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Prime Minister Narendra Modi of the Republic of India during Modi’s Official State Visit to Washington DC.
India and the US talk China
In 2018, the two countries launched the “2+2 Dialogue” to boost defense cooperation and align policy objectives in the Indo-Pacific. India is still reeling from a skirmish in June 2020 — along the 2167-mile unmarked and disputed Himalayan border it shares with China — during which India’s military performed poorly and 20 of its soldiers died. Relations between the two nuclear-armed countries have since soured, giving the US and India a common cause in deterring Chinese aggression.
China has taken the US and India from distant allies to close partners — with the two conducting joint military exercises, working to strengthen the Indo-Pacific Quad alliance, and hosting each other for glitzy state visits. The US has even shown a willingness to overlook India’s human rights transgressions and prioritized deepening ties over Canada’s calls for the US to respond to India allegedly killing a Sikh community leader on Canadian soil.
The meetings are expected to solidify ongoing deals for the US and American companies to produce engines for Indian fighter jets and supply MQ-9 predator drones. , and build semiconductor manufacturing.
Unpacking the India-China relationship: A dangerous stalemate
China is India’s largest neighbor and second-largest trading partner. At the same time, China is India’s primary external rival, and relations between the two countries have grown more tense amid violent clashes on the Himalayan border.
On GZERO World, Ian Bremmer discusses the precarious India-China relationship with Samir Saran, President of the Observer Research Foundation, a leading Indian think tank. Saran says there is a paradox in the current status quo, where despite tension in the Himalayas, trade between the two countries is expanding in China’s favor.
“I think we have a double challenge for the Indian establishment,” Saran tells Bremmer.“How do you continue to flex your muscles to prevent expansionism of the Beijing variety, and on the other hand, how do you rebalance economic ties?”
Saran believes China isn’t willing to engage with India in the near term on either issue, leading to a “dangerous stalemate” that will define the relationship and could deteriorate very quickly. And given China’s internal economic problems, like record youth unemployment and mounting government debt, Saran doesn’t think Beijing will prioritize the relationship with India any time soon.
Watch the full interview: Can the India-Canada relationship be fixed after a suspicious murder?
Catch GZERO World with Ian Bremmer every week at gzeromedia.com/gzeroworld or on US public television. Check local listings.
Former U.S. President Donald Trump at a rally in Conroe, Texas.
What We're Watching: Trump's tax returns set to go public, Japan stuns markets, Biden braces for migrant surge, India raises China alarm
Trump's tax returns set to be released
The House Ways and Means Committee voted yesterday to release Donald Trump's tax returns from 2015-2020 — a move the former president’s team has characterized as a politically motivated attack by Democrats in the House, who are set to lose their majority when the new Congress is sworn in on Jan. 3. It may be days before all the filings go public, but committee members revealed late Tuesday that the IRS failed to audit Trump during his first two years as president. A report issued late Tuesday also highlighted some information from the filings, including that Trump had positive taxable income in 2018 — for the first time in more than 10 years — and paid nearly $1 million in federal income taxes that year. But as of 2020? Trump had reverted to reporting negative income … and paid no federal income tax as a result. Democrats on the committee explained that they carefully followed the law with this vote, invoking a century-old statute, but some Republicans say this could lead to increased use of exposing private tax info for political means.
Japan's stealth monetary policy move
The Bank of Japan made heads turn and shocked markets Tuesday when it abruptly announced it would tweak its controversial yield curve control policy. (For all you non-economic nerds out there, this is meant to boost economic growth and fight deflation by keeping the yield of 10-year debt bonds near 0%.) But the policy has arguably been doing more harm than good since Sept. 2021, when inflation started to make a comeback after a decade. Both have helped kill the yen in 2022. What's more, Japan sticks out like a sore thumb among major economies because it has stubbornly resisted calls to raise interest rates to tame inflation. BOJ Gov. Haruhiko Kuroda insists that his bond-yield "pivot" doesn't mean Japan will soon ditch its ultra-loose monetary policy to catch up with the rest of the world. Yet it certainly looks like the central bank is moving in that direction — without saying it out loud. "A stronger yen is good politically for [PM Fumio] Kishida and will help lower the cost of energy imports," says Eurasia Group analyst David Boling. "But higher interest rates may hurt lots of zombie firms in Japan that have gotten used to zero interest rates."
