President Obama’s remarks last month that New Delhi needed another wave of reforms triggered widespread consternation in India. The country’s notoriously divided political parties, for once, displayed a rare unanimity in condemning the perceived “meddling” of the American president in India’s domestic affairs.
Blaming “international lobbies like Vodafone” for “spreading this kind of a story,” Corporate Affairs Minister Veerappa Moily said, “Obama was not properly informed about the things that are happening, particularly when India’s economic fundamentals are strong.” Leaders of the opposition Bharatiya Janata Party and left parties were even more vehement in their criticism of the U.S. president.
Notably, even a section of the Indian business community, which has been complaining about the country’s economic policies lately, was quick to come to the defense of the beleaguered government. A commentator in the Tehelka magazine noted that Obama may have virtually killed the opening up of the retail sector by choosing to express his opinion on it.
The apoplectic reaction was not limited to the political class and the commentariat. In Chennai, hundreds protested in front of the city’s U.S. Consulate to denounce the American president.
What exactly did the U.S. president say to warrant such reaction from across the political spectrum?
Here is what Obama said in an interview with the Press Trust of India: “[U.S. business leaders] tell us it is still too hard to invest in India. In too many sectors, such as retail, India limits or prohibits the foreign investment that is necessary to create jobs in both our countries, and which is necessary for India to continue to grow.”
Stinging criticism? Meddling in internal affairs?
Far from lecturing India, the president was merely sharing the concerns of the U.S. business community, whom he termed “one of the great champions of the U.S.-India partnership.” As a matter of fact, Obama made it clear in the interview that “[it] is not the place of the United States to tell other nations, including India, how to chart its economic future,” and that is “for Indians to decide.”
In all likelihood, the president may have been responding to a pointed question on the lack of economic reforms. It is doubtful whether one could have framed the answer differently, given the current situation in India.
That the country’s economic reforms have stalled is a universally acknowledged fact. As Wall Street Journal’s Margherita Stancati wrote, “We didn’t need Mr. Obama to tell us many foreign investors find India’s regulatory framework off-putting. The numbers speak for themselves: In the April-May period, foreign direct investment in India slumped 38 percent from a year earlier. And it’s not just because of a shortage of global funds: Analysts agree that the government’s failure to lift caps on foreign direct investment in sectors like multi-brand retail, coupled with murky, proposed retroactive tax rules are also to blame.”
Stancati pointed out that Prime Minister Manmohan Singh “himself has spoken on the urgent need to take steps to boost foreign as well as local investment, as has his chief economic advisor, Kaushik Basu, repeatedly.”
The shortfall in investment is having an immediate impact on growth, and no one understands this better than Indian businesses, who have been sounding alarm bells over the state of the economy for a while now. “Our economy is fast veering towards the grim situation experienced during the global economic crisis of 2008-09,” Adi Godrej, President of the Confederation of Indian Industries, recently said. “The macro economic conditions are worsening at a faster pace than anticipated and we need to stem this at this stage.”
India should not assume that President Obama’s comments were anything more than constructive criticism, and a polite one at that, from a friend.
The general consensus is that more reforms – especially substantive ones – are unlikely to happen before the general election in 2014, even though Prime Minister Singh has handed over the finance portfolio to P. Chidambaram, following the departure of Pranab Mukherjee, who just became the new president.
Whether Chidambaram, the finance minister during Singh’s first term, will be able to make any difference is anybody’s guess. But it is worth bearing in mind that if the growth is stalled, people are unlikely to give the prime minister’s United Progressive Alliance another term in office.
Obviously, what has come in the way of reforms is the domestic politics. Because of the nature and the composition of the coalition politics, at the moment the government is finding it difficult to get the backing of allies to go ahead with reforms. Making matters worse is the reality that there are, at least, half a dozen regional leaders that have prime ministerial ambitions.
In a way, it is hard not to be sympathetic to the plight of Singh. The main reason reforms have come to a grinding is the collective failure on the part of India’s political class to build a consensus on the issue. More than two decades after they were first implemented, and after years of robust growth, by now all political parties should have already recognized at least a couple of truths about them: they are irreversible and that one cannot have a piecemeal approach to them.
But they haven’t. The biggest example is the main opposition party, the BJP, which had pushed reforms vigorously while it was in power not so long ago, but which has now positioned itself as a spirited opponent.
One thing the opponents of the reforms and many of those who make nationalistic argument against Obama having an opinion on India’s economic policies ignore is the fact that it is the country’s economy that has given New Delhi a stronger voice in the international arena in the past decade.
It will be extremely foolish to kill that goose…