumultuous times, as the axis of power shifts from the democratic West to a dystopic East, where populist autocrats dominate, like Xi Jinping and Vladimir Putin. This is juxtaposed to the Indian worldview which projects moderation, continuity, and a nuanced stance in foreign policy due to the stability in leadership. Besides, as the ease of doing business with autocratic regimes comes with its own perils, this will compel multinationals to rethink the risk-reward in investing in countries with scant regard for the international rule of law.
However, the collateral damage inflicted by two successive global black swan events: The aftermath of the Covid-inflicted hysteresis, and now the Russia-Ukraine war-induced shocks will take an inevitable toll by derailing defence budgets and allocations much needed for development across the board. The contagion is likely to unlikely to warrant a downward revision in India’s macro forecasts for FY’23.
Undoubtedly, there will be immediate and long-term consequences directly proportionate to the time and duration of the conflict, just as the duration of the pandemic impacted the degree of economic damage and the pace of subsequent revival.
The successive trade shock is already leading to secondary disruptions of supply chains, which will further impede nascent global as also Indian recovery post-Covid. Also, there is already a secondary surge in inflation due to the surge and volatility in oil and gas prices, as fiscal pressures and a widening current account deficit weigh down India’s growth prospects. It is estimated that for every $10 increase in the price of crude oil, it will widen the CAD by $14-15 billion.
While we hope for a quick end to the war, a prolonged Russia-Ukraine war could push global crude oil to the highest in a decade to even $185 to $200 a barrel, having adverse effects on budgetary allocations as crude oil imports account for 20 percent of the import bill, which will widen the budgeted fiscal deficit of 6.4 percent of GDP in 2022-23.
Also, with the rising trend of geopolitical tensions becoming a frequent occurrence, fiscal resources will always remain strained, as the need to increase spending on defence hardware increases.
If India has to continue to grow at 7.8 percent in 2022-23, it necessitates continued and enhanced outlays towards growth propellers like public spending on health and infrastructure; increased private investments driven by the Productivity Linked Incentive Schemes; increased incentives for climate change transition industries, and incentivising the largest components of demand, which is private consumption. While the Russia-Ukraine war has impacted India’s oil import bill, conversely, it could have a beneficial effect on wheat procurement and consequently on rural incomes as Indian production of wheat exceeds demand.
As regards reforms, the serial electoral wins confer lavish political capital to the ruling NDA to accelerate the pace of asset monetisation through privatisation of public sector enterprises, two state-run banks, and the LIC IPO once market conditions are more favourable. Secondly, the government is likely to push ahead with amendments to the four Industrial Relations Labour Codes so as to create a favourable ecosystem for larger investments. However, the poll results in Punjab could deter any immediate attempts to revive consensus on the shelved agriculture reforms.
In conclusion, amidst the din of geopolitical uncertainties there is hidden business potential for India if a strengthened Modi Sarkar accelerates the Ease of Doing Business 2.0. While India has been pitching for becoming the favoured investment destination for exodus industries out of China by creating a favourable ecosystem for large FDI inflows, there now exists great potential for India from multinationals like BMW, Ford, GM, Honda, IBM Samsung, etc, scaling back operations in Russia, and could look to relocate.
The recent display of unilateralism by severely autocratic regimes like China and Russia can act as a force multiplier to attract exodus investment capital to Indian shores. If America, Russia and China are profiteering through war, so can India if reforms are hastened. This is an opportunity that cannot be missed by India.
The author is former chairperson for the NCFI, Niti Aayog. Views expressed are personal.
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