Biden throws in the towel on Title 42
There's a big US immigration crisis in the works — and the Biden administration seems to think it can no longer stop it. On Tuesday, the government agreed to halt its legal challenges to the expiration of Title 42, a Trump-era rule that allows US authorities to expel asylum-seekers on public health grounds that's set to expire on Dec. 21. But the White House also asked the Supreme Court, which on Monday issued a temporary stay on the order, to keep it in place until at least after Christmas. The situation is tricky for President Joe Biden, who publicly says he wants to scrap Title 42 — mainly to appease the pro-immigration left wing of his party — but privately fears a surge of migrants at the southern border once the rule is lifted that Republicans will use to slam his administration. That'll never happen if tough-on-border-security Republican governors of southern states get their way with SCOTUS, so things might get ugly if the court sides with Biden. Red states are threatening to send more migrants to blue states, some of which have already declared states of emergency to deal with the influx of asylum-seekers. What happens next? SCOTUS might accept Biden's final extension before scrapping Title 42 or hold off for weeks, even months, to consider Republican challenges. Meanwhile, thousands of migrants across the border in Mexico will remain stuck in a legal limbo.
India talks tough on China
India’s foreign minister has warned that it has scaled up its military presence along the country’s border with China to an unprecedented level. The move doesn’t come as a surprise. As Signalista Waj Khan noted in our Monday edition, India remains ill-equipped to handle the latest round of clashes between Indian and Chinese troops at points along their disputed border. Compounding the problem for India, the front has shifted east in a sign that the conflict is expanding, none of India’s foreign policy moves to punish China seem to have restrained the provocative behavior of Chinese troops, and the perception has grown that India’s government hasn’t done enough to show strength at the border. What’s new is that this month’s resurgence of border violence has given domestic critics of Narendra Modi’s government a chance to call Modi weak on China. In particular, Rahul Gandhi, leader of India's main opposition Congress Party, has warned that Chinese soldiers are preparing for war and "thrashing" Indian soldiers at the border while the Indian government does nothing. We’re watching to see if political pressures inside India push Modi’s government toward an escalation that will trigger more violence.
India's Prime Minister Narendra Modi attends a bilateral meeting during the G-20 summit in Bali, Indonesia.
India is rising fast, but Modi must drive with care
India’s decade is here. According to two recent back-to-back reports by Morgan Stanley and S&P, the world’s second-most populous country is set to become the planet’s third-largest economy by as early as 2027.
Already the fastest-growing major economy in the world, India’s GDP is expected to double from its current $3.5 trillion by 2031. That means that all else being equal, India will be economically neck-and-neck with Japan and Germany by the middle of the next US presidential term.
What’s driving India’s growth? A decade-long effort premised on making aggressive inroads into digitization, pro-manufacturing incentives, and a focus on exports. This has been buoyed by riding the wave of global offshoring and gearing up for an energy transition, which has placed Narendra Modi's administration and its backers in corporate India in an enviable position.
But how will Indians be affected? India’s booming GDP will likely change the destiny of many of its billion-plus consumers. New initiatives are already changing the way Indians borrow, consume, and access healthcare. As Indians overtake the Chinese as the world’s largest population — perhaps as early as next year — they will likely have more disposable income too. The country’s income inequality gap will likely decrease, with consumption expected to more than double from $2 trillion to $4.9 trillion by 2030.
Critically, real income per capita will grow significantly by an average of 5.3%, with Indian households set to become the greatest spenders among the G-20 countries.
Being Indian won’t just mean being better off than your neighbors — it will also mean being (more) global. As international outsourcing spending triples to $500 billion by the end of the decade, the number of Indians employed in jobs outside India will triple to more than 11 million. All of India’s 660,000 villages are set to be electrified by 2030 as well.
The nature of the Indian worker will change, too. Given that its global exports could also double by the end of the decade, the nation of farmers will transition to more Indians working in industrial jobs as the manufacturing’s share of GDP in India could increase from 15.6% currently to 21% by the end of the decade.
Meanwhile, India’s growth also has ramifications for many of its neighbors. The likes of Bangladesh, Nepal, and Sri Lanka are all beginning to lag — yet are increasingly dependent on New Delhi for credit and growth, sectors where India is openly competing with China as the region’s lender.
India might also step into China’s boots as the factory of the world. As zero-COVID, economic decoupling, and Xi Jinping’s aggressive foreign and domestic policies continue to force global investors to look for other options, India is standing by with fresh corporate tax cuts, attractive investment incentives, and new infrastructure to attract capital in manufacturing.
But there’s a flip side. While India’s surge is also expected to increase its standing on the global stage, its economics and its politics will likely run it into direct competition with China.
“As the strategic competition with China heats up, we are going to see India play a critical role in global supply chains that are significantly less dependent on China as the world’s factory,” said Uzair Younus, director of the Pakistan Initiative at the Atlantic Council. “As additional investments materialize in other manufacturing sectors, we are likely to see a sustained and substantial increase in 'Made in India' products sold in global markets.”
