First Year: Modi Invigorates Indian Economy and Foreign Policy

Marking one year in office this week, Indian Prime Minister Narendra Modi gets high marks for reviving India’s foundering economy and energizing foreign relations with global powers and regional neighbors. The government has experienced some setbacks in implementing its ambitious agenda, like failure (so far) to pass the land acquisition and GST bills, but overall the scales tip toward a largely successful first year. This is good news for the U.S., which is rooting for India to develop a more robust economic, political, and military role in the region and beyond.

With the growth rate projected at 7.5 percent (outpacing China for the first time in 15 years), inflation down, and the current account deficit shrinking, Prime Minister Modi has stuck to his campaign pledge to revive the Indian economy. The opening of the insurance and defense markets and aggressive push of the “Make in India” campaign is generating optimism that the government is moving in the right direction on the economy.

Equally impressive have been Modi’s foreign policy accomplishments. Logging 19 foreign trips, Modi has reasserted India’s role as a regional and global power. While prioritizing moving the U.S.-India relationship on a firmer footing, he also has methodically built up ties with Asian partners like Japan and Australia and tended to relationships with neighbors, Sri Lanka, Bangladesh, and Nepal.

Remarkably, PM Modi and U.S. President Barack Obama held two rounds of meetings within a five-month period, including Obama making the first-ever U.S. appearance as Chief Guest at India’s Republic Day parade. The two sides made progress on military cooperation, agreeing to renew the 10-year Framework for the U.S.-India Defense Relationship and announcing joint projects, including the co-production of unmanned aerial vehicles (UAVs) and specialized equipment for military transport aircraft and establishment of contact groups to explore co-development of aircraft carrier and jet engine technology.

Although characterized as a “breakthrough in understanding,” the two sides made less progress than meets the eye on the Indo-U.S. civil nuclear deal. U.S. companies are still wary about investing in India’s civil nuclear sector, indicating there remain serious sticking points on the liability issue.

Forming the backdrop of progress on Indo-U.S. defense and strategic ties is undoubtedly the military and economic rise of China. One of the most striking aspects of Obama’s India visit was their joint statement on cooperation in the Asia Pacific, including a reference to the South China Sea, an unambiguous upbraiding of China’s increasingly assertive posture on its maritime claims.

Modi’s highly productive visit to Japan last fall was an elaboration of his strategy to strengthen India’s hand with regard to the China challenge. During that visit, PM Modi and Japanese Prime Minister Shinzo Abe agreed to elevate their dialogue to a “Special Strategic and Global Partnership” and Japan committed to investing $35 billion in Indian projects over the next five years.

He also was the first Indian prime minister to visit Australia in 30 years, a further example of his bold foreign policy agenda. He addressed the Australian parliament and talked about the two countries being natural partners who both depended on the oceans as “lifelines.”

Modi’s successful visit to China earlier this month can be viewed as a vindication of his tougher policy on their border disputes. While speaking candidly about their unresolved border issues, Modi also courted Chinese trade and investment. The two countries signed 24 agreements and nearly $30 billion in business deals. He stopped short of accepting China's invitation to join its “One Belt, One Road” initiative, however, demonstrating they will continue to compete for regional influence.

The Modi government has made some headway on the goal to modernize and bolster the military. It raised defense spending by 11 percent to around $40 billion for the Indian fiscal year beginning April 1st, although defense analysts generally view this figure as still too low, especially when compared to the $140 billion China spends annually on its defense. The finalizing of the fighter jet deal with France accomplished during Modi's visit there last month will help India in its modernization push. Raising FDI caps in the defense sector could eventually help to indigenize Indian defense production, but poor infrastructure, continued bureaucratic obstacles, and failure to allow the private sector to lead the way on research and technological innovation will hinder significant progress and guarantee India continues to rely primarily on imports for its defense requirements.

Backtracks on Pakistan and Religious Freedom

Relations with Pakistan have been on a downward trajectory ever since Modi called off Foreign-Secretary level talks last summer due to a Pakistani official’s meeting with Kashmiri separatists. There has been an uptick in cross-border firing with Pakistani forces along the Line of Control and a slight increase in terrorist activity in Kashmir over the last several months.

Pakistan has done its part to contribute to the downward spiral in relations by releasing from jail in April the mastermind of the 2008 Mumbai attacks, Zakiur Rehman Lakhvi.

A crisis with Pakistan would distract Modi from his broader foreign policy agenda. But New Delhi would also likely win international sympathy, particularly if Pakistan-based terrorists precipitated the crisis as in the three-day terrorist siege of Mumbai in 2008.

Another issue on which there has been some disappointment with Modi is that of religious freedom. He was late in reining in some of the hardcore Hindutva elements of his party when they pursued mass conversion ceremonies in which Muslims and Christians are converted to Hinduism. The so-called “reconversion” ceremonies and a spate of desecrations of churches in New Delhi last December put Modi on the spot.

He responded by reaffirming his government’s commitment to religious freedom during a speech to Christian leaders in February and has apparently quietly discouraged the reconversion ceremonies. But he must find more opportunities to demonstrate he has left communal politics behind for good and will focus instead on protecting religious minorities.

Ready to Assert Influence

U.S. officials look to India to project power and influence in the Asia Pacific to help promote free trade and a stable, democratic order. An assessment of the Modi government’s first year on the job indicates India is beginning to take on this role more readily.

The author is Senior Research Fellow at The Heritage Foundation.

(The Heritage Foundation, United States & VIF have a collaboration on matters of mutual interest)