India: The Global Implications Of Modi’s Victory

The election of Narendra Modi as India’s new prime minister signals that New Delhi will be considerably more assertive on the Asian geopolitical stage. In particular, a more robust foreign policy stance by India will counterbalance China and benefit Japan and the US. The main constraint will be Modi's need to focus on reviving India's economy, which has slowed sharply in recent years.

BJP’s Last Period In Office Suggests Tougher Foreign Policy Stance

Modi hails from the Hindu nationalist Bharatiya Janata Party (BJP), which had been in opposition since losing the 2004 general election. Under the last BJP prime minister, Atal Bihari Vajpayee (1998-2004), India pursued a much more assertive foreign policy, embodied by its nuclear tests of May 1998 (which were the first since 1974), its military operations against Pakistan-backed militants in Indian Kashmir a year later (the so-called Kargil war), and its build-up of hundreds of thousands of troops along the Pakistani border in response to a terrorist attack on the Indian parliament in December 2001 that New Delhi blamed on Islamabad.

The US belatedly recognised India’s rising global importance in 2000, when Bill Clinton became the first American president to visit India since Jimmy Carter in 1978. However, under the outgoing Congress Party-led government, India has arguably pursued a rather low-key foreign policy over the past decade. This is hardly surprising, as one of the reasons that the BJP fell from power in 2004 was that voters felt that it had not done enough to spread the benefits of India’s rapid economic growth. Therefore, a more domestic focus was to be expected.

Modi’s Rise Parallels That Of Japan’s Shinzo Abe

Modi and the BJP have been elected largely on the basis of economic concerns. India’s real GDP growth has slowed sharply in recent years, from rates of 9%+ in the late 2000s to an estimate of below 5% in the April 2013-March 2014 fiscal year. In that sense, there are parallels between Modi and Japanese Prime Minister Shinzo Abe. Abe was elected PM in December 2012 mainly on the basis of the perceived strengths of his economic policies, but he is also a strong nationalist who favours a more assertive Japan at a time when it has been overshadowed by China. Abe sees reviving Japan’s economy not as an end in itself, but a means to an end – namely a stronger Japan on the world stage. Modi appears to have the same desires for India.

However, both leaders face the risk that an excessive focus on external affairs would detract from pursuing domestic economic reforms. This is arguably a greater risk for Japan, which faces more immediate security challenges from China and North Korea, and has a shrinking and rapidly ageing population and colossal debt burden. In India’s case, expectations for Modi are high. The BJP has the strongest position of any party in the Indian legislature since 1984, and Modi arguably has the greatest economic reform credentials of any Indian leader for many years. In other words, if India fails to enact major economic reforms under this highly favourable new political dynamic, then investors will wonder if India can pursue such reforms at all.

India’s Growing Interests In The Eastern Hemisphere

India occupies a crucial location in the Eastern hemisphere, between the Arabian Sea, China, South East Asia, and Africa (via the Indian Ocean). As India’s economy has grown in importance, and has expanded its commercial reach overseas, New Delhi feels a greater need to defend these interests. Below, we discuss India’s main foreign policy challenges.

China – Rivalry And Opportunities: China is India’s main geopolitical rival in the Eastern hemisphere. Both are continent-sized, billion-people economies whose rises can independently change the world. China has a substantial economic lead over India in terms of total GDP and GDP per capita, but the positive aspect of this is that India has significant catch-up potential, which in turn means that India’s growth rate will probably overtake China’s over the next few years, especially as China slows. Both giants are vying for influence in the Indian Ocean basin, the Himalayan region (where China claims the Indian state of Arunachal Pradesh), Myanmar, and Africa. Earlier this year, Modi criticised China for its ‘expansionary mindset’, but now that he is about to assume power, he may adopt a more pragmatic line, especially given his pro-business leanings. In his previous position as chief minister of Gujarat state, Modi courted Chinese investment. On balance though, a more robust Indian leadership will serve as a counterweight to China at a time when Beijing’s assertiveness is rising vis-à-vis maritime territorial disputes with Japan in the East China Sea and Vietnam and the Philippines in the South China Sea.

