Index trend
Previous Quarterly Editions
Expropriation risk: 55 54 54 54 ► Political violence risk:57 57 57 57 ►Terrorism risk:71 71 72 74 ►Exchange transfer and trade sanction risk: 44 44 44 44 ►Sovereign default risk:56 55 47 47 ►
Overall Risk Temperature: 57 (Significant) TREND ►
Special topic: Relationship with the 'global rules-based order'
India’s position on the global rules-based order both in terms of its rhetoric and in its practice has changed considerably in recent years. That position is by no means consistent. On the one hand, a genuine perception of being discriminated against by “rules,” a desire to be given or win an enhanced role in the prevailing order, and the rise of a new nationalism have made India argue for restructuring of those rules and the order. On the other, India’s conflict with an increasingly assertive China has driven it to strengthen its strategic relationship with the U.S. and align itself with the hegemons of the current order, which are also keen on containing China. That requires supporting the current rules-based order in chosen areas.
The result is that India demands a greater international role as a member of the United Nations Security Council and in the governance of global institutions, such as the World Bank and the International Monetary Fund, and fights what it considers to be discriminatory trading and investment rules at the World Trade Organization, but it is willing to fall in line with global trade and investment rules and wants its neighbors to adhere to rules and principles dictated by the current global order.
Domestically, the government has been adopting measures that are in violation of the rules of that order. There is much evidence of an erosion of democracy, including through the use of the state machinery solely against the opposition in the name of battling corruption; the undermining of press freedom; intensification of state surveillance, especially in the digital space; and human rights violations, especially against minorities and marginalized communities. Demands for addressing global inequality have been accompanied by measures that intensify domestic inequality, with allegations that in a quid pro quo, the state is favoring cronies using methods that amount to violation of international “rules,” such as protectionism and subsidies.
While sections of India’s elites may be happy with these changes, which they see as enhancing India’s global prestige and their own wellbeing, an increasingly silenced majority is worried - as June's election results suggest. The collapse of the prevailing global order, and the rules it claims to favor, would only intensify domestic tendencies that restrict the freedoms of that silenced majority and worsen its economic status.
TREND ►With the Indian government keen on benefiting from the “China plus one” strategy of global firms and a close alliance with the U.S., there is little likelihood of expropriation through nationalization of foreign assets.
However, the “new India” platform of the ruling Bharatiya Janata Party (BJP) involves a close nexus between the government and a few top indigenous business groups seen as national champions. Policy to favor those groups may involve discriminating against other players. In addition, with the role of money in politics having increased under the current government, there is evidence of the use of state power to force large political “donations” from large corporations in covert ways.
TREND ►
The Indian social and political spaces have witnessed a sharp increase in conflicts of various kinds. Sharp divisions between the ruling party and the opposition parties, especially in the run-up to elections this year, has increased the incidence of violence and the potential for even greater violence. Critics of the BJP say that its emphasis on Hindu religious and ethnic identity has fueled attacks on religious minorities, especially Muslims, as well as civil violence in the northeastern state of Manipur between the majority Meiteis and the Kuki tribal population. Accounts suggest that the state apparatus has lost control, resulting in large-scale loss of life, injury and damage to property.
Disappointment among the farmers over failure to deliver on promises made in an agreement with farmers’ organizations after protests in 2021 has set off a new round of protests, especially in northwestern India. The 2021 protesters demanded a statutory minimum price for, and state procurement of, farm output and opposed reforms they saw as favoring corporates. Some of those demands are being revived. The protests have been largely peaceful, but the heavy-handed response of the state has triggered sporadic violence in Punjab and Haryana.
Meanwhile, the use of the Enforcement Directorate, the Income Tax Department and the Central Bureau of Investigation to file charges of different kinds of violations and then arrest and incarcerate opposition politicians has vitiated the atmosphere so much that the potential for violence born out of frustration increases every day.
Finally, despite continued presence of military and paramilitary forces in Jammu and Kashmir, sporadic violence continues following the abrogation of the special status given to the territory. The government’s refusal to hold elections and dissent is brewing among the majority Muslim citizens in parts of the territory against what are perceived as measures aimed at changing the region’s demographic profile.
India has long been the site of both extreme left- and right-wing terrorism. A strong and heavily funded response from the state to the Maoist threat in different parts of the country has weakened that source; however, terrorism perpetrated by far-right Hindu fundamentalists wanting to subordinate and even expel Muslims has increased. There are allegations that the state has either ignored or even facilitated such actions. This is likely to intensify the activity of Muslim fundamentalists and win them support from a minority population that has benefited less from development. This too can be a trigger for increased terrorist activity.
Capital inflows into India have exceeded its current account financing requirements, leading to large reserve accumulation, but the Indian rupee has nonetheless depreciated vis-a-vis the U.S. dollar and euro. The Reserve Bank of India has occasionally intervened, using its reserves to prop up the currency, but it seems inclined to let the rupee fall to provide a boost to India’s weak exports. This does imply losses for foreign investors investing in rupee assets and then converting gains into foreign currency for repatriation.
However, there is little risk of trade sanctions risk except in the case of sensitive commodities such as foodgrains, where fears of inflation have led to restrictions on the export of rice and wheat with attendant implications for global markets and prices.
Aggregate sovereign debt is on the rise but is still low relative to GDP compared with many of India’s peers, and its composition is not weighted in favor of foreign currency debt. Domestic currency debt overwhelmingly dominates, reducing substantially any risk of sovereign default.
