Indian Diplomacy & Politics After Kargil

Summary

• India is in danger of overplaying its diplomatic victory. India won global support due to a confluence of geopolitical factors which have worked to its favour for now, but Kargil by itself is not going to be a turning point in India-US relations since there remain many outstanding issues. Support for India on Capitol Hill could also diminish if future events make the ‘China card’ or ‘Taliban card’ less relevant in US foreign or domestic equations.

• However, there is a sense of positive, mutual rediscovery between the US and India. US policy circles and think tanks are increasingly crediting India with more strategic value and stabilizing influence than they did earlier, or vis-à-vis Pakistan, while anti-US sentiment has declined sharply in India and there is a new realization that winning over the US is perhaps the most important foreign policy task, and that other nations merely follow US lead. Relations with the US will improve, at least in style if not substance, and especially if the BJP stays in power, but the onus is on India to provide greater depth by signing the CTBT and speeding up economic reforms.

• The Kashmir dispute has been internationalized, but the context is positive for India. Future trends in Pakistan and US will also work in India’s favour in the near term. Pakistan is increasingly seen as unstable, and no western nation now wants to reward Pakistan’s errant mullahs or create a Taliban-style country in Kashmir. There may be some international rhetoric for outside mediation but the US is unlikely to put pressure on India, at least in the short term.

• India and Pakistan have carried out an information war and there are many half truths, unverifiable accusations and exaggerated triumphs on either side. But the Indian line has won greater credibility, partly due to facts on the ground but also because of better and bigger media infrastructure. The western (and also local) media has played a key role in India’s diplomatic advance over Pakistan, a lesson India’s foreign office is unlikely to forget.

• Overall, the BJP has projected itself as a responsible and mature party, both at home and abroad, while the Congress has come across as a petulant fault-finder. Opposition attempts to target Vajpayee personally for Kargil is likely to lead to a bitter election campaign, and will rebound. But even more than Kargil, low inflation and the splitting of opposition votes will help the BJP+allies in winning a comfortable majority and forming the next government. However, the sharing of cabinet seats will be tricky and this alliance is likely to face serious problems in the next year.

• Investment environment will selectively become more friendly for overseas investors, but any immediate quid-pro-quo with the US on opening the insurance sector or lowering import tariffs is unlikely. Current economic growth of 6% will continue, fiscal deficit will be pushed up, and privatization will see genuine forward movement after elections.

  
  Impact On Foreign Investors

  This crisis will influence positive outcomes for foreign investors. India has been forced to face the world more squarely, and not in half measures. Kargil could fundamentally alter Indian foreign policy and public opinion favourably vis-à-vis West, and mark a break from old-style, socialist thinking. There is high probability that economic reforms will be carried out with some sincerity and speed by the next regime, though these will be selective and not necessarily in all the areas. But we do expect further reforms in insurance, privatization, telecom, hotels, aviation and mining. Due to the formation of a new parliament and new parliamentary committees, some economic legislation might be delayed, and there will also be a period of gestation and learning by many new faces in the cabinet. But these teething problems, on the whole, will not be serious. Vajpayee is serious about leaving his mark in economic and foreign policy. As for the economy, there will be additional pressure on government finances due to expected increase in defense expenditure, and interest rates are unlikely to come down within the next few months. Economic revival which is underway is spread across many sectors, and we expect this recovery to continue into the next year. Overall business environment will improve in the short to medium term.