Prime Minister Modi’s visit to America could become a game changer. It might bring to fruition the oft repeated phrase that there is a natural alliance between the world’s most powerful democracy and the world’s largest democracy. Circumstances and flawed vision kept the two nations apart. The prospects for a historic visit are propitious. The Mars Mission confirms India’s potential. Mr. Modi’s interaction with Japan reveals new direction. India’s agreement with America for joint ventures in defence production signal deep future ties. Above all, apart from strategic and security aspects Mr. Modi’s drive for a ‘Make in India’ movement opens the door to a historic breakthrough.
For the Make in India policy to succeed there is no doubt much that needs to be done. But from all indications the PM is on the job fast tracking progress. He is instilling discipline, punctuality and civic sense among citizens. He is reviewing India’s jungle of laws to junk what is superfluous in order to streamline governance. For foreign investment to enter in a big way he has to reform labour laws and remove bureaucratic bottlenecks. He has to simplify land acquisition policy to set up new industry. All this is achievable if the government stays on course and rises above partisanship to encourage an all party national effort allowing participation to all talent regardless of political affiliation.
The most valuable Indian asset of our economy, its reliance on domestic savings, must never be lost. At the same time allowing foreign firms to export a substantial percentage of manufactured goods could exponentially increase national wealth and increase employment after reform of labour laws. Indians must never be encouraged to overspend. Without doing so they provide a substantial domestic market. In pursuing these policies Mr. Modi will have to carefully avoid the pitfalls that beset China which pursued an export driven policy. Today Beijing is struggling to overcome past errors of policy. The virtual slave labour employed for manufacture early on is replaced by rising labour costs for increasingly assertive workers. The corruption allowed earlier to local Communist party leaders is now haunting the government. Dealing with corruption is being seen almost as a power struggle. Today China’s attraction as an investment destination is dwindling. There is decline in foreign investment. The main complaints of foreign companies relate to arbitrary law enforcement and rising labor costs. There is also perception that China is entering a long-term economic slowdown.
India as a democracy must strengthen institutions and rule of law to avoid these pitfalls. Even decent labour wages would render investment by foreigners attractive provided stable functioning under rule of law is established. With the decline of foreign investment in China India is the best potential alternative. And if foreign manufacture with permission to export products is allowed that could imperil Beijing’s economic future. Is it any wonder that President Xi Jinping is displaying uncharacteristic panic by talking about a possible regional war?