Current Issues and Policies No. 2018-22
December 18, 2018
Dr. Choi Yoonjung
Research Fellow, the Sejong Institute
yjchoi@sejong.org
1.
Indian Politics and Economy in 2018
India in 2018 has
elevated its position as an economic powerhouse based on democracy and market
economy principles and a leading country among the middle powers by
participating in key security and economic consultative bodies including the
Indo-Pacific strategy and the Regional Comprehensive Economic Partnership
(RCEP).
India
enjoyed a prosperous year in 2018. It has become the world’s 6th largest
economy and positioned itself as an alternative to China which has declined in
economic growth and mired in hegemonic competition with the U.S. - whereas
India ascertained 7 percent economic growth this year with the 8.2 percent
growth recorded in the third quarter. India has no apparent enemy in its rhetoric.
While maintaining the non-alignment orientation, it rallies the third world
countries in accordance with strategic interests and raises its diplomatic and
security standing at the global stage as a leading country among the middle
powers by flexibly participating in several economic and security consultative
bodies.
The five years under
Prime Minister Narendra Modi has recorded high achievements. The
Hindu-nationalist Bharatiya Janata Party (BJP), led by Prime Minister Modi and
heading the National Democratic Alliance (NDA), won against the United
Progressive Alliance (UPA) led by the Nehru family led Indian National Congress
(INC) at the 2014 general elections. As a result, the BJP took control of the
Lok Sabha (House of the People), the lower house, for the first time in 30
years. Prime Minister Modi, the former governor of Gujarat, adopted substantial
reform measures with emphasis on the eradication of corruption, investment-led
economic growth, fostering of manufacturing industry, etc. In November 2016,
the Modi government introduced currency reforms aimed at expanding the tax base
and flushing out cash flow in the underground economy and integrated the
value-added tax different at the state level into unified taxation of goods and
service tax in July 2017. This caused the economic growth to fall below 7
percent in 2017, the first time during Modi’s term; but the economic growth
swiftly recovered in the next year above 7 percent with a positive assessment
from the market - that it improved the fundamentals of the economy. Confirming
their support in state elections in Gujarat and Karnataka, the BJP-led NDA held
power in 21 out of 29 states as of May 2018.
However,
the unstable currents began to surge from the second half of 2018. Despite its
efforts to grapple with the rise in oil prices and U.S. interest rates such as
raising interest rates 0.5 percent twice in June and August and sold foreign
reserves, the Indian government was unable to prevent the devaluation of Indian
rupee - the Indian currency was devalued to 70 rupees for a dollar for the
first time on August 1, 2018 (c.f. USD1=65 rupees in April 2018) and has not
recovered since. Moreover, as inflation rate centered around agricultural
products is predicted to hike due to an 8.3 percent reduction of Winter harvest
caused by the insufficient rainfall during the monsoon season this year, hence,
policies such as pork barrel subsidies and debt relief to rural areas could
also be introduced. The International Monetary Fund (IMF) announced 2019 economic
forecasts for India as 7.5 percent, a slight decrease from the previous 7.8
percent.1)
There
are also signs of social unrest. Recently, demonstrations have been witnessed
in various places due to the rise in oil price, and the dissatisfaction
accumulated among those marginalized in the economic growth, the farmers,
low-income workers, and unemployed youth have begun to be expressed in society.2)
According to the living standards surveyed by
the Gallup in 2018, the quality of living fell from 4.4 points to 4.0 points
out of 10 points. Despite the fact that the Indian economy recorded continuous
growth since Prime Minister Modi was sworn in in 2014, the average household
income stagnated around 17,300 rupees per month.
That
is not all. As the Hindutva (Hindu-centric ideology) movement emerged as a
backlash of growing proportion and political influence of Muslims in India,
religious affairs have become a major issue in politics. Prime Minister Modi
and BJP have initiated a campaign to erase Islamic culture, beginning with the
Islamic custom of ‘triple talaq’ - divorce is legally valid when the husband
declares divorce three times. The idea to rename geographical locations such as
Ahmedabad and Hyderabad, the largest cities of Gujarat and Telangana, is also to
remove the remnants of the Islamic history.
