Mr. Modi Goes to Washington

If TRP ratings for TV programmes were provided for the period September 26 2014 to September 30 2014, I have very little doubt that TV News Channels (whether English or other Indian languages) will receive higher ratings than the usual channels, whether these be film or sports or entertainment channels. And it would all be due to one person who has, probably, caught more eyeballs than any contemporary world leader: Narendra Modi, Prime Minister of India. No Indian leader, since 24-hour news channels began, has captured the air-waves in this manner. Mr. Modi’s agenda has been filled with very high profile meetings in New York city culminating in a couple of meetings with President Obama in Washington as well as a joint article with the President in the Washington Post. It is obvious that the USA attaches great significance to this visit by a man who was once denied a visa.

The pièce de résistance of Mr. Modi’s USA trip has undoubtedly been his Madison Square Garden (MSG) speech (though the event itself was very poorly organised with very ordinary dances and even worse rendering of the Indian national anthem). Mr. Modi’s oratory skills were on full display during the general elections, but the MSG event was different. During the elections, he had to vanquish a foe using his speaking skills. Here, he had to use those skills to move an audience already in love with him. It was very skilful and clever how Mahatma Gandhi – not exactly the darling of the Sangh parivar – was co-opted, instead of the usual favourites like Sardar Patel or Swami Vivekananda, to woo US-based Indians. The consummate performer that he is, Modi had the audience eating out of his hands and knew exactly the buttons to press to move the crowd, often to hysteria. But such adulation has its risks since expectations raised so high can easily turn to impatience and extreme disappointment. The risks are high since the announcements (can these be called promises?) made by Modi were bold in the extreme. The merger of OCI and PIO cards, while certainly helpful, is not path-breaking. The intention to merge the two cards was announced by the UPA in 2012 (See here). The headlines grabbing announcements were (a) providing toilets for all and cleaning the river Ganga within five years and (b) providing homes for all by 2022. The latter is reminiscent of the unrealistic overreach in the slogan of ‘Garibi Hatao’ (remove poverty) coined by Indira Gandhi. While no one can doubt the laudable vision behind these promises, feasibility of such endeavours must be established. It is not clear to me what the total resource cost of these objectives will be or how these resources will be garnered to bring this vision to fruition. I find it surprising that, in the euphoria of Modi’s performance, questions regarding the implementation of such bold promises have not yet been raised. Like the audience at the Madison Square Gardens, even veteran TV anchors covering the Modi visit seem mesmerised and have forgotten that healthy scepticism is a virtue as far as journalism is concerned.

The US administration has always accorded very cordial receptions to Indian Prime Ministers going right back to the time of Jawaharlal Nehru. During the last 30 years, most Indian Prime Ministers have been honoured by White House State Dinner. The White Historical Association states:

A state dinner honouring a visiting head of government or reigning monarch is one of the grandest and most glamorous of White House affairs. It is part of an official state visit and provides the president and first lady the opportunity to honour the visiting head of state and his or her spouse...It is an event that also showcases global power and influence.

In the last thirty years, the following Indian Prime Ministers have been so honoured:

1. Rajiv Gandhi when Ronald Reagan was in office
2. Atal Bihari Vajpayee when Bill Clinton was in office
3. Manmohan Singh when Barrack Obama was in office.

Further, four Indian Prime Ministers in the last thirty years have addressed a joint session of the US Congress: Rajiv Gandhi, Narasimha Rao, Atal Bihari Vajpayee and Manmohan Singh (See here). Mr. Narendra Modi’s Washington DC visit is relatively low key with neither a state dinner nor an address to a joint session of the US Congress. But then not every Indian Prime Minister received this honour during the first visit to the USA. Mr. Modi’s initial meeting with President Obama has been quite like the first round of a boxing match between two heavy-weights, with much circling round each other, gauging each other’s strengths and weaknesses before making any long-term commitments. However, it was quite extraordinary that there was no joint press briefing by the two leaders at the end of their talks. Instead, a closed room briefing was preferred with no members of the press present. Was this done to avoid uncomfortable questions of the two leaders? This might well have been the case given that international press would have not pulled their punches unlike their Indian counterparts, which have become quite meek over the last few months.

President Obama and Prime Minister Manmohan Singh – possibly the only two intellectual heads of state in the last 25 years – shared a special relationship built on Obama’s charisma and intellect which had carried him to White House and Manmohan Singh’s accomplishments. These accomplishments include his great track record as a bureaucrat/administrator par excellence, as India’s finest Finance Minster and his tremendous achievements as Prime Minister, especially with respect to the high rates of growth of the Indian economy over his entire tenure (possibly barring the last two years) and shepherding the Indian economy through the ravages of the Great Recession. At a personal level, there need not be any animosity between Obama and Modi since the original denial of a visa to him took place when Bush was President though the situation was not altered even after Obama assumed office. The general perception about Modi’s track record as the Chief Minister of Gujarat and his impressive victory in general elections of 2014 certainly provide him the strength and credibility to meet Obama on an equal footing.

