The Modi-Trump Bromance Couldn’t Prevent The Immigrant Embarrassment

After the Budget presented on February 1, US President Donald Trump’s declaration of trade war, followed by ceasefire deals and the effects of these developments on stock markets, dominated the week under review, apart from the continuing reverberations of the Chinese artificial intelligence chatbot DeepSeek’s startling claim that $6 million was all it took to develop its latest reasoning model, which is at least as good as Chat GPT’s own latest release.

Political Embarrassment

A stampede that killed 30 people, according to the official estimate, at the Mahakumbh taking place at Uttar Pradesh’s Prayag Raj was a tragedy, until it turned into a political controversy, with the Opposition claiming that the number of those killed was much larger, and the ruling party in the state, the BJP, trying to shame its opponents for ‘making political capital out of a tragedy.’ The Uttar Pradesh administration, under different political dispensations, has had a reputation for conducting this once-in-12-year religious gathering of 120-180 million people efficiently. Sullying that reputation is, indeed, a source of political embarrassment.

So is the return from the United States of a planeload of Indian illegal immigrants in a special military plane, with the passengers held in manacles until their arrival in Amritsar, Punjab. It may be recalled that Colombia’s president, Gustavo Petro, had sent back such a military plane carrying Colombians who had bungled their migration to the US, all in shackles, on the ground that these were not criminals but only ordinary people striving for a better life abroad, who did not deserve to have their dignity violated by being put into shackles.

Colombia, when threatened with 25% tariffs on its exports to the US, had sent its own planes to the US to bring back the hapless Colombians, albeit as free men. The Modi-Trump bromance that vocal Modi supporters tend to be loquacious about could not prevent the Indian migrants from being trussed up on their way back to India.

Modi’s Foreign Trip

Prime Minister Narendra Modi is foraying abroad again, to meet up with Donald Trump in the US and to attend a summit on the regulation of AI in Paris. US government spokesmen have been urging India to lean into the relationship with the US and accelerate the ongoing process of lowering dependence on Russian weapons and weapons systems, and increasing reliance on western arms supplies.

India’s own preference is to accelerate the pace of indigenisation of defence production and encourage its foreign partners to transfer technology to that end. This is where the Russians score big and the Americans lag. India exports Brahmos missiles, made in India in a joint venture with Russia, to the Philippines, has struck a deal to export them to Indonesia and is trying to secure an export order from Malaysia as well.

During his first term in office, President Trump had been willing to give India some weapons that it normally sells only to countries with which the US has a defence treaty, including the Missile Technology Control Regime Category-1, Sea Guardian Unmanned Aerial System, ship-based Predator drones, etc.

It will make sense for India to use US goodwill to the hilt, to acquire sophisticated weapons, without making long-term commitments on either trade or defence equipment that would hobble India’s choices in a manner that compromises India’s strategic autonomy.

The Trump administration has put its threatened 25% import tariffs against Mexico and Canada on hold for a month, extracting a commitment from either country to increase efforts to check the cross-border flows into the US of fentanyl and illegal migrants. This contradiction of the notion that the Trump tariffs were MAGA-strategic, rather than transactional bargaining chips, has encouraged the stock markets in the US.

Trump’s Middle East Wrench

At the same time, President Trump has thrown an 80-millimetre wrench into the Middle Eastern works during his joint press conference with the visiting Israeli Prime Minister Benjamin Netanyahu, suggesting that Palestinians should evacuate from the Gaza strip, which lies as a sea of rubble that covers unexploded ordnance and countless human remains, so that the US could take over the property and redevelop it as a Middle Eastern Riviera. Egypt and Jordan could, Trump helpfully suggested, take in the Palestinian refugees.

That this would amount to ethnic cleansing seems to have been lost on President Trump, probably because he was viewing Gaza from the eyes of a property developer. The proposal has met with approval only from the extreme right in Israel, which sees the lands to which the Palestinians were forced to flee in 1948, when Israel was founded as the new homeland for Jews, as rightful bits of their Promised Land. All Arab nations, including Saudi Arabia, Egypt, Qatar and Jordan, besides Turkey, have denounced the move, which could unravel the ceasefire before it proceeds to its second and third phases.

The Inconvenient Truth

The Budget failed to enthuse the markets, in spite of the liberal tax giveaways it announced. Tax giveaways for the middle class total Rs 1,00,000 crore. This, say many commentators, would boost stalled consumption, and lead to a virtuous cycle of investment by manufacturing companies, whose capacity utilisation has been stuck below 75% since 2015, such capacity addition creating additional purchasing power, leading to new production and fresh addition to capacity.

What this does not take into account is the inconvenient truth, that the income multiplier for consumption in India is about 1.2 — meaning that for each unit of additional consumption, the economy would grow by 1.2 units — whereas the multiplier for investment is anywhere between 2.4 and 5, depending on the type of investment. In other words, instead of giving away Rs 1 lakh crore as tax breaks to the middle class, if the government had collected the tax and used the proceeds to finance investment, the resultant growth would have been much more significant.

While stepping up the outlay on capital expenditure in the Budget presented in July 2024, the finance minister had expressed confidence that this would crowd in private investment and reverse the economic slowdown. What transpired is that the government failed to spend all of the budgeted outlay and growth came down from 8.2% in the previous fiscal to an estimated 6.4% in the current one. The government has kept the 2025-26 Budget’s capital outlay as the same proportion of GDP, 3.14%, as in the 2024 July Budget, and places reliance on Public-Private Partnership in infrastructure for pushing up the gross fixed capital formation, stuck at or below 30% of GDP for the last 10 years.

Public-private partnership (PPP) is a sound way to create much-needed infrastructure and its revival by the present government, which had chosen to revile it as a source of corruption in the past, is most welcome. However, PPP can work only when detailed policy and contracting models are worked out for each infrastructure sector. That hard work has not been done. Presumably, it would be done, and PPP policy would be announced sooner than the storage policy for renewable energy, which was promised in the July 2024 Budget and still remains a promise.