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Modi's foreign policy: implications for Asia and Australia

Posted By on May 21, 2014 @ 11:00

India's Prime Minister-elect, Narendra Modi, addressing a rally in West Bengal on 7 May 2014.

Narendra Modi has come to power because the Indian electorate, particularly the 50% of Indians who are under 25, wants a leadership committed to rapid economic growth. For him to deliver on that promise he’ll have to bring about structural reforms to the Indian economy and look for external investors to put money into some of his most ambitious projects—which range from bullet trains to high-tech cities. Those investments will most likely come from Asian countries that have built strong Foreign Direct Investment (FDI) linkages with India. Further, given that Western nations, particularly the United States, shunned Modi until recently, in the short to medium term he’ll focus his foreign policy efforts on Asia.

Modi’s development agenda is unlikely, in the near term, to be funded by Western nations disenchanted with New Delhi’s glacial decision-making process, its excessive red-tape, and high levels of corruption. He will, therefore, go to Japan, China, and South Korea to seek FDI because those countries are comfortable with the Indian business environment and, in the case of Japan and South Korea, have already invested billions in the country.

Despite making the pre-election nationalist pitch of telling China that India wouldn’t cede territory to it, Modi is viewed as a pragmatist in Beijing and as someone Chinese industry and investors can do business with. The Chinese have long eyed investing in India’s telecommunications industry and infrastructure development and have offered to build a bullet-train network for India. Japan, similarly, has invested $4 billion in helping to develop the Delhi-Mumbai industrial corridor. Tokyo would like to expand its investments in India because not only would it provide economic rewards but it would strengthen the India-Japan strategic relationship which some observers believe can be used to restrain potentially aggressive Chinese moves in Asia.

The new Indian leader would like to get investments in major industries, but given the lengthy and time-consuming litigation that’s involved with acquiring land and mining rights in India, it’s more likely that the Modi government will jump-start the economy by opening up the banking, insurance, healthcare, aviation, education, and defense sectors.

What does that mean for Australia? In the last few years the India-Australia relationship has moved beyond curry, Commonwealth, and cricket, to much broader discussions about trade, investments, and strategic order in Asia. Australia could make significant investments in the healthcare and education sectors. India recognises that it needs not only more college graduates but also people with the vocational training to work in 21st-century industries. With that in mind, India signed an agreement with the US to have 200 community colleges set up in the country. Given that Australia is an educational power that punches above its weight in this sector, it could build a niche for itself in the Indian market. During the election campaign, the two major Indian parties, the Congress and the BJP, spoke of significantly improving healthcare—and here again Australia could contribute to the growth of the Indian economy.

Modi is also a big fan of Indian states pursuing their own foreign economic policies much as he did while Chief Minister of Gujarat. The more progressive Indian states are likely to take advantage of this leeway granted by the new prime minister. Even in the less-developed states there’s likely to be an interest in pursuing such policies. After all, Akhilesh Yadav, the Chief Minister of India’s most populous state, Uttar Pradesh, studied at the University of Sydney and would probably be interested in developing ties with his alma mater.

Energy is the other key area where the relationship can and must develop, since much of Modi’s ambitious plans rest on being able to provide adequate power to manufacturing as well as to millions of homes across the country. In this context Australia becomes a stable and reliable supplier to deal with. And then there’s always the prospect of selling uranium….?

Amit Gupta is an associate professor in the Department of International Security at the USAF Air War College, Maxwell AFB, Alabama. The views in this article are his own and do not necessarily reflect those of the USAF or the Department of Defense. Image courtesy of Flickr user Narendra Modi.

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[1] Image: http://www.aspistrategist.org.au/wp-content/uploads/2014/05/Narendra-Modi1.jpg

[2] Narendra Modi: https://www.flickr.com/photos/narendramodiofficial/14128273354/