3) As such, Hinduism, emboldened since the BJP rose to power in
2014, has sparked a backlash from 200 million Muslims, 14 percent of the Indian
population.
Eventually,
the BJP lost desperately in state legislative elections in November 2018 in
five states, failing to win majority seats in any of the five - a barometer to
check the public view of political alignment. In November 7, the state assembly
elections were held in Madhya Pradesh, Rajasthan, Telangana, Mizoram, and
Chhattisgarh. Particularly, of the five states, Madhya Pradesh (230 seats),
Rajasthan (199 seats), and Chhattisgarh (90 seats), being the ‘Hindi Belt of
north-central India’ are considered as BJP’s turf. In fact, Prime Minister Modi
paved his way to victory winning 62 out of 65 seats allocated to these three
states in the general elections in 2014. However, in these elections, BJP only
matched evenly against the INC in Madhya Pradesh (109 seats vs. 114 seats); the
BJP only won 73 seats and 15 seats in Rajasthan and Chhattisgarh respectively,
lagging way behind the INC (or the INC coalition) which won 100 seats and 68
seats respectively. The regional parties, Telangana Rashtra Samithi (TRS) and
Mizo National Front (MNF), took control of the majority in Telangana and
Mizoram.
2. Indian Politics and Foreign Policy
Outlook in 2019
The Modi-led NDA will
likely to retain power in 2019 after the general elections. However, the BJP
will have to coordinate its policies with the junior coalition parties and the
opposition as it is predicted to grasp an overwhelming majority.4)
India
is scheduled to hold the 17th general elections in April and May 2019. Prior to
the general elections, the Modi government have promoted the achievements of
economic reforms until now. On August 15, 2018, Modi, delivering the
Independence Day speech, stressed that as the red tapes are replaced with red
carpets (in terms of ease-of-doing business), the international commentators
say that the once ‘sleeping elephant’ has woken up and is running. And
re-declaring the ‘New India by 2022’ vision, New Delhi is promoting an ever
stronger India. It is evaluated that Prime Minister Modi, having resuscitated
and elevated the Indian economy, will probably serve another term. Above all else,
no one in the opposition seems to have the capability to vie for power against
Modi, even including INC President Rahul Gandhi.
Nevertheless,
as the local election results suggest, the BJP is unlikely to win the majority
at the general elections in 2019 as different classes neglected in the
development process will have resentments; BJP will need other parties within
the NDA to claim the majority seat in the Lok Sabha - signifying policy
adjustments to negotiate. Especially, it may burst open the fissures within the
NDA, between the Hindu-nationalist BJP and Islamic and other non-Hindu-related
parties, draining the Modi government’s political stability and policy momentum
not experienced during Modi’s first term. However, as it will assume control of
the Rajya Sabha (Council of States, the upper house) from 2020, the NDA
coalition will have a bigger say in the decision-making process. In pursuant to
the custom that one-third of representatives, voted by the state legislature,
are replaced every two years, the NDA will be likely to hold majority seats in
the Rajya Sabha.
Marking the 75th year of independence in 2022, India plans
to present an advanced version of itself at the global stage. At the same time,
it will orientate toward a more inclusive economic growth and practical
diplomacy.
‘New
India by 2022’ is an attractive slogan. New Delhi intends to project a stronger
India in 2022, the 75th anniversary of its independence from Britain. It
already has set deadlines for key policies such as ‘Make in India,’ the project
to make India a global manufacturing power, by 2022. The Indian government
successfully gained the approval to host the G20 summit in 2022 by the member
states. ‘New India’ particularly bodes well with Hindu nationalists.
Nevertheless, this slogan seems irrelevant to 14% of the Indians (Muslims) as
well as other people who have difficulties making their ends meet. To overcome
these shortcomings, the Indian government in 2019 is predicted to expand its
campaign to raise national pride, enhance support base from the neglected
class, and rally the existing support base.
