With steady economic growth, PM Modi is signalling a more aggressive foreign policy.

Prime Minister Narendra Modi has successfully deployed foreign policy as a tool to create global confidence in India's economy. Now he's set to bring some risk into that equation.Faced with border disputes with Pakistan and China, Modi made initial outreach efforts and focused on promoting economic ties, more so than his predecessors. India watchers say his foreign policy message that India was open for business helped transform the country into the world's fastest-growing major economy."There's been a very overt attempt to use foreign policy as a tool for domestic economic growth," said Harsh Pant, a professor of international relations at King's College London. "There is a significant shift in the way India is engaging the world."But as Modi enters his third year in power, that approach may be changing. With economic growth sitting above 7 percent, and a landmark goods and services tax passed by parliament, Modi is signaling a more aggressive foreign policy. He has some domestic motivation to take a more nationalistic stance, particularly on Pakistan, with his party facing more than a dozen state-level elections throughout the second half of his term to 2019."Modi's success in spurring foreign investor interest has given him room to pivot and step up his foreign policy focus on Pakistan and China," said Sasha Riser-Kositsky, an Asia analyst with political risk firm Eurasia Group.There's already evidence of that approach in the disputed region of Kashmir, which is claimed in full and ruled in part by both India and Pakistan. In late September, Modi's government launched "surgical strikes" into Pakistan-controlled Kashmir after an insurgent attack on an Indian army camp left 19 soldiers dead.Such a shift doesn't come without risks. News of the strikes sent the rupee and the S&P BSE Sensex down. Pushing Pakistan away will only deepen Islamabad's ties with Beijing, Riser-Kositsky said. And while talking tough on Pakistan for a domestic audience may benefit Modi in elections, it will create circular pressure on him to respond more to future tensions.Like many of India's leaders, including first prime minister Jawaharlal Nehru, Modi has largely led foreign policy himself. But he's also overturned traditions.Nehru helped found the "non-aligned movement" of countries not allied with either Cold War superpower. Modi, on the other hand, traveled the world meeting company chiefs who could invest in India, and forged closer defense ties with the U.S., Russia and Japan. He skipped this year's non-aligned movement summit -- the first Indian leader to do so since a caretaker prime minister didn't attend in 1979.Since taking office Modi has traveled abroad 53 times to more than 40 countries, according to the Ministry of External Affairs. He's bear-hugged leaders like Japan's Shinzo Abe and given speeches to India's diaspora in stadiums around the world.As part of his bid to use foreign policy to aid growth, Modi instructed diplomats not to send back endless political reports and to focus instead on promoting Indian businesses, said Lalit Mansingh, a former ambassador to the U.S.Modi surprised many early in his term by inviting regional leaders, including Pakistani Prime Minister Nawaz Sharif, to his inauguration. He later visited Sharif in Lahore. Modi and Chinese President Xi Jinping were photographed sitting and chatting on a swing during Xi's trip to India in 2014, and Modi reciprocated the visit the next year.Mansingh expects a "brief interruption" in the pursuit of closer ties with the U.S. from Donald Trump's election win, but continuity over the long-term, as Trump and Modi share some traits and both captured a populist mood. "I have no doubt the leaders will get on famously," he said.Still, Modi's outreach to Pakistan and China has largely failed, said Ashok Malik, a columnist and distinguished fellow with the Observer Research Foundation in New Delhi. And with economic growth solid, Modi can now afford to take a harder turn on regional rivalries.Constant clashes across the Line of Control dividing India and Pakistan-administered parts of Kashmir show there's a "new normal" between the nuclear-armed neighbors, Malik said, where India will not let transgressions slide because of the threat of nuclear war.There are also signs Modi is growing impatient with China.In August, he used an independence day speech to lend support to separatists in Pakistan's restive Balochistan province and Gilgit-Baltistan, two areas traversed by China's $46 billion economic corridor.Modi has moved to counteract China's investments in South Asia, issuing a $2 billion line of credit to Bangladesh and seeking closer ties with Sri Lanka.He knows, however, he can't afford to let tensions escalate too far with Pakistan or China, said Sameer Patil, a fellow at Mumbai-based Gateway House. China is India's largest trading partner with a two-way relationship worth $74.9 billion annually.For that reason, Modi has delegated harsher rhetoric to cabinet colleagues, Patil said, allowing him to keep his policy options open -- and risks to India's growth low."They realize the benefits of India being with China, the risks of escalating with China," Patil said. "He's calculated his policies accordingly."Iain Marlow in New Delhi at imarlow1@bloomberg.netTo contact the editors responsible for this story: Ruth Pollard at rpollard2@bloomberg.net Rosalind Mathieson

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