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As Narendra Modi becomes the first Indian prime minister in two decades to attend the World Economic Forum (WEF) at Davos, many eyes in the annual bazaar of global capitalism will be on him. Chinese President Xi Jinping set the ball rolling while speaking at Davos last year. Xi’s speech, at a time when China will soon overtake the US as the world’s biggest economy, was re-assuring in the age of growing American antipathy to globalisation. Xi had assured the world that China, like the developed West, will not look inward or turn its back on global economic integration.
“There was a time when China also had doubts about economic globalisation, and was not sure whether it should join the World Trade Organization. But we came to the conclusion that integration into the global economy is a historical trend. To grow its economy, China must have the courage to swim in the vast ocean of the global market. If one is always afraid of bracing the storm and exploring the new world, he will sooner or later get drowned in the ocean. We have had our fair share of choking in the water and encountered whirlpools and choppy waves, but we have learnt how to swim in this process. It has proved to be a right strategic choice,” Xi had told Davos.
Like Xi last year, Modi will be keenly watched by the Davos glitterati at a time when international organisations are predicting that India would overtake Germany as the world’s fourth-largest economy in the 75th year of its independence in 2022. “Modi is talking about globalisation and foreign policy has acquired a new dimension under the present government. I think PM Modi is going to be listened to very carefully at Davos though what he is going to say is unclear. Given that India has been performing strongly in terms of export growth, he will look to project India’s rise in the global economy. Especially with the US becoming increasingly protectionist under Donald Trump, economic growth in East Asia and China faltering, and a turmoil in Europe, the world will be looking eagerly at the role India can play in the global economy,” a former Reserve Bank of India (RBI) governor who did not wish to be named told Business Standard.
Modi’s visit to Davos comes in the midst of a mixed bag of news for his government on the economic front. The good news is that India’s export growth in the first two quarters of 2017-18 has been rather phenomenal – averaging over 30 per cent. The composition of this export growth indicates that Indian manufacturing is picking up, even if it is to cater to project requirements in foreign shores. While gems and jewellery have traditionally made the bulk of the value of Indian exports, the latest government data show that growth in the export of engineering goods over the past few months has been in double digits. In September 2017, exports of engineering goods grew by 44 per cent when compared with the same month last year. Equally impressive double-digit growth figures have been achieved in the export of petroleum products, marine products and chemicals.
While Davos is not known to make its dignitaries uncomfortable with thorny questions, the Indian prime minister might be inclined to highlight the perceived success of his government’s two major policy thrusts – knocking 86 per cent of the currency out of circulation and the unprepared roll-out of a universal goods and services tax that left millions of Indian businesses befuddled with its byzantine slabs.
Economists, critical of his government, are armed with data that would suggest that the flaws in execution and formulation of these twin moves has disrupted and not reinvigorated the Indian economy. In 2017-18, Gross Domestic Product (GDP) grew at 6.7 per cent in the first half – the lowest since the Modi government was voted to power in 2014. The Index of Industrial Production (IIP) in 2017-18 is half of what it was last year. Agriculture growth this year has clocked a measly 1.7 per cent. The construction sector, which provides employment to millions, has also grown at an average of 2.6 per cent in 2017-18. This again is half of what it grew at last year. Meanwhile, retail inflation, given its wild variations, has averaged almost 5 per cent this year – significantly higher than last year.
Despite these criticisms, the Modi government has been garnering a great deal of eyeballs at international forums for all the right reasons. For one, India is right on the money in the perception game with myriad indices and rating agencies giving India a double thumbs-up. India jumped 30 ranks in the Ease of Doing Business rankings, reportedly being one of the five top reformers. If this alone should not be making Modi the darling of Davos, the prime minister’s own acceptability on the global stage hit a new high with Washington DC-based Pew Research Centre’s research saying that nine out 10 Indians hold a favourable opinion of him. Then there was the much-criticised ratings upgrade from New York-based Moody’s. Then there was a The Economist which in a survey indicated that Indians enjoy more freedoms than Americans and French.
