The celebration and the hangover

on Friday, November 14, 2008


The US has al ways had two very different faces, one inte rnal and one ex ternal. Inter nally, it has be en a global be acon of dem ocracy, empowerment, and equal rights for the powerful and pow erless. Externally, it has used its military and economic power to bully others into submission sometimes gently and sometimes bloodily. Its internal face is ad mired across the globe, while its external face is widely disliked.
Barack Obama’s victory bur nishes the US internal face as nev er before, and has rightly been cel ebrated across the world. How fan tastic that a country that enslaved black people for centuries, that did not even permit them to vote freely till 1964, should now elect a black president! The US has triumphed over its own history, making race and colour irrelevant in ways unimaginable even four years ago It is a triumph not only for Oba ma but for all Americans, and for the very idea of America.
Having celebrated the internal US triumph, we must now ask what Obama’s victory means for the external face of the US. The answers are sobering. Indeed, one cannot rule out a hangover.
Indian politicians and busi nessmen have hailed Obama’s vic tory, yet plainly have reservations Obama’s campaign slogan for change, chanted endlessly by his followers, was ‘‘Yes, we can’’ What exactly does that portend on specific issues?
Now that the US is slumping into the worst recession since 1979 can Obama take measures to re duce the outsourcing of software and business services to India, and reduce visas to Indian software engineers? Yes, he can.
Can he take measures to reduce the flow of direct and portfolio in vestment to India? Yes he can. He wants to raise the capital gains tax from 15% to 20%. That worsens the risk-reward ratio for US in vestors, and will make them more reluctant to invest in emerging markets like India, which are con sidered riskier than the US.
Can Obama devise tax and oth er measures that will penalise US companies that invest abroad, in countries like India, rather than in the US? Yes, he can.
Can Obama come out with pro tectionist measures to shift jobs from poor countries to the US? He not only can, he has promised to do so.
Can he increase subsidies for and compulsory use of corn-based ethanol, measures that have caused a big spike in world food and fertiliser crisis? Yes, he can.
Can he kill the Doha Round of the World Trade Organisation by taking a much tougher line than Bush on keeping US farm subsi dies high? Yes, he can.
Can he act against India for building up its forex reserves, and hence keeping the rupee weaker than it would otherwise have been? Yes, he can. He has in the past voted to penalise China for doing just this. In the current fi nancial crisis it is wise for Third World countries to keep high forex reserves, but this is not recognised by protectionists in the US.
Now, we must not exaggerate the risks. Politicians are typical ly more populist during an elec tion campaign than when they as sume office. Obama’s most pro tectionist rhetoric has been aimed against China and NAFTA rather than India. But a major recession has begun, and US unemployment could rise to 8-9%. There is talk of Obama engineering another New Deal. Warning: the New Deal was the most disastrously protection ist era in US history.
What about foreign policy? There are some positives here Obama voted against the invasion of Iraq. Bravo! He has pledged to bring US troops back from Iraq quickly, and favours negotiations with Iran. Yet, the Bush adminis tration has already moved in these directions in the last 12 months reversing its earlier muscularity Obama plans to bring some Re publicans into his cabinet, in search of political unity. This sug gests that foreign policy may not change all that much.
To the extent it does, it may not be comfortable for India. Can Obama put pressure on India on Kashmir? Yes, he can. He has said that if only the Kashmir issue is settled, Pakistan can bet ter concentrate on al-Qaida and the Taliban.
The Indo-US nuclear deal is through. But can Obama come up with hurdles on details, like licences for dual-purpose technology? We hope not, but yes, he can. His sup porters include non-proliferators who still want to punish India.
Can he insist that India should enact a law limiting the liability of US nuclear suppliers in the event of an accident at an Indian nuclear power plant? Can he urge India to sign an international con vention shifting liability from equipment suppliers to the com pany running a nuclear plant? Yes, he can.
Here again, we must not exag gerate the risks. In practice, US policy may not change much. But history shows that Indo-US rela tions have usually been better un der Republican than Democratic presidents. Democrats are more protectionist, and tougher on nu clear non-proliferation.
Bill Clinton was personally popular in India, but never did anything for us except impose sanctions after Pokharan II. Bush was personally unpopular in In dia, yet did us yeoman service by pushing through the nuclear deal Can Obama do anything to match that? Yes, he can, but i rather doubt that he will.