TCSS Security Commentaries #019

“Show us the way. We want to grow with the base the state has—blessed with natural resources, basic infrastructure, human resources and social responsibility—” Stalin addressing the first meeting of the CM-EAC (Economic Advisory Council), virtually on July 9th.

Aswini Kumar, Taiwan Center for Security Studies

Eager to bring the best minds in the world for inclusive growth of the southern Indian state of Tamilnadu (TN), newly elected Chief Minister MK Stalin, has constituted a “dream team” with leading global economic experts comprising Nobel laureate Esther Duflo, development economist at MIT, former RBI Governor Raghuram Rajan, Professor at University of Chicago, former chief economic advisor to the Indian government Arvind Subramanian, both jarred with PM Modi, in those jobs, the strong voices against the decision to carry out demonetisation by the Modi government in 2016. In his book, ‘Of Counsel: The Challenges of the Modi-Jaitley Economy’ (2018) Arvind has called demonetization a “massive, draconian, monetary shock”, hinted he was not consulted on the matter. The others—development economist Jean Dreze and former union finance secretary S.Narayan, have situated themselves against Mr Modi’s haphazard decision-making.

The new council will operate with the State Planning Commission. It will deliver general guidance on economic and social policy, social justice and human development related issues and in matters related to equal opportunities for women and the well-being of underprivileged groups. Also make suggestions to boost the growth employment and productivity across all the sectors as well act as a sounding board for ideas that might resolve roadblocks to development. The state’s priority is to enlarge its industrial economy both geographically and in terms of industrial sectors. This way, he has joined the current centre-versus-states’ battle of wits without being raucous, a nod at West Bengal Chief Minister.

In the absence of any stimulus from the debilitated Congress party, it will almost certainly fall to some sort of coalition of regional satraps to yield on the Prime Minister in the next general election, in 2024. Mr. Stalin finds himself in along with Mamata Banerjee and Pinarayi Vijayan, chief ministers of West Bengal and Kerala respectively, the face of a decentralised opposition to Modi’s Bharatiya Janata Party (BJP). In the general election of 2019, when Modi’s approval rating in most north Indian states was more than 60%, in TN it stood at just 2.2%.

The Chief Minister (CM) insisted the members to advise ways and means to make Tamilnadu, the best destination for industrial investments in south Asia and the supplier of human resources to the world. By 2026, the government plans to implement the third master plan for the Chennai Metropolitan, Singara Chennai 2.0, an ambitious project to build new technology-based infrastructure in the state capital. During DMK regime (1998) Chennai was made into the ‘Detroit’ of India in terms of the number of cars produced. Securing spot in one of the top 5 FDI equity destination during FY21, TN can have bagged more investment with such facilitative measures and reforms.

By inviting Xi Jinping for the second informal meeting on 11th of October in 2019, Modi indeed played a card of city diplomacy, “Chennai Connect”, resolving differences between the two Asian powers and alleviating thorny relationship. Chennai shares centuries-old historical links with Fujian Province in China. Certainly, the choice of venue emphasizes the geo-strategic significance of south India particularly Tamilnadu, a maritime transit hub for cargoes in the ancient Silk Road, has a long history of exchanges and close connections with China on maritime trade since ancient times, Xi accentuated during meeting.  It is bound by the Bay of Bengal in the east, the Arabian Sea in the west and the vast Indian Ocean in the south; Doorway to the two sides of the world’s rich resources region – on east to Indo-Pacific region, on west to Middle East Asia and Africa; Incorporates 8 of 12 India’s major ports. Building strong ties with Tamilnadu, implies China’s strategic significance being closest to Sri Lankan ports, the core of China’s “String of pearls”. Highlighted the “untapped potential for Chinese investment in the South Asian country”, engulfed decades’ dominance of India.

However, last year’s deadly clash between Indian and Chinese troops at Galwan Valley, and Indian media’s coverage on Taiwan ROC national day celebration, depicts the reconciliation in their relationship may still long way to go.

