Update on the Indian Economy


With inflation seemingly under control, this week India's central bank cut interest rates 25 bps. Manufacturing has slowed, perhaps a result of dislocations caused by the GST and currency reform. Is India, which will surpass the US and become the world's second largest economy mid-century, about to enter a sustained period of slower growth? Finally, is India pursuing a two-track policy with China, with trade on the front burner and border disputes simmering on the back burner? What could go wrong, and what could go right with Modi's innovative economic reforms? We've asked EconVue experts to weigh in. 


Panel Discussion

Deepak Lalvani
Deepak Lalwani EXPERT

Indian and Chinese diplomats are quietly trying to ensure that a stand-off near the three-way border between India, its ally Bhutan and China does not escalate into a military conflict. The flare-up is the latest incident in a cool, but not frosty, relationship between the giant Asian neighbours who are still unable to agree on their 3,500km (2,175 miles) border, over which they went to war in October 1962. 

In recent years the two countries have clashed over China’s strategic ties with India’s arch rival Pakistan, including a massive trade corridor that China is building through the disputed territory of Kashmir. India has been disappointed by China’s UN veto to block New Delhi’s appeal to the UN to label Pakistan-based Jaish-e-Mohammed’s chief Masood Azhar a terrorist. And also by China’s refusal to allow India to become a member of the Nuclear Suppliers Group (NSG). Beijing has been irked by the Indian government’s warm public acceptance of the Dalai Lama, the Tibetan spiritual leader, whom it regards as an enemy. It has also grown concerned at India’s increasing military ties with the US and Japan. Despite these military differences trade continues to grow between the two neighbours, with $51bn in favour of China. It has made sizable inroads in the Indian smartphone handset market and has ambitions to expand into India’s growing auto market at a time when Chinese car sales are slowing down. The financial markets have so far shrugged off the recent Himalayan military stand-off. India’s SENSEX touched another new all-time high today and China’s Shanghai Composite is only 20 points away from its 2017 high.

Nikolai Tagarov EXPERT

This appears to be a typical storm in a teacup, fanned on by "patriotic" journalists on bother sides. While I cannot really comment in detail on India's military decision-making process, which I do not understand fully, I would trust that the Indian military would not risk nuclear war over a thin stretch of barren land. 

As far as China is concerned, we must understand that as a result of Xi Jinping's reforms since he became President, he has consolidated not only civilian but also military control. Whereas there were several centers of power in the PLA before, the Chinese army is now fully controlled by President Xi. He would definitely seek to avoid escalation of the conflict ahead of the BRICS Summit, which China happens to host this September. If the conflict were to escalate out of control, this would result in major loss of face on behalf of Mr Xi. If on the other hand he managed to negotiate successfully with India's leaders and de-escalate the conflict, this would burnish his diplomatic credentials just in time. And India, while sceptical about the Belt and Road initiative, would likely avoid making itself isolated within the framework of BRICS cooperation.

My expectation is therefore that while they will stand their ground, the Chinese will abstain from further provocations. I certainly hope India will behave in similar fashion.