ModiObama

A Landmark Republic Day Visit

Unfolding in front of our very own eyes is an event that will undoubtedly go down in history as one of those rare political moments that marked a turn for the better for both nations involved. When US President Barack Obama lands in Delhi, it will mark the first time ever a US President has been invited as India’s Chief of Guest to commemorate India’s Republic Day. It is remarkable that in 66 years, no US President has been invited as our Chief of Guest to celebrate the day we formed our very own constitution.

 

It would be easy to label this as a coincidence- but let us be crystal clear here. This is no mere coincidence.

 

This is a critical time for both nations. In Obama’s recent State of the Union speech, he referenced India a total of zero times. China, in the meanwhile, was brought up a few times when it came to the topic of how the United States wants to create jobs domestically and how China, simply put, was making that difficult. To put it more specifically, Obama stressed the idea that as the US is exporting “goods more than ever before…. exporters tend to pay their workers higher wages. But as we speak, China wants to write the rules for the world’s fastest-growing region…more than half of manufacturing executives have said they’re actively looking at bringing jobs back from China.”

 

And that’s the critical phrase, right there. Exporters are looking to actively bring jobs back from China. Does that strike a chord?

 

Prime Minister Modi’s message to our country since day one has been remarkably consistent. In fact, there’s a term for it: “Make in India”. Modi’s “Make in India” message has been the landmark initiative behind his reform oriented policies. The core message is simple: India must  keep its manufacturing jobs within its borders, create its own products, create millions of manufacturing jobs, and sell its goods domestically and export them internationally.

 

When two powerful nations share, literally, the same exact sentiment- good things tend to happen. This is especially true when one is the most powerful country in the world, and the other is the largest democracy in the world with a surging economy.

 

Manufacturing is going to propel India’s economy forward; it is why our markets are soaring beyond our wildest expectations. Foreign Institutional investors realize that with India creating its own products and exporting them, thereby going against our traditional model of relying on imported products from countries like China- funds will be required to fund these massive projects. The latest projections for India’s GDP forecasts are nothing short of staggering: The World Bank is expecting India to catch up to China’s GDP rate of 9% by FY 16-17. The US, in the meanwhile, seems to have done the impossible: create millions of  jobs domestically, bring consumer confidence back to its country, and revive its economy into a growing one. Within the next few months, the US Fed will raise its interest rates for the first time since the global economic meltdown in 2008.

 

This brings us to the question on what Obama and Modi will focus on as they meet on Republic Day. In short, the meeting will focus on critical issues that the two nations have had differences on. Finalizing a Nuclear Deal can only be done by showing the world that the two countries are aligned in their long term interests; this removes obstacles that are preventing the deal from happening. But although it was expected that a friendly and  cordial meeting between Modi and Obama, in New Delhi, could change that with a perception change- nobody would have expected a deal to be finalized so quickly. As this column is being written, it has been announced that the major issue preventing the nuclear deal from passing has already been overcome within hours.

 

Obama’s announcement that the US is “committed to moving towards full implementation” is music to India’s ears. And while details are yet to emerge on how exactly the deal got finalized, the major obstacle- which is that the US has an issue with India refusing the US to track the whereabouts of any nuclear material the US supplies India- has been overcome. Foreign Secretary Sujatha Singh’s announcement that “we have broken the logjam of the past few years,” and that “ we have reached an agreement…the deal is done” confirms that, indeed, a new agreement has been officially agreed upon.

 

The question still remains on whether the US agrees to India’s Nuclear Liability Act, which essentially states that the US would be liable for any accidents arising from a nuclear accident; or India agrees to the United States and goes along the globally agreed upon norm, which is that the operator- in this case India- would be liable. Either way, Modi assured that the deal was completed stating that he was “pleased that six years after we signed our bilateral agreement, we are moving towards commercial cooperation.”

 

Other, similar, hurdles muddled with different laws from either country could be overcome over the next few days. For example, India is keen on developing stronger ties on the Defense front. Ever since India allowed FDI investments to increase to 49% in the defense sector, there have been talks on how India and the US can work more in tandem to leverage the investment opportunities for defense companies, both domestic and abroad. The same applies to the energy sector as a whole. Both nations have a vested interest to reduce their dependence on imported oil and focus on sustainable alternative energy sources to, literally, fuel their growth prospects over the upcoming decades.

 

The markets will react to Obama’s visit with an elevated sense of euphoria. Talks have already begun on exactly how the defense and manufacturing sectors in India will benefit from a deep-rooted relationship between the two superpowers. The BSE Sensex, being a few hundreds points away from the all important 30,000 mark- could easily expect the mark to not only be broken, but surge another 10%- that is, to 33,000 levels- by Feb 28th, when the Union Budget is presented by Finance Minister Arun Jaitley.

It’s unfortunate that Obama had to cancel his plans to visit Agra on 27th January in order to make a quick visit to Saudi Arabia. That being said, it should not take much longer for Obama to make a second visit to India in the near future and visit the majestic Taj Mahal during his trip. After all, paying a short visit to witness one the great Wonders of the World and appease 1.2 billion citizens and millions of  NRI’s around the world seems like a pretty good tradeoff.

Raghu Kumar

Raghu Kumar

Raghu loves trading, algorithms, and figuring out ways to beat the market. He enjoys workouts, naps, food, listening to Carnatic music, teaching his dogs (pug named Zenzi and Shih Tzu named Cactus) cool tricks, and spending time with family and friends.A list of his authored articles on NDTV Profit can be found at http://profit.ndtv.com/topic/rksv