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India’s Modi’s passage to the UK: Not smooth sailing

Can Modi deliver on his mandate?

Narendra Modi, Prime Minister of India, may be getting the red carpet treatment in his first trip to the U.K. since being swept to power last year, but there could be storms ahead as the U.K. tries to build closer ties with the emerging market.

Modi wasn't exactly rushing over to the U.K. – since winningoffice last year, he has visited 26 countries before making it to London.

His visit comes mere weeks after the celebrations laid on for Chinese President Xi Jinping, which were met with similar raised eyebrows over the U.K. courting trade links with regimes whose record over human rights as well as economic management has been questioned.

Hindustan Times | Getty Images

The U.K. has been the third biggest foreign investor in India for much of the past decade, behind Mauritius (which is mainly for tax reasons) and Singapore. There are historic trading links going even further back than the days of the Empire and the East India company, and a large Indian diaspora in the U.K. itself.

The breadth and achievements of this diaspora will be celebrated with a rally of around 60,000 British people with Indian heritage at Wembley stadium on Friday. This is one of the world's most economically powerful diasporas, with "non-resident Indians' sending over $70 billion back to the country last year, according to World Bank data.

The financial clout of Indian immigrants has helped make India the world's biggest recipient of foreign remittances – although this may in part be because the contrast between the poverty at home and riches available abroad is so stark.

Yet Modi is a divisive figure for many in India and the U.K., which is why there are planned protests outside the rally.

Modi, part of the Hindu nationalist party the Bharatiya Janata Party (BJP), has been criticized for inflaming tensions between Muslims and Hindus, and was even banned from traveling to the U.K. after more than a thousand Muslims were killed by mob violence during his tenure as chief minister of the province Gujarat.

His ability to reform India's notoriously labyrinthine bureaucracy has also been questioned by India-watchers.

"Modi can quickly cut through red tape. But, his style indicates centralized decision-making and in the long run it is questionable how sustainable this style will be in a country as large, complex and diverse as India," Deepak Lalwani, founder and director of Lalcap Ltd, which specializes in doing business with India, said.

Indian residents walk past the Bombay Stock Exchange (BSE) in Mumbai.
Emerging markets a mess, but need a 'country by country' look

BJP losses in last weekend's Bihar election show that Modi is not always an electoral silver bullet.

For India economy watchers, the expected passage of the Goods and Services Tax, which is hoped will simplify the country's complicated system of local and national taxes, next year will be crucial. If this fails again to get past the country's parliament, Modi's reputation as a man who can enact economic reform, his main appeal to international investors, could be fatally damaged.

"Investors must deal with appalling infrastructure, excessive red tape and deep-rooted corruption. Private investment is weak, corporate debt is a problem and the state-controlled banks are burdened with loans that may never be repaid," Hugh Young, managing director at Aberdeen Asset Management, wrote in a research note.

"There are millions of people around the world who want to believe in him. Modi needs to convert some of that faith into something that will support his efforts on the home front."