Secondly, Modi’s presence in Davos comes in the light of positive economic predictions of India as an emerging lodestar in a changing global economic order. The International Monetary Fund (IMF) has predicted that India’s economy will grow at 7.4 per cent in 2018-19. By 2022, India’s GDP growth would be averaging 8.2 per cent making it one of the fastest-growing big democracies in the world, much ahead of other big nations like China. In fact, by 2022, a year that Modi’s Bharatiya Janata Party (BJP) has set as a target to usher in a ‘new India’, is likely to see a world order in which India’s role becomes increasingly important if the IMF’s predictions are anything to go by. While India will become the fastest-growing trillion-dollar economy and overtake Germany as the world’s fourth-largest, advanced nations like thee US and euro zone countries are likely to see a further decline in their economic prospects. The IMF predicts that while the euro zone would grow by 1.5 per cent, the US would grow at 1.7 per cent; China’s growth rate would fall below 6 per cent. Clearly, India’s role in sustaining global growth would be next to none by the time the BJP’s vision of ushering in a ‘new India’ arrives in 2022.
But these IMF projections of better days ahead do not suggest they would be without roadblocks. World Bank figures suggest that India’s unemployment rose marginally to 3.7 per cent in 2017. The International Labour Organisation (ILO) predicts that South Asia would add 400,000 people to the ranks of the unemployed in 2018. Half of these unemployed people will be in India. The onus of driving the region’s growth and subsequently giving more people jobs will also be on India. The ILO’s 2017 report ‘World Employment Social Outlook’ states: “Southern Asia has created most of the new employment, with employment expanding by 13.4 million in 2016, underpinned by population-driven labour force growth. The majority of this new employment was created in India.”
The report further notes: “India has stepped up, achieving 7.6 per cent growth in 2016, thus helping Southern Asia achieve 6.8 per cent growth in 2016. This compares to 4.5 per cent in South-Eastern Asia and the Pacific in 2016. Manufacturing growth has underpinned India’s recent economic performance, which may help buffer demand for the region’s commodity exporters.”
Modi’s projection of India’s economic rise might also run into global headwinds against freer global trade as evidenced by US President Donald Trump’s ‘America first’ exhortations. The IMF predicts that export and import growth of emerging nations like India would halve between 2019 and 2022. Between 1999 and 2008, exports in emerging nations had grown by 8.8 per cent while imports had expanded almost 10 per cent. This also coincides with the fall in growth of imports and exports in advanced economies of America and Europe. In other words, irrespective of Trump, the nations that bloomed in the era of globalisation would have to look inward to generate demand for their goods and services. An indication of the future being predicted by IMF can partly be gauged from the fact that India’s overseas investment has virtually stagnated at around $550 billion since the Modi government assumed power. In 2016-17, it hit a low of $305 billion.
It is in this context that Modi’s outreach at Davos could be a game-changer in how the world views India’s role in the evolving global paradigm. Before Modi, two other Indian prime ministers – P V Narasimha Rao and H D Deve Gowda – have addressed the capitalist captains at WEF. Rao’s 1994 address was philosophical and reflected the uncertainty of the rapidly changing times. Rao told the gathering: “Liberalisation in trade, and the pursuit of policies allowing capital, technology and entrepreneurship to move more freely across national boundaries have given a strong impetus to economic growth. New technologies of communication in particular tend to blur the relevance of national boundaries. Here I find India and a few other developing countries more fortunately placed. We do not find any serious difficulty in the flow or absorption of technology, except when our progress itself tends to create some uneasiness in some quarters.”
Two decades later, Modi will be representing a more confident government than Rao or Deve Gowda did. The former RBI governor quoted earlier added: “Remember, this is the first full majority government since 1989. Indian prime ministers went to such forums in the past to primarily ask for aid for India to help it tide over its balance of payments crisis. But that is not the case now. So Modi’s visit is highly significant and will be watched with anticipation globally.”
Even as the Cannes of capitalism begins yet another annual ritual in the Swiss town, there are many who question the importance accorded to it in India’s scheme of things. Shankar Acharya, honorary professor at Indian Council for Research on International Economic Relations (Icrier) said: “We have to engage with the world at more operational forums like the WTO rather than talk-shops like the WEF.” Lord Meghnad Desai, when contacted, described Davos as a “circus of busybodies”.