Japan – Rising Ties With The Rising Sun: As we noted, there are parallels between the rise of Modi and his Japanese counterpart Shinzo Abe. This makes them natural allies. Abe in particular sees a strong India as a counterweight to China and a major market for Japanese goods, services, and investment. Vietnam could also be lured into this dynamic, especially in light of Hanoi’s resentment of Beijing’s decision in early May to place a new oil rig in waters claimed by Vietnam. Geopolitical observers have been speaking of an India-Vietnam-Japan security triangle since at least the late 1990s, and this arrangement could now receive a new impetus – although this is likely to constitute informal cooperation rather than an official alliance.  

Myanmar – Assist The Reformist Course: Prior to its diplomatic outreach to the West in 2011, Myanmar had long been a quasi-satellite state of China. However, India has long had a strong cultural influence in Myanmar, and this could re-emerge as Naypyidaw seeks to end its isolation. Myanmar is geopolitically important for India because it provides a land route between India and South East Asia and has a long coastline on the Indian Ocean. In addition, Myanmar has considerable natural resources, especially oil and gas, which are of interest to India’s economy. We expect Modi to facilitate Myanmar’s reintegration into the global system.

Afghanistan – Countering Pakistan: India has emerged as a major investor in Afghanistan and has been seeking to train the Afghan military. India’s main interest in the country has been countering the influence of its arch-rival Pakistan, which has traditionally backed the Taliban. In Afghanistan, the interests of India, the West, and Russia coincide. All three are firmly committed to curbing the spread of Islamist militancy and terrorism. New Delhi will be keen to ensure that the government in Kabul remains robust, as the US withdraws all or most of its troops from Afghanistan in 2014.

As regards India’s relations with Pakistan, Modi’s assertiveness hints at more strains with Islamabad. For example, he may be far less tolerant of any terrorist attacks in India that are linked to or blamed on Pakistani militant groups. Nonetheless, Modi’s solid nationalist credentials mean that he would have the authority to improve ties with Pakistan without being seen as soft.

The United States: A Fresh Start With India

All of the above demonstrates that India shares many interests with the US. Historically, US policy towards South Asia favoured Pakistan, mainly because India leaned towards the USSR during the Cold War. After the collapse of global Communism, Washington largely ignored New Delhi until the latter tested nuclear weapons in May 1998. This led to US sanctions on India. However, in 2000 President Bill Clinton visited India, thereby paving the way for a fresh start in bilateral relations. At this time, US-Pakistani relations were strained by Pakistan’s own nuclear tests (which were conducted immediately after India’s), and Washington appeared to be gradually abandoning Islamabad. Then came the 9/11 terror attacks, which made Pakistan an essential US ally in the ‘War on Terror’. Nonetheless, under President George W. Bush, the US strengthened its relationship with India substantially.

The main risk to Indo-US relations, as Modi prepares to take office, is perceptions among some in Washington that Modi didn’t do enough to prevent major clashes between Hindus and Muslims in Gujarat state in 2002 that led to more than 1,000 deaths, mostly of Muslims. Modi was already chief minister of the state at that time. Consequently, Modi was denied a visa to the US in 2005.

Nonetheless, the US can hardly afford to ignore or marginalise the leader of the world’s largest democracy, especially one that has such a sweeping electoral mandate as Modi’s. Given that the US and India share so many geopolitical goals, and stand to benefit from greater commercial links, we expect bilateral relations to be robust, albeit after an initial period of awkwardness. Washington certainly needs a powerful new ally, if it is to rebuild its global influence, and New Delhi is a logical choice. At the same time, though, we do not expect India to be subservient to the US, for India will increasingly see itself as a major power in its own right.