Meetings between heads of state certainly make for a certain spectacle and provide the “optics” – a word that has recently become very dear to many TV analysts and anchors –, the question that must be asked is: what specific purpose do such meetings serve? The purpose of such meetings may be divided into political and economic benefits gained by each country. Political benefits, while undoubtedly important, are not easily measurable. Economic benefits, on the other hand, can be quantified to some extent and this is what I propose to do. While there can be many measures of economic benefits – foreign direct investment, migration into the USA from India, for example – I will only focus on trade. What I will try to examine is whether there was a change in the rate of growth of exports from India into the USA and rate of growth of imports from the USA into India before and after a Prime Ministerial visit to the USA. Given the data that are available, I consider the following visits:

1. Rajiv Gandhi’s visit in 1987
2. Narasimha Rao’s visit in 1994
3. A.B. Vajpayee’s visit in 2000 and 2001
4. Manmohan Singh’s visit in 2008 and 2010

Details of the data that I have used and how the growth rates were computed are given in the Appendix. The Appendix also gives details of the statistical results. A summary of results for Indian exports to the USA and American imports into India is given below:

1. Rajiv Gandhi’s visit did not have a significant effect, either on the rate of growth of exports or on the rate of growth of imports.
2. Narasimha Rao’s visit had an impact on both exports and imports with both rates of growth increasing significantly after his visit. One could say that Indo-US trade as a whole received a strong boost after his visit.
3. A.B. Vajpayee’s visits had no impact on Indian exports but rate of growth of US imports into India increased significantly after both his visits. This would imply that India’s balance of trade (export earnings minus import expenditure) would have worsened after Vajpayee’s visits.
4. Manmohan Singh’s visit of 2008 led to a significant increase in the rate of growth of Indian exports while there was no impact on imports. His second visit had no discernible impact on either Indian exports or imports. This would imply that India’s balance of trade improved substantially after Manmohan Singh’s visit of 2008 while the second visit seems to have had no impact.

The simple analysis carried out in this note shows that Prime Ministerial visits, apart from their political and diplomatic importance, have significant economic impact as well. As Mr. Modi winds up his trip to the USA, there can be little doubt about its political and diplomatic significance. The economic impact of his visit will play out over the next few years. Mr. Modi has aggressively promoted the ‘Make in India’ agenda with the objective of making India an attractive destination for manufacturing. Labour reforms – a political minefield – are being discussed. Simplification of bureaucratic procedures is in the offing and overbearing laws and regulations are being pruned. All of these changes were listed out by Modi, almost as promises, to the audience at Madison Square Garden. There is consequently a palpable feeling of hope and expectations among those who heard the speech. Corporate honchos in India have expressed the belief that these changes will significantly improve the environment for doing business in India. If the above changes do indeed materialise we should be able to see the following in the near future:

• Improvement in India’s ranking for ‘Ease of Doing Business’ as measured by the World Bank. Currently, India ranks a dismal 134 out 189 countries.
• Consequent to Mr. Modi’s visit to the USA, foreign direct investment (FDI) from that country should start flowing into India. The level of FDI from the USA for 2012-13 stands at $ 478 million way behind FDI from the UK ($1,022 million), Japan ($1,340 million) and the Netherlands ($1,700 million) (See RBI).

Mr. Narendra Modi’s Washington and New York sojourn has sowed the seeds of change that may transform India. We now wait, with bated breath, for the green shoots of rejuvenation of the Indian economy to emerge.

APPENDIX

Trade data are sourced from the United States Census Bureau. We use data from Exports from India, Imports into India and India’s Balance of Trade.

A trend equation, with intercept and slope dummies, is estimated from each Prime Ministerial and each Presidential visit.

Table 1

Impact on Indian Exports after Prime Ministerial/Presidential Visits

Visit by PM or President	Growth rate of Exports before visit (% per year)	Growth rate of Exports after visit (% per year)
Rajiv Gandhi’s visit in 1987	4.84	No significant change
Narasimha Rao’s visit in 1994	8.85	8.85 + 2.35 = 11.20
A.B. Vajpayee’s visit in 2000	10.47	No significant change
A.B. Vajpayee’s visit in 2001	10.25	No significant change
Manmohan Singh’s visit in 2008	10.95	10.95 + 5.84 = 16.79
Manmohan Singh’s visit in 2010	10.71	No significant change
Bill Clinton’s visit in 2000	10.46	No significant change
George Bush’s visit in 2006	10.75	No significant change
Barrack Obama’s visit in 2010	10.73	No significant change

Table 2

Impact on Indian Imports after Prime Ministerial/Presidential Visits

Visit by PM or President	Growth rate of Imports before visit (% per year)	Growth rate of Imports after visit (% per year)
Rajiv Gandhi’s visit in 1987	-5.47	No significant change
Narasimha Rao’s visit in 1994	4.76	4.76 + 8.38 = 13.14
A.B. Vajpayee’s visit in 2000	6.01	6.01 + 10.67 = 16.68
A.B. Vajpayee’s visit in 2001	5.79	5.79 + 10.59 = 16.38
Manmohan Singh’s visit in 2008	8.66	No significant change
Manmohan Singh’s visit in 2010	9.06	No significant change
Bill Clinton’s visit in 2000	6.01	6.01 + 10.67
George Bush’s visit in 2006	7.16	No significant change
Barrack Obama’s visit in 2010	9.43	No significant change