CHAPTER 126 Indonesia and India: Under New Management1

For historical reasons, no one seriously considers India and Indonesia as neighbors, although at their nearest points, these two nations are barely 100 miles apart across the Straits of Malacca. But the two economies have taken steps forward since Indian Prime Minister Narasimha Rao’s 1991 policy of “Look East.” Today, both are under new management. In India, Prime Minister Narendra Modi took charge soon after the landslide victory on May 17, 2014. In Indonesia, President-elect Joko “Jokowi” Widodo will assume office on October 20, 2014. Both leaders have promised to turn their slackening and staggering economies around, with high expectations that advancing growth will be given top priority in the early days of their administrations. Last week’s Asian Development Bank updates trimmed its forecasts for Southeast Asia while keeping its July forecast for India, in the face of a slower world economy (the International Monetary Fund now forecasts growth at 3.4 percent, down from 3.7 percent in July), with extended stagnation in Europe as its main stumbling block.2 With poor global demand, the export-led strategies of India and Indonesia will become more difficult to implement successfully.


Modi’s stock is high; he exudes optimism—helping to spread the much-needed confidence India so badly needs. Yet his first budget mostly underwhelmed and failed to offer big reforms. “The Indian public is not ready for broader reforms,” ...

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