The results of the 17th General Elections of India for choosing legislators were declared on May 23rd, 2019. The biggest elections in the largest democracy of the world, featuring 900 million eligible voters, spread over more than a month, were held over 7 phases. The 1st phase of the elections commenced on April 11th while the 7th and last phase concluded on May 19th. The national average of voter turnout was close to 67%. The ruling coalition since 2014, the National Democratic Alliance (NDA) led by the right wing Bharatiya Janata Party (BJP), was pitted against a rainbow coalition of a motley group of political parties in the forefront of which was the Grand Old Party of India, the Indian National Congress (INC).
The BJP led by Prime Minister Narendra Modi romped home with a seat tally which can only be termed as a landslide. The Party alone won more than 300 seats out of 543 seats in all, which was not only more than a simple majority but the party registered an even better vote share than in the last elections held in 2014. Together with its electoral allies the BJP won a little more than 350 seats. Such a huge electoral victory for an incumbent government seeking a second term is absolutely unprecedented. Congratulatory messages to Prime Minister Modi from world leaders started pouring in thick and fast even before the results were declared officially.
PM Modi has termed the victory as a ‘vote of trust’. The huge victory of the BJP is also being termed as a vote of hope by an aspirational New India. Corporate India has welcomed the victory and wants the new Government to focus on reforms, growth and jobs. While the new government will have its work cut out both at the domestic and foreign policy fronts, I shall restrict myself herein to decisions – some requiring immediate attention and some which have been pending for a while – and challenges and opportunities that await the new government on the international economic front which may have a collateral bearing on the domestic sector and vice versa too.
a) Iranian Oil & Russian hardware: The US has been tightening the screws on countries importing oil from Iran. The US deadline for waivers of the kicking in of sanctions on countries importing oil (from Iran) ended on May 2nd. Oil accounts for roughly 30% of India’s import bill and 80% of India’s oil is imported. India had recently promised Iran (during the visit of the Iranian Foreign Minister to India earlier this month) that the new Government would take a decision on the matter of importing oil from Iran. India, which was one of the largest importers of oil from Venezuela, had first cut down and then stopped its imports of oil altogether from that country following US pressure. For India, ceasing to import oil from Iran (which roughly accounts for 10% of our crude supplies) soon after stopping imports from Venezuela would be a huge blow. The US Sanctions on the upcoming S-400 Missile defence purchases from Russia would be yet another area of concern with Washington. Hence one of the immediate challenges before the new government would be how it negotiates these two rather tricky situations.
b) US& Tariffs:President Trump has been threatening India with retaliatory tariffs on account of ‘tremendously high’ tariffs imposed by India on some of the US products. He has also announced his intention (although not yet executed it) to take India off the list of countries which have been accorded Preferential Trade benefits. This may affect Indian exports to the tune of US$5.6 billion. India has recently decided to extend its deadline to retaliate with higher tariffs against US products like almonds, walnuts and pulses. The new Government would need to tread carefully and see how best the US concerns including the trade deficit which US has with India, the concerns US has with regard to Intellectual Property Rights etc. are addressed without compromising on India’s interests and its friendship with the US. The ongoing trade war between US and China are not going to make things any easier.
c) FTAs with Regional Comprehensive Economic Partnership (RCEP) & EU: The RCEP comprising the 10 ASEAN countries and their 6 FTA partners – India, China, Japan, S. Korea, Australia and New Zealand has been under negotiations for a while now. Indian experts have not been particularly upbeat about this mega Agreement as India is reported to have a trade deficit with as many as 11 RCEP countries and a deal like this, it is felt, will only add to the woes of the domestic manufacturers even though it would give greater access to Indian goods and services to the RCEP markets. Prime Minister Modi after attending the RCEP Summit in Singapore in November, 2018 had called for early conclusion of the RCEP negotiations. Senior officials of the RCEP group would be holding meetings in Bangkok from May 24th, 2019 for trying to iron out issues relating to the Agreement. India’s negotiations with EU for entering into an FTA has been going on for more than a decade. The new Government would have to see how best to get the Agreements with EU and RCEP off the ground.
d) India taking a lead in resuscitating/ reviving institutions like the WTO: India’s Commerce Minister, had recently stated that India would like to see WTO continue as ‘an engine of growth’. India had taken the lead in drawing up an agenda factoring the issues and concerns of the developed as well as developing countries for discussions on the sidelines of the World Economic Forum in Davos in January 2019 including addressing the fast crumbling Appellate mechanism at the WTO (as had been pointed out in my last post titled ‘India’s Stance on WTO Reform’). As for e-commerce, India has opposed any move to draw up rules relating to this outside the ambit of WTO and has insisted that the current multilateral programme on e-commerce under WTO should be taken to its logical conclusion. The new Government would need to revisit and review its position on issues like e-commerce which seems to be gaining resonance amongst countries. It is important to list out a few issues and try working on them through diplomatic and whatever other channels are available and target arriving at a broad agreement on critical trade issues before the WTO Ministerial Conference in June 2020.
e) The new Government would need to continue furthering its economic engagements including attracting investments and technology from countries such as Japan, France, Germany and the UK. The new Government coming to power with as huge a majority as the NDA led by the BJP has, would be buoyed by the sheer strength of the franchise and would be better equipped to deal with the above and also the myriad other challenges both domestic and international including the pursuing of trade policies geared towards increasing the country’s share of world exports to 3.5% by 2020; and attracting more Foreign Direct Investment (FDI) which should be easier with a stable government at the centre. A clear and aggressive Trade Policy would be just the recipe which an aspirational New India requires.
This is a guest post by Shri S. K. Ashok Warrier, former Ambassador of India to the Democratic Republic of Congo. Watch for more posts from Ambassador Warrier in the coming months.