In
the same vein, the government that takes office after the general elections
will be utmostly faced with the task of elevating people’s quality of living
such as rural development, provision of housing and medical service. It will
accelerate the ‘Make in India’ policy, aimed at creating 100 million jobs
through the development of the manufacturing sector, and public-private
partnership (PPP) projects to urge the construction of infrastructures, which
have impeded economic growth. While the government will continue to make
efforts to improve the business climate, it will have limitations in grappling
with sensitive issues such as land acquisition and reform of labor law.
In
terms of foreign policy, the BJP’s alignment will adhere to ‘strong India.’ The
Modi government’s Act East policy differs from the predecessor Manmohan Singh
government’s Look East policy in the target region and objective. It broadened
the target countries from some Southeast and Northeast Asian countries to key
countries in the Indo-Pacific region and emphasized balance, peace, and
stability in the region. Particularly, mindful of the U.S. Indo-Pacific
strategy, China’s expansion strategy, and its Act East policy, India has
emphasized the freedom of navigation in the South China Sea and the Indian
Ocean and encouraged the countries concerned including South Korea to
participate in the establishment of new norms.
Boosting
its relations with the U.S. will be more crucial to India, as the two countries
share the common interest of containing China’s influence. Nonetheless, the
trade dispute between the two countries may also expand, factoring in the
‘America first’-proclaiming Trump administration’s trade policy. Moreover,
while it makes efforts to expand cooperation with China in practical terms, the
cozy ties between Beijing and Islamabad, enduring India-China border dispute,
China’s expanding presence in India’s neighbors, etc. Leaves the seeds of
conflict with China. Thus, the bilateral relations of the two most populous
states in the world will be unlikely to improve in the near future. Rather,
India will build up relations with other economic and military powers, Japan,
Russia, etc. to cement its supporting countries at the international stage to
counter China’s widening stretch.
Meanwhile,
India will not be able to lessen its trade deficit of $70 billion. Amid the
U.S.-China trade war, the side-benefits that India gains by the accessibility
to its largest export market, the U.S., will be negated when India engages in
trade dispute with the U.S. Furthermore, the increase in oil prices forecasts
from the latter half of 2018 around $70 per barrel (Brent crude) - which
remained low throughout 2015 to 2017 around $40-50 per barrel - bodes gloomy
days for the Indian economy which depends more than 20% of oil on imports. At
this juncture, if the BJP-led coalition retains power in the next year’s
general elections, India will pursue more practical foreign policy. To attenuate
the exporters and farmers’ discontent, it will have to impose trade barriers for
protection as well as policies to expand exports.
3. ROK-India Relations in 2019
India will hope South Korea to serve as a actor more
involved in establishing the regional order in Asia as well as a genuine
special strategic partner that provides substantial benefits to the Indian
people.
Pursuing a stronger
India with active Asia strategy, New Delhi will hope Seoul to become an actor
more involved in the regional society, while consolidating the bilateral
relations. The political relations between the two countries have made
significant progress. Since the establishment of diplomatic relations in 1973,
South Korea and India have expanded exchanges in various domains encompassing
politics, economy, culture, and society, and signed the Comprehensive Economic
Partnership Agreement (CEPA, akin to FTA) in 2009. Furthermore, the summits in
2010 and 2015 have been the occasion to elevate the bilateral ties to
‘strategic partnership’ and ‘special strategic partnership’ respectively.
In addition, the Moon
Jae-in administration announced the New Southern Policy, pursuing the
diversification of its foreign policy and market and designating India as one
of the key countries for southern cooperation along with ASEAN in November
2017. President Moon Jae-in visited India in July 2018 and agreed to bolster
relations based on the principle of ‘three-Ps plus (people, prosperity, peace,
and future),’ recognizing the common ground between South Korea’s New Southern
policy and India’s Act East policy. India especially welcomed that South
Korea’s New Southern policy promotes India to be a key partner in its foreign
policy and that it aims to elevate the relations on par with the four neighboring
countries and hoped the bilateral relations to become genuine special strategic
partners for each other. Indian government officials and academics agreed on
the people-first New Southern policy and proposed the bilateral cooperation to
encompass diverse areas including coordination in regional issues such as Indo-Pacific
strategy and economy.5)
As such, the
politically-mature ROK-India relations should spread to other domains. Of
India’s trade volume of $742.8 billion, its trade with South Korea only accounts
for 2.7 percent - $20 billion. The CEPA review, which is bound to finalize
soon, South Korea should concentrate on smoothening the bilateral exchanges and
widening opportunities of economic cooperation and businesses rather than
opening additional markets, considering India’s domestic and surrounding
environment. Along with these, the South Korean government should support its
corporations to sufficiently make use of the CEFA and offer a prospective guide
for alternative markets in the case of steel and chemical products, the items
that the Indian government is likely to introduce trade safeguard measures.6)
The year 2019 is high time to actualize the special
strategic relations based on the principles of New Southern Policy - people,
prosperity, peace, and future.
