by Patrick Fearon-Hernandez, CFA

Since coming to power in 2014, Indian Prime Minister Narendra Modi has shown a penchant for using surprise to launch new policies.  In 2016, for example, his government announced a sudden replacement of large-denomination bank notes to fight crime and curtail the shadow economy.  Modi’s latest shocker came early last month, when his government suddenly announced that the northern state of Jammu and Kashmir would no longer have the special autonomy it has enjoyed since India’s independence from Britain in 1947.  Like the cash reform, officials couched the Kashmir initiative as economic policy – as a way to encourage more development in the region.  However, its main impact is likely to be political and strategic.  Indeed, it even has the potential to eventually prompt a military confrontation between India and Pakistan, pitting two nuclear powers against each other.  That complication makes the situation a real “sweater.”  Thus, it makes sense to examine the move in greater detail and discuss what it says about the evolving geopolitical environment.  As always, we will also discuss the investment implications of the move.

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