Illustration: Jayachandran/Mint
Illustration: Jayachandran/Mint

An investment-seeking prime minister

Narendra Modi's foreign visits should be seen beyond envy or adulation

Envy and blind adulation are the two contradictory responses that mark every foreign visit that Prime Minister Narendra Modi undertakes. As always, binaries do little justice to reality. Modi’s recent visit to the US, his interactions with technology leaders on the West Coast and his efforts to seek investment for innovative technologies should be seen as a long-standing process of India’s economic and political engagement with the world.

The highlights of the visit are well-known and need not detain us. What is worth noting is the emphasis the prime minister paid in dealing with business leaders in the US and the possible outcome of this and similar engagements made by him since he assumed office in 2014.

Modi’s visit, the changes and continuities they mark, and their outcomes should be evaluated against the long-term goals of India’s foreign policy. Since the dawn of independence, two themes have marked the conduct of foreign policy. One, the economic development of India by attracting capital, technology and ideas and two, the security and integrity of the country. Successive governments have been acutely aware of India’s position as a capital-scarce country. From the establishment of the Rourkela steel plant with the help of Germany in 1953 followed by the first investments by the USSR in 1956, this aspect of foreign policymaking has a clear line until the present-day engagement of Modi with business and entrepreneurial leaders in Silicon Valley.

What has changed is the emphasis and structure of this cooperation. In an earlier era, government-to-government cooperation ensured easy flow of credit and technology. That did not require regular prime ministerial intervention; bureaucratic delegation sufficed. In the age of aggressive investment-seeking, especially from companies at the cutting edge of technological innovation, the game is different. A potential private investor pumping in money in a developing country will seek high-level assurances before he takes an investment decision. This is over and above the usual risk assessments. India’s economic and political climate in the past decade eroded the confidence of the global investment community. Modi’s numerous visits and his close engagement with business leaders especially, should be seen against this light.

It is too early to say if the prime minister’s foreign trips are delivering the results with which they have been made. But some anecdotal evidence is at hand. In the first six months of this calendar year, India has overtaken China as the top foreign direct investment (FDI) destination globally. Last year, India stood at the fifth position in the FDI league table. In absolute terms, the FDI flow amounted to $31 billion. Even if one discounts the fickle nature of such flows, the trend is unmistakeably positive. Their persistence, after the initial euphoria and the more recent policy disappointments, is a positive feature.

Modi’s emphasis on technology is also understandable. Any investment—both on part of the investor and the investment seeker—has to be forward looking. India’s challenges at the moment have more to do with trying to turn the country into a manufacturing power and innovate on service delivery for a population of 1.2 billion people. Old technologies are unlikely to deliver on either goal. Take, for example, green technologies. Their future potential, as the world moves closer to a climate change mitigation consensus, is immense. Sooner or later, all countries—poor and rich, big and small—will want to become hubs for such technologies. In this respect, a first-mover advantage is crucial. India realizes this and the challenges that accompany this quest.

To have a winning hand in the investment game, it is crucial to ensure that investors retain confidence in India. There is no better way to ensure that than the prime minister’s personal touch. It is a capital mistake to assume the investment function is a mere matter of differential growth between countries. Happily for India, Modi is aware of the pitfalls of such thinking.

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