How Modi can bring U.S. businesses back to India
FORTUNE — In the wake of India’s elections, the country’s newly elected leader could very well turn around one of the world’s largest economies and draw more U.S. investment. After a decade in opposition, the Bharatiya Janata Party has been returned to power, and Narendra Modi will become prime minister of the world’s largest democracy. Not since Indira Gandhi have Indian citizens seen a campaign that so fused a politician’s persona with that of his party along the lines of an American-style presidential election. There’s no doubt now about the Modi wave.
Voters clearly welcomed Modi’s hopeful message centered on economic growth and good governance; the election results will have a positive impact on India’s economy — already, news of the final tally announced Friday pushed the Bombay Stock Exchange to record highs.
In the week ahead, all eyes will be on the team Modi selects to implement his agenda. He is expected to place strong emphasis on restoring higher rates of economic growth. (India needs to get back to 8% and higher growth to support its large workforce-age population, but in the past few years growth has slowed, now below 5%.) And there has been substantial speculation that he’ll look to consolidate ministries, perhaps moving the international trade department into external affairs.
More broadly, the Modi era will likely open opportunities for stronger U.S.-India trade and investment ties for two main reasons:
First, the strength of Modi’s party in parliament is likely to free India of the paralyses so characteristic of its politics in recent years. The country has had a fragmented polity since 1989, and since then complex coalitions have ruled. But now the BJP has won a clear majority in India’s lower house of parliament, with 282 seats (272 is the halfway mark) on its own. With its coalition allies, it commands 336.
Modi may face other political constraints — the upper house of parliament is still controlled by Congress, which matters for legislation, and some states may not see eye to eye with him, which matters in a federal system like India. However, he has cleared the big hurdle in the lower house, and likely won’t be hobbled by stalled decisions due to coalition squabbles, or threats of confidence votes to bring down the government, as have hampered governance in recent years.
Second, the pro-business policies of the BJP’s campaign platform could spur more U.S. investment in India. The priorities articulated by the BJP’s platform and in Modi’s speeches suggest helpful movement on matters that have troubled U.S.-India economic ties in the past several years. Modi has talked about ending “tax terrorism.” The party platform promises to rationalize India’s complicated tax regimes and support the introduction of a Goods and Services Tax (GST), which would bring greater predictability to India’s business climate.
Modi has spoken of increasing the ease of doing business in India (India ranks 134 out of 189 countries on the World Bank Ease of Doing Business Index), and enhancing “Brand India” to make India globally competitive. Modi also considers infrastructure development a top priority, including road and rail connectivity, and has certainly transformed the provision and reliability of electricity in the state of Gujarat. He has pitched for opening up foreign direct investment “wherever needed” (retail may be an exception) and for focusing on innovation and intellectual property rights.
In the coming months, how Modi’s government will carry out these priorities should become clear — the new government’s budget will be due in June, and that will provide some clues — but at first glance the agenda suggests that many of the economic frictions between India and the U.S. in recent years stand a good chance of resolution due to Modi’s priorities for his country’s economy. He’ll be making policies for India’s national interests — not because the U.S. asked. But the impact will likely facilitate the expansion of bilateral economic ties.
Already, it appears the U.S. is setting the stage for getting back to business with India. On Friday, U.S. President Barack Obama called to congratulate the new prime minister and invited him to the United States. Less than 10 years ago he was refused a visa to the U.S. over questions about his role in the 2002 Hindu-Muslim riots in Gujarat; since then, the Indian legal system has exonerated him.
Alyssa Ayres is senior fellow for India, Pakistan, and South Asia at the Council on Foreign Relations. She served as U.S. deputy assistant secretary of state for South Asia from 2010 to 2013. Follow her on Twitter: @AyresAlyssa