Can India and China reset their relations after Elections 2014?

Mohan GuruswamyMay 22, 2014

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The National Actors.

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The Democracy Card!

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Market democracy.

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760 giant public meetings in 12

weeks.

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The sheer scale of it all.

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Big elections need big government.

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The changing color of India.

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Percentage of the votes.

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The first past the post system.

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The end of the coalitions era?

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The scenario now and the task.

• Congress is facing an existential crisis.• The regional parties are under pressure.• India gets a one party government after

a quarter of a century.• Single party government with a strong

leader, but without a big mandate.• The fate of the ruling party in the next

elections is decided by the index of opposition unity. How to keep them divided?

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India’s economic growth during UPA.

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Not a bad performance at all!

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Banking crisis ahead.

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India, not so hot now.

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A snapshot of the economic crisis.

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BJP’s Main Economic Drivers.

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BJP’s Main Economic Drivers.

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BJP’s Main Economic Drivers.

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The four critical areas to focus on are fiscal belt-tightening, improving the business climate, complementing anti-inflation efforts and sustaining the improvement in the current account deficit.

The deficit is forecast to come in at around 4.6 percent in the 2013-2014 financial year ended in March 2014, down from 4.9 percent in 2012-2013 and 5.8 percent in 2011-2012. This is significantly higher than China, for example, which recorded a fiscal deficit of 2.1 percent of gross domestic product (GDP) last year.

If the government chooses to expedite capital spending to orchestrate a cyclical turn in the investment cycle and boost long-term growth, the short-term casualty will be the debt/gross domestic product ratio,

Improving the business climate should be the anchor of the new government's agenda.

The Immediate Economic Priorities.

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The Modi government, even with its majority in Parliament is vulnerable because of its low popular support.

It must expand its support base to survive in 2019.It must deliver on its high expectations. Another 100+ million new voters will join the queue in 2019.

Capital resources are its main constraint. In the pursuit of this, it cannot afford be country shy.

It will need to undertake big ticket infrastructure projects to boost economic growth, create jobs and expand industrial base to get back to a 8+% trajectory.

The Policy Imperatives .

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Political Economy Constraints.• The Modi government will be driven by its economic and

development agenda.• India is straining to expand its domestic Savings/GDP

ratio, which has been declining in the past few years.• It has evolved into a high subsidy regime in the past

decade and it will be difficult to roll back on this, given the slim mandate of the Modi government.

• It will seek closer relationships with countries it can realize capital inflows. Only two countries are capable of meeting India’s needs with capital and technology. Japan and China. But Japan is not entirely a free agent.

• India’s traditional strategic autonomy considerations will condition it not to get into any strategic relationships.

• While the USA is an important player in geo-strategic terms, it is not capable of the volumes of investment India needs. The USA is habituated to being intrusive.

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Political options available to the BJP.• It is capable of hard decisions, both because of the

temperament of Modi, but because it is a right wing government.

• It can take a pragmatic approach to the India-China impasse on the border. A BJP led government was the one which finally recognized Tibet as a part of China.

• BJP is uncomfortable with Dalai Lama and Buddhist

expansion in Himalayan region.• It will be driven by its economic and development

priorities, and hence most likely to compromise for these goals.

• It can reset India-China relations.

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