India should be broadly aligned with the West: Financial Times' Martin Wolf

In a Q&A, Martin Wolf, chief economics commentator at Financial Times warns that big problems are emerging due to relatively weak investment in the private sector

The Narendra Modi government has a somewhat mixed record in politics, economics, and welfare, but with clear successes, says Martin Wolf, chief economics commentator at the Financial Times. Speaking from the sidelines of the Kautilya Economic Conclave, Wolf, in conversation with Asit Ranjan Mishra, warns that big problems are emerging due to relatively weak investment in the private sector. Edited excerpts:

The Narendra Modi government recently completed eight years in office. How do you rate its performance?

That’s quite complicated. From the outside world’s point of view, it would be seen as a mixed record. There are very clear realities. First, it is a politically very successful government. It has established an extraordinarily strong position in the country. Everybody assumes it is going to last for a long time. It gives political stability. One understands what it is trying very broadly to do. There are questions abroad about potential for communal divisiveness and whether that would affect its stability and what that would mean for its future. India is seen as a very important country for the future because of its size and economic potential.

On the economic front, the performance of the government is again mixed. The growth record has not been very good. The country’s economy was terribly hit by Covid-19. There is a perception the government took some rather whimsical decisions like demonetisation. Some big problems are emerging in terms of relatively weak investment in the private sector, in particular. There is an attempt to build some sort of a welfare state. There is a recognition that the government is really quite successful and quite determined to improve public services for the mass of the people.

You touched upon communal tensions building up. Do you think they have the potential to undermine the economic prospects of the economy if left unchecked?

It is very difficult for me to judge as an outsider. The answer to that is I assume and hope not because it will be very foolish and unnecessary. One of the remarkable things is how peaceful Muslims have been here unlike in many other countries, including our own - very limited domestic terrorism or violence. But, of course, there is always a risk.

If the relation with the minority community was to be seriously destabilised, which has clearly not happened from an outsider’s perspective, that would be a concern not just for Indians, but for people who want to invest in India, people who are friends of India, and people who want India to be a great success. (I assume) there is a place for all Indians in New India. That is obviously in the interests of India and the world.

India has been importing crude oil from Russia despite Western pressure. Do you think there is greater understanding of India’s position in the Western world on the matter and will it allow this concession to India forever while it reduces its own energy dependence on Russia?

I have assumed from the beginning that the West will accept this. The truth is I don’t think the West has the capacity to stop Russia’s oil exports. There are mechanisms it could use – it can limit the insurance of marine cargo - but ultimately Russia is a big supplier of oil.

Oil has a world market, and the West doesn’t have the capacity to stop that happening. There is a realisation that countries will strike favourable bargains with Russia; India and China being the most important, they will import oil more cheaply than the world price and in a way they are the beneficiaries.

Since oil prices are high, Russia is doing very well, allowing it to survive. I don’t think we can stop this. But broadly speaking, in this environment, it is in the interests of India to become a little less non-aligned, to somewhat align very broadly with the West because we share common interests.

Do you think Russia’s invasion of Ukraine (on February 24) has changed the world order? How do you see things panning out?

It is always very difficult to understand history while it is happening. My belief is this might be very important because it leads to a quite decisive break between the West and Russia under Vladimir Putin and more importantly, it has opened a very clear rift between Europe and China.

From China’s point of view in the New World, it had hoped to isolate its bad relations with the US from those with Europe. Europe is a very important economic partner for China and it hoped to retain good relations and Europe didn’t want to go with the US vis-à-vis its relationship with China.

Because what this war means for Europe’s relationship with Russia, it also means important changes in the relationship of Europe with China which was already getting more fractious. Europe now will increasingly ally with the US in international affairs and that will tend to force China and Russia more closely together, although I don’t think that is where Xi Jinping wants to go entirely. That splits the world further and makes managing it all the more difficult.

It is possible we will look at this as a watershed moment.