PM Modi’s US Visit: India Has to Look Like a Superpower to Get US Investors interested Again

Washington DC: Prime Minister Narendra Modi’s US visit is a damage repair job, not a triumphal clinching of a strategic relationship. Indo-US relations resemble a broken-down car covered with dust. Modi must do more than wipe off the dust. He must convert India into an economic powerhouse that is globally relevant again, and has strategic value for others.

In the 2000s, India’s GDP grew rapidly, making it a potential superpower and the only plausible strategic counter to China in Asia. India was also an attractive destination for US business, which became the strongest lobby India ever had in Washington DC. This facilitated the Bush-Singh nuclear deal and Obama’s backing for a UN Security Council seat.

Prime Minister Narendra Modi’s US visit is a damage repair job, not a triumphal clinching of a strategic relationship.

But after 2010 India’s economy plunged downhill. In dollar terms, it actually shrank. It went from one-third China’s size to one-fifth. Policies turned populist, obstructionist and investor-unfriendly, so Indian investment collapsed along with foreign investment.

Last summer, this “potential superpower” became instead one of the “Fragile Five” countries on the brink of economic disaster, as the rupee crashed from Rs 55 to Rs 68 to the dollar before recovering to Rs 62. US business lost patience with growing Indian red tape and anti-market attitudes.

It became a lobby against India instead of for India. US business now complains bitterly about India’s restrictive patent regime, growing protectionism, infrastructure collapse, retrospective tax changes (as in the Vodafone case), innumerable tax disputes on transfer pricing, India’s reneging on free pricing for gas discoveries, huge increase in price controls in pharma, obstruction of a WTO deal and paralysis in clearing new projects.

Tackling these issues requires radical changes at home, not handshakes abroad or pleas to foreigners to make India a manufacturing hub. When Indians are not rushing to invest in India, will Americans do? Putting a satellite into Mars’ orbit is a great technical display, but not a substitute for commercial success. The liability clause in India’s nuclear law has at one stroke neutered the Bush-Singh nuclear deal: no firm deal has been signed for a single new reactor.

If Modi pledges to change just this, it will be a breakthrough, but that implies a huge attitude change. Modi’s raising of FDI limits in defence, insurance and railway infrastructure have not enthused US business, which will not rest content with a 49% stake and no management control.

In sum, a strategic Indo-US relationship requires, first and foremost, that India should put its own house in order and start looking like a potential superpower, after which US interest will skyrocket. Second, a strategic relationship requires much more Indian openness to foreign trade and investment, something alien to RSS thinking.

Third, it requires attention to specific US interests like the patent regime and nuclear liability clause, both thorny issues. Without these, Modi’s visit will be lucky to produce more than a few crumbs from the US table, garnished with insincere promises of friendship.

Swaminathan S. Anklesaria Aiyar is a research fellow at the Cato Institute.