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India 2016: Reforming the economy and tightening the connection with the US

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As in 2015, in 2016 India’s political and economic landscape appeared to be dominated by Narendra Modi, the incumbent Prime Minister. Differently from what was the case in 2015, behind the pervasive self-praising rhetoric of the Indian government and the deafening chorus of applause of the bulk of the Indian media for Modi’s work, at least at the economic level some concrete results were reached, and some reforms were implemented. Particularly important was the passing of the Goods and Service Tax (GST), an objective which had been vainly pursued by several previous governments. If the objectives and potential benefits of the GST were clear to all to see, the situation was different in the case of the other major economic reform, abruptly carried out by the Modi government, namely the demonetisation of much of India’s paper currency. This quite unexpected measure was justified by the government in different ways at different times. What was clear at the time of the closing of the present article was that demonetisation had badly hurt particularly the poorer strata of the population, but, paradoxically enough, had not had any discernible adverse effect on Modi’s still burgeoning popularity. Also, in the state elections held during the year under review, Modi’s party, the Bharatiya Janata Party (BJP), strengthened its position and was also able to get a resounding victory in Assam, where, for the first time ever, formed the state government.
Strangely enough, in spite of the fact that the Modi government’s economic policy had become more incisive in the year under review than in 2014 and 2015, the attitude of the US private capital, assiduously courted by Modi, continued to be, as it had become in 2015, one of disillusionment. US entrepreneurs, while convinced of Modi’s desire to open up India’s economy to foreign enterprise and capital, doubted his ability to do so. This, however, did not bring about a slowing down in the process of rapprochement between New Delhi and Washington, but made of the military aspect of such process its «major driver» (as claimed by US Defence Secretary Ashton Carter). In turn, the increasing US-India closeness – and the increasing relevance of its military dimension – contributed to the worsening of the relations between New Delhi and Beijing, which appeared more and more involved in a policy of reciprocal containment. This played a role in the evolution of the India-Pakistan and India- Nepal relations. In the year under review, the relationship between New Delhi and Islamabad spectacularly worsened, but the latter was able to withstand the pressure of the former also because of Beijing’s help. On the other hand, India was able to re-establish its paramountcy over Nepal, engineering the fall of the Oli Government, which had challenged New Delhi with the support of Beijing.

* The present chapter is the outcome of a joint research effort, every single part of it having been jointly discussed by the two authors before being written and revised by both afterwards. However, the final draft of parts 1 and 4 has been written by Michelguglielmo Torri, whereas the final draft of parts 2 and 3 has been written by Diego Maiorano.


Giorgio Borsa

The Founder of Asia Maior

Università di Pavia

The "Cesare Bonacossa" Centre for the Study of Extra-European Peoples


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