A
new strategy is required in trade and investment. India now imports electronic
goods mostly from China, once South Korea’s main exports to India. Also, the
exports of telecommunication apparatus and parts (HS8517) had a brief moment of
a rapid surge for three years thanks to India’s expansion of its
telecommunication grid and wider use of smartphones, but the imports plummeted
in 2018. This was replaced by Chinese and Vietnamese goods. While Samsung and
Kia Motors began or will begin construction of production plants in Noida and
Anantapur respectively, it is difficult to predict that the investment will
drive an increase in exports like the current situation. Demanding strongly the
use of parts made in India, the Indian government have raised tariffs for the
parts and the low-cost substitutes from China and Vietnam could fill in the
void caused by higher tariffs.
Seoul
should pour in more efforts to build cooperation that substantially benefits
the Indian public. It could engineer measures to cooperate in 25 sectors,
including electronics, semiconductor, food processing, shipbuilding,
automobile, textile, etc., that the Make in India initiative covers and seek
practical measures to participate in infrastructure construction in India linking
trade finance and its Economic Development Cooperation Fund (EDCF). Based on
the principle of peace and future, the two countries could also prospectively
seek cooperation in military, security, energy, and science and technology. The
cooperation in defense acquisition with India, being one of world’s top arms
importers, will bear meaningful fruits. As South Korea pursues to diversify its
diplomacy portfolio, it should review positively measures to shore up
cooperation with India in various mechanisms such as Indo-Pacific strategy.
India has plans to reduce dependence on oil imports from 82.8% to 10% by 2022
and supply the shortage of electricity with renewable energy sources (175GW)
and South Korea also intends to increase the supply of renewable energy from
6.2% to 20%. The two countries established ‘Korea-India Future Strategy Group’
to respond jointly to the fourth industrial revolution using the
inter-compatibility of the two countries’ science and technology. I hope the
new Presidential Committee on New Southern Policy established after President
Moon’s visit to India will institutionalize the cooperation channel with India
and translate the momentum for bilateral cooperation into a fast-track toward a
genuine special strategic relationship.
1) The Modi government is known to have
demanded the Reserve Bank of India (RBI) to remove the hurdles for national
banks to provide loans and various economic stimulus packages. Hence, the RBI will
authorize more space for loans, lowering the statutory liquidity ratio from
19.5% to 18%, 0.25% per quarter from January 2019. Meanwhile, after the RBI
Governor Urjit Patel’s sudden resignation, the RBI’s independence have been in
question as pro-Modi Shaktikanta Das, a former minister of finance, was
appointed on December 11.
2) According to the Centre for
Monitoring Indian Economy, the unemployment rate was 6.62% in November 2018,
risen compared to the last year’s numbers.
3) Park Young-sun. November 12, 2018. “India likes
to change geographical names.” KOTRA Trade Office Report.
4) Time. December 12, 2018. “Why
Narendra Modi's Ruling Party No Longer Looks Invincible in 2019 Indian
Elections.”
5) Choi Yoon Jung. 2018. “New Southern Policy and
ROK-India Special Strategic Partnership.” Sejong Policy Brief 2018-26. The
Sejong Institute.
6) Currently, steel and chemical
products that rank among top South Korea’s exports to India have continued to
encounter obstacles from India, a target for anti-dumping tariffs.
This article is based on the
author’s personal opinion and does not reflect the views of the Sejong
Institute.
*Translator’s
note: This is an unofficial translation of the original paper which was written
in Korean. All references should be made to the original paper.
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