India’s Economy Could Loom Large in State Elections

Welcome to Foreign Policy’s South Asia Brief.

The highlights this week: India releases its new budget amid economic uncertainty, Pakistani Prime Minister Imran Khan travels to Beijing to meet Chinese President Xi Jinping, and further allegations emerge of New Delhi’s use of Pegasus spyware.

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This week, India unveiled its new budget, which pledges $530 billion in spending—a nearly 5 percent increase from last year’s. The new budget, which goes into effect on April 1, prioritizes infrastructure spending, aiming to spur consumption, growth, and employment in the long term. However, it lacks immediate-term job creation initiatives, one of India’s most pressing economic needs. With five key state elections in the coming weeks, this could have political ramifications.

The government released the new budget during a rollercoaster period for India’s economy. By the end of 2021, pandemic-induced struggles had morphed into increased economic growth and renewed optimism about recovery. Last December, the head of McKinsey India predicted that India is poised to enjoy a “Roaring ’20s” period. But the new year has brought fresh concerns about rising inflation, joblessness, and the effects of the omicron variant.

The budget promises to build big, with infrastructure intended as a vehicle for growth: 15,500 miles of highways, 100 cargo terminals, 400 new trains, and increases in housing for the poor. “The approach is driven by seven engines, namely, roads, railways, airports, ports, mass transport, waterways, and logistics infrastructure. All seven engines will pull forward the economy in unison,” Indian Finance Minister Nirmala Sitharaman explained in the announcement.

This focus on infrastructure also appeals to the international investors that Indian Prime Minister Narendra Modi’s government has courted, particularly in the defense and technology industries. New Delhi likely wants its commitment to upgraded infrastructure to improve perceptions about the ease of doing business in India. It also seeks to capitalize on global concerns about crackdowns on foreign tech firms in China. The budget’s 50 percent increase in information technology and telecommunications spending sends encouraging signals.

But the budget falls short on new assistance programs. It reduces expenditures on rural employment, decreases food and fertilizer subsidies, and features no specific initiative to boost urban employment. The nationwide lockdown in 2020 left thousands of migrant workers on city streets and forced to return by foot to their villages—a powerful reminder of the vulnerabilities of India’s urban laborers.

Unemployment isn’t just a problem for the urban poor: As recently as June 2021, just 34.6 percent of India’s working-age population was estimated to be employed. India’s large informal economy makes labor estimates difficult to piece together, but economists say that India’s 9 percent unemployment rate is at its highest in three decades. Frustration is mounting: Last week, people protesting because they couldn’t land jobs in the state-run rail sector—India’s largest employer—set fire to trains in India’s Bihar and Uttar Pradesh states.

The unrest has implications for state elections taking place between Feb. 10 and March 7. One of them is in Uttar Pradesh and another is in Punjab, home to many farmers who spent much of last year protesting agricultural reform. Modi repealed the farm laws, but his budget cuts for rural development programs could generate fresh grievances. For New Delhi and Modi’s supporters, the budget appears to have a “build it and they will come” logic, but this is no consolation to those burdened by inflation and unemployment who don’t have the luxury of time.

Either way, the upcoming elections offer an early litmus test for the new budget—and for the general state of India’s economy. Modi won reelection in 2019 despite high unemployment and protests from some of his own supporters, and he remains highly popular. If his Bharatiya Janata Party (BJP) fares well in the polls, Modi will win back momentum and strengthen his mandate as he confronts an unemployment challenge the budget may struggle to overcome.

Feb. 3 to Feb. 5: Pakistani Prime Minister Imran Khan visits China as it kicks off the Beijing Winter Olympics. (India has joined the U.S.-led diplomatic boycott of the Games.)

Feb. 9: The Reserve Bank of India makes an interest rate decision.

Feb. 9: The Wilson Center hosts an online book launch for The Fractured Himalaya, a study of India-China relations, with author Nirupama Rao.

Feb. 10: Voting begins for elections in Uttar Pradesh, India’s most populous state, which could present a tough fight for the BJP.

Imran Khan meets Xi Jinping in Beijing. The Chinese government has released the list of foreign leaders traveling to the Beijing for the Winter Olympics, which begin on Friday. The United States is leading a diplomatic boycott of the Games to protest state human rights abuses in Xinjiang. Twenty-five world leaders are expected to attend, with only Pakistani Prime Minister Imran Khan coming from South Asia.

According to Chinese media reports, Khan will be the first foreign leader to meet Chinese President Xi Jinping in person since the start of the coronavirus pandemic. Beijing is arguably Islamabad’s closest ally, and their deep partnership—fueled in great part by their shared rivalry with New Delhi—has strengthened in recent weeks due to their cooperation on regional diplomatic efforts in Afghanistan and with the Pakistani acquisition of Chinese fighter jets.