But while multinational corporations’ interest in investing in India is at an all-time high — indeed, India's current moment is being compared to the growth surge that China was going through from 2007-2012 – there are complications.
India resides in a rough neighborhood. As its troops remain bogged down by China in the Himalayas, its perpetual tensions with Pakistan keep the region’s political climate unstable.
After more than a year of normalization, the Indian and Pakistani militaries have started to threaten each other openly after India’s hardline defense minister promised to reclaim territory claimed by Pakistan despite an ongoing ceasefire.
This destabilizing hypernationalist streak of the Indian government runs all the way up to the top. On the one hand, PM Narendra Modi can be credited for India’s attractive manufacturing policies, his effective public-private partnerships with corporate India, as well as his trade diplomacy that is more focused on bilateral than multilateral deals. Counterproductively, the Hindutva politics of his ruling BJP party often trigger communal and civil tensions, which can have local as well broader regional and economic impacts too.
Right-wing fundamentalism is a part of Modi’s bid to retain the strength he has in parliament. However, his enemies aren’t just Muslims, whom he targets to buck up his base. Strong trade unions and organized farmers who have strongly opposed his pro-corporate policies equally threaten his alliance with Big Business.
Going forward, if he wants his country to progress, Modi will have to move with caution to curb his party’s worst and extremist tendencies. Bulldozing around at home and across the subcontinent with an ideologue’s zeal will likely disrupt his utopian vision of this being “one world, one family, and one earth.”
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What We're Watching: Tahrir Square 10 years on, Italy's PM resigns, AMLO contracts COVID, India-China border row
Tahrir Square — a decade on: This week marks a decade since mass protests in Cairo's Tahrir Square sparked a revolution that toppled Egypt's longtime strongman Hosni Mubarak as part of the Arab Spring. But ten years on, Egypt's brief experiment with democracy has long since been undermined by current President Abdel Fattah el-Sisi. El-Sisi, a former General who in 2013 capitalized on fresh street protests to oust the country's first democratically-elected president, has quashed dissent and crushed political opposition. Egypt is now one of the most dangerous countries in the world to be a journalist, and has one of the lowest internet freedom rankings. As if to make the point that Tahrir Square — long the site of anti-government protests — is now his, el-Sisi recently oversaw a $6 million renovation that dressed up the place with the trappings of a European-style monumental plaza, covering over most of the open spaces where hundreds of thousands once camped out and defied the regime. Ten years after the Arab Spring bloomed in Cairo, Egypt may actually be less free than it was on January 24, 2011.
AMLO-19: Mexican president Andres Manuel Lopez Obrador announced Sunday he had tested positive for COVID-19, capping a dark few days in which the country saw its highest weekly death toll yet from the virus. From the beginning of the pandemic, AMLO, as the leftwing populist is known, has resisted taking broad lockdown measures, citing his concern for the country's massive population of working poor who can't simply work from home. And despite the fourth highest global COVID death toll, AMLO has remained broadly popular. The 67-year old former smoker tweeted that his symptoms are mild and he's still on the job, but if things do take a grimmer turn, the situation could get rocky fast — AMLO is a towering figure in Mexico, with no clear and viable successor in sight. What's more, his ruling Morena party faces tough mid-term elections this year, and they will need him hale and hearty to make sure they retain their grip on Congress.
PM Conte resigns in Italy: After weeks of political dysfunction, in which Italy's fragile coalition government narrowly survived a confidence vote in the Senate just last week, Prime Minister Giuseppe Conte now says he will resign, pushing the country into political chaos. The timing couldn't be worse: Italians are now left without a stable government amid a massive effort to rollout a COVID-19 vaccine and revive the pandemic-battered economy (Italy's GDP shrunk by a whopping 10 percent in 2020). There are a few potential scenarios going forward: One is that Conte could remain prime minister if the president appoints him to head a (weak and fractious) new coalition. Another option is that former prime minister Matteo Renzi's party — which triggered the latest upheavals by withdrawing from the government in a dispute over how to spend EU coronavirus relief funds — could return to government, with a different prime minister. Lastly, new elections could be called. One player who might particularly like to see that outcome is former interior minister Matteo Salvini, whose far-right Lega party is currently leading in polls.
India and China in another high border skirmish: The two Asian giants clashed again over their ill-defined frontier in the Himalayas, with Indian sources reporting that its troops repulsed a Chinese patrol that had crossed into Indian territory. The situation along the strategically important high altitude border has been unresolved for decades, but things have gotten more tense again over the past year. Last June a melee of sticks and fisticuffs left dozens dead, and last fall the two sides exchanged fire. With strongly nationalistic leaders in charge of both nations, the border has become a flashpoint in a broader increase of India-China tensions as the world's two most populous countries vie for supremacy in Asia.