Growth Drivers Influencing India’s Investment Appeal

India recorded its highest-ever FDI inflow in FY21, other than China, even as global outbound investment momentum has significantly slowed down, observing multiple regional lockdowns and corporate recessionary trends. US$81.7 billion in FY 2020-21, rose 10 percent against FY20 at US$74.39 billion, as per the country’s official sources.  Meanwhile, the World Investment Report 2021, released on June 21 by UNCTAD, indicates that India was the fifth largest FDI recipient in the world in 2020, rising 27 percent over that in 2019, and driven by ICT investments. Computer software and hardware emerged as the top sectors attracting the maximum FDI equity inflow (44%), followed by energy and infrastructure sectors. In FY21, Singapore emerged as India’s top foreign investor (29% FDI inflow, US$15.71 billion during April-December 2020). The US was the second (23% – 227% rise compared to FY20).

Multiple factors like accelerated digitalization, augmented use of artificial intelligence (AI) to overcome barriers set by the pandemic, and increased policy focus on manufacturing in India have contributed to this impressive rise in foreign investment. The newly introduced production linked incentive (PLI) schemes, in 13 flagship sectors in India, to make these sectors globally competitive in terms of production capabilities and export viability, aimed to boost export-oriented investments, should accelerate this trend. Leading foreign companies like Samsung; contract manufacturers Foxconn HonHai, Wistron, and Pegatron; Visicon, Vitesco, and AT&S; and Siemens and Wipro GE have become beneficiaries of PLI schemes. Investor friendly policies and focused reforms undertaken by both federal authorities and regional governments have improved India’s overall investment climate, reflected in its World Bank’s Doing Business ranking of 63 in 2020. Amplified investment in technology infrastructure in India coupled with its vast and young talent base has made India one of the most conducive start-up ecosystems in the world.

For India, the aims of securing manufacturing self-reliance, partaking in global supply-value chains, and reducing trade dependencies requires greater foreign capital. It is no surprise then that state governments and federal policies are pushing to facilitate foreign investors through various incentives and inducements.

Challenges for India in the Near Term

India remains a prominent international investment destination due to its inherent advantages–a huge market with a relatively younger population, democratic setup, investor friendly reforms, increased pace of urbanization, steady rise in rural consumption levels, and a sustained increase in disposable per capita incomes. Nevertheless, the country has been hit hard by the pandemic, which has slowed down growth on some indices. Global investors will be watching to see how India stabilizes its economy following a brutal COVID wave and how it is able to implement vaccination programs and restore normalcy. These are areas where investors will need maximum reassurance from government authorities and clear results in the near term.

The foremost challenge before the government is to manage the pandemic situation, one of the highest levels of infection and fatalities and revive the economy which was pierced with high revenue and fiscal deficit and huge debts. Yet, Tamilnadu has relatively strong public-health infrastructure. That is one way in which the state distinguishes itself from the rest of the country. In the long-term, the big challenge will be defining its development strategy. Here, it can be argued that the state already has the right strategy, being one of the foremost in per capita income and also scoring very high in terms of human development indicators.

Technocratic advice of high quality need not mean much without political buy-in and top-level support. Its success or failure will rest on the receptivity of the government it advises.

Tamilnadu Appoints Star-Packed EAC, Why Can’t Modi?

The pandemic coupled with lockdown broke the back of the Indian economy, but just when things were slowly and steadily getting on track, the second wave of the pandemic struck earlier this year. At a time like this, India needs experts and intelligentsia at the job to pull it out of the economic mess and a state in India has just taken the right step in this direction. When the question is about life and death and the livelihood of the people, the government needs to keep aside the thinking that they know better and seek help from the experts and create an economy think tank, who can actually manoeuvre the way out.

The Modi government thinks seriously about a task force, a think tank on economy which will breakthrough, create a layout and plan goals for India’s economic revival. After the pandemic, more Indians are being pushed into poverty. There have been studies of how rich are getting richer and the poor section is just swelling in the country. Poverty will be a very big issue that will need to tackle.  So there has to be a think tank to address these issues of poverty elimination, guide how India can boost consumer demand and several other pressing economic issues. Tamilnadu has already taken a step, the question is if Tamilnadu can, why can’t PM Modi do too.

However, its contribution to the advancement of the state indeed country rely on the leadership and effective governance who should concern on development rather just defending seat in the world’s largest democracy.

Tamilnadu’s economic development, provides impetus for a thrust in its geostrategic importance, especially in recent months when the growing role of India as a whole, beckons a comprehensive rethinking of policy. Whether on a state level or nationally, Stalin’s role seems to only be gaining in momentum and will be consequential for the nation moving forward.