However, on the economic side, there is some strain. The China-Pakistan Economic Corridor, part of Beijing’s Belt and Road Initiative, has lost momentum. Struggling economically, Pakistan is reluctant to take on new Chinese loans. Meanwhile, China worries about security risks after terrorist attacks on Chinese workers occurred in Pakistan last year. Khan’s meeting with Xi may not be quite as jolly as the public messaging likely to accompany it.

India linked to Israeli spyware, again. The New York Times reports that when Modi made an official visit to Israel in 2017—the first by a sitting Indian prime minister—he signed off on a purchase of its Pegasus spyware. This isn’t the first allegation linking the Modi government to the software. Last July, the Wire and 16 media partners alleged that India may be using Pegasus spyware to monitor government critics.

Indian officials deny the allegations, but last October, India’s Supreme Court appointed a committee to investigate whether the government is indeed using Pegasus spyware to snoop on its own citizens. According to Indian media reports this week, two cybersecurity experts told the committee there are “strong indicators” that the allegations are true.

The timing of the latest allegations, so close to upcoming state elections, is inconvenient for the government. But these allegations aren’t likely to have a major political impact; the story will simply reinforce the views of both government supporters and their opponents. The former will argue that the accusations mark the latest attempt to malign India, whereas the latter will counter that they’re the latest example of the government cracking down on civil liberties.

Key U.S. congressman calls for cooperation with Bangladesh. According to a press release from Bangladesh’s embassy in Washington, U.S. Rep. Gregory Meeks, chairman of the House Foreign Affairs Committee, spoke highly of Washington’s relationship with Dhaka during a speech in New York. He downplayed the significance U.S. sanctions placed on a top Bangladeshi security institution in December 2021 and said he plans to travel to Bangladesh this year.

Although the embassy could have omitted less-positive comments, the tenor of Meeks’s remarks was largely supportive. He was the latest senior U.S. foreign-policy figure to praise the U.S.-Bangladesh partnership since the sanctions were imposed, after outgoing U.S. ambassador Earl Miller and U.S. Secretary of State Antony Blinken. This positive messaging suggests the sanctions decision was a one-off move focused on human rights, not a prelude to more confrontation.

“There’s very few bonds that exist on this Earth like those between people who walk towards death together.”

—A U.S. Army captain describing the female Afghan soldiers she worked with while deployed in Afghanistan, in the Atlantic.

People wait to receive a COVID-19 vaccine at a vaccination center in Karachi, Pakistan, on Aug. 1.RIZWAN TABASSUM/AFP via Getty Images

This week, the U.S. State Department announced its latest donations of COVID-19 vaccines to Pakistan and Bangladesh— the top two overseas recipients of free U.S. shots. According to State Department data, Pakistan has received nearly 43 million doses from the United States, and Bangladesh has received around 39 million doses. These are considerably higher numbers than the third and fourth top recipients: the Philippines (25 million doses) and Indonesia (24 million doses), respectively.

Interestingly, Pakistan and Bangladesh don’t receive nearly as many free vaccines from China. Worldwide, Beijing has provided far fewer vaccine donations than Washington. According to a tally from Bridge Consulting, the top recipients of free Chinese vaccines are Cambodia and Myanmar (11 million doses each), Laos (8.5 million doses), and Nepal (8 million doses). Beijing has also pledged 5 million free shots to Bangladesh, and Pakistan has received 3 million shots.

The bulk of Chinese COVID-19 vaccines sent abroad are sold, not donated. Its biggest buyers are Indonesia (259 million doses), Pakistan (132 million doses), Iran (110 million doses), and Turkey (100 million doses). But countries prefer donations; when it comes to vaccine diplomacy, Washington appears to have the upper hand over Beijing—including in parts of South Asia.

An editorial in the Island weighs in on the recent arrests of Indian fishermen for their presence in Sri Lankan waters. “New Delhi’s interventions on behalf of Tamil Nadu poachers have emboldened the latter to carry out their illegal operations in Sri Lankan waters while playing the victim,” it argues. “Illegal fishing is a far more complex issue than it looks, and the politics of it is not usually factored in when efforts are made to resolve it.”

Academic Shazia Anwer Cheema argues in the Express Tribune that self-censorship risks exacerbating corruption in Pakistan. Fearing the consequences of expressing dissent, many people refrain from criticizing the state, aiding “those involved in corruption because everybody knows that restrictions on civil liberties … always help corrupt individuals to continue their practices unchecked,” she writes.

In the Dhaka Tribune, economics researcher Sultan Mahmud lists the steps Bangladesh must take to maintain its current economic momentum and avoid a “middle income trap,” including more agricultural modernization and anti-corruption efforts. If Bangladesh succeeds, he argues, it “would become a developed country by 2041.”