Ritu Jha–
The interim budget 2024-2025 of the Narendra Modi government does not make any ground-breaking announcements, and the Modi government has not been able to “stoke investors’ imagination” in its second term says Richard Rossow, senior adviser and chair of U.S.-India Policy Studies at the Center for Strategic and International Studies (CSIS).
Rossow, an expert in the US-India economy, shared with indica his thoughts on the interim budget and the government said, “As a pre-election Interim Budget, there is little groundbreaking news. With an election on the horizon, foreign firms still watch closely in case the government decides to appease local firms by taking protectionist steps like increasing customs duties on imports. This did not happen, so India’s foreign trade partners would welcome this announcement.”
He also did not have too many encouraging things to say about India’s economic growth trend. Rossow has predicted that it may take at least another two years for India to be able to achieve a GDP of $5 trillion, which has been the stated goal of the Modi government for long. “India’s real GDP stands at a bit over $4 trillion, per the International Monetary Fund (IMF). If India grows at 6% to 7%, it will take another 2-3 years to cross $5 trillion GDP. Even growing at 10% does not dramatically shorten the time to $5 trillion.”
Not just the Central government, but the state governments too will have to chip in to enable the Indian economy to reach its “larger targets”.
“Looking at larger targets in the future, the speed and progress are not simply an outcome of actions by the Union government. More large states need political stability and growth-oriented policymaking. Then, growing 10% per year and attracting major global supply chain investments will become the norm, rather than the exception,” Rossow said.
Rossow had stated earlier that India has witnessed a 27% year-on-year drop in 12-month foreign direct investment (FDI) inflow (new equity) and a 43% drop in FDI inflow from the mid-2021 peak. Rossow explained: “I have not seen a formal survey-based qualitative analysis of the reasons for the drop in FDI, but based on my knowledge and conversations, a few reasons stand out. First, the Modi government has not been able to “stoke investors’ imagination” in its second term. There have been only a handful of FDI cap changes, compared to more than 40 in the first term. And a few big reforms akin to GST or the Bankruptcy Code. A second reason is that relatively few states in India are pushing for big reforms in areas like land acquisition and labor regulations.”
He said media reports of significant investments by foreign technology firms into India engender the feeling that “Make in India,” paired with increased trade pressure on China, has finally started to build momentum. However, the government of India’s data proves otherwise.
World Bank data shows manufacturing stuck at around 13% of India’s Gross Domestic Product (GDP). One major potential investor, Foxconn, dropped its massive $20 billion chip venture with Vedanta this past summer. However, there are some “green shoots” that foreign investment might finally be shifting back towards India — including a healthy $6.5 billion new equity inflow in October 2023,” Rossow had said earlier in January in a newsletter published on the CSIS website.
On whether the alleged attempt of the Indian government to assassinate Khalistan supporter, Pannun, and pursuing a Hindutva agenda could hamper US-India relations, he said: “In terms of potential political overhang related to India’s reported attempt to assassinate a Sikh extremist in the United States or concerns about the rise of Hindu nationalism: For now, no relations will push through, despite some tensions. But there are unforeseeable thresholds on these issues, and I hope our nations do not test these thresholds.”
“U.S.-India relations were shaken up with the unsealing of an indictment in the Southern District of New York. The indictment alleged a plot outlining an Indian intelligence officer’s involvement in the attempted assassination of a Sikh separatist who is an American citizen. As this case moves ahead, there will likely be other closely watched moments that could alter the trajectory of U.S.-India ties,” Rossow had stated in his newsletter.
“The coming year is replete with promises and pitfalls. National elections in both India and the United States could trigger shifts in foreign policy and economic policymaking. New revelations related to the attempted murder case in New York may provide new fuel to the relationship’s critics. Additionally, the United States’ and India’s differing approaches to the elections in Bangladesh will underscore geostrategic divisions. However, we can expect the several workstreams to bear fruit. Senior-level engagements provide action-forcing events—with great urgency over time as China increases its dangerous activities across the Indo-Pacific,” he added in the newsletter.
