The Hindu Business Line : Obama and India

It is too early to tell what the implications of the Obama administration’s foreign policies will be for India — partly because his team has chosen to maintain a discreet silence so long as Mr Bush is still the US President, says SUBODH MATHUR.

The excitement over Barack Obama’s coming presidency is palpable in Washington. Hectic preparations are on for the unprecedented number of visitors who will come to witness Mr Obama’s inauguration. Even the cell phone companies are installing additional equipment to deal with the expected surge in calls by the visitors.

Many in the black community, which forms the majority of the population in Washington DC, simply cannot stop feeling thrilled that the US will have a black President just 45 years after Martin Luther King’s “I have a dream” speech. The other communities, like most of the world, are just tired of George Bush, and are eagerly waiting for Obama’s promised change. How will the new Administration affect India? Not much immediately, in economic terms.

Domestic focus

Mr Obama’s primary concern is the US economy. His team has been silent on foreign policy issues, saying that there can be only one President at a time. Not so on domestic economic policies.

There is much hope that the newly elected Senate and House members, who were sworn in on January 6, will have a fresh economic stimulus package ready for Mr Obama to sign the very day he is sworn in, though there may be some delays.

Like Mr Bush’s package, Mr Obama’s will try to get the economy moving again. Unlike Mr Bush, Mr Obama’s focus is on domestic infrastructure development, job creation, and middle-class tax cuts. None of these would have an immediate impact on the Indian economy.

However, if they do stimulate economic growth, then eventually Indian exporters may find that their business will increase in the US. Of course, Mr Obama will continue the ongoing efforts to spur the credit markets, and success here too would eventually help Indian exporters.

The interest of American firms in India remains strong. What has weakened is the ability of some of these firms to finance fresh ventures. And, correspondingly, the slowing down of the Indian economy has reduced the opportunities for foreign firms. Thus, if Mr Obama’s economic policies can revive the US economy, then there would be a quick revival of US activities in India also.

However, a backlash has been building up in the US against outsourcing jobs. This is unlikely to spur Obama’s economic team to pursue directly protectionist policies like import limitations or tariffs.

This was not part of the election campaign, nor does it fit in with the views of Mr Obama’s key economic advisers. Nevertheless, Mr Obama will move corporate tax policies in favour of domestic job creation, which will tend to reduce India’s attraction for outsourcing.

For example, in 2007, as a Senator, he had introduced a legislation that would provide tax credit to companies that maintain or increase the number of full-time workers in America relative to those outside the US. Mr Obama said during the election campaign that he would “end tax breaks for companies that send jobs overseas” and make efforts to ensure that government contracts are awarded to companies that are committed to American workers.

Another area where India is likely to face fresh challenges is climate change. During the election campaign, Mr Obama promised to move quickly on promoting green energy.

Indeed, his economic package will aim to create so-called ‘green jobs’, which are seen as domestic jobs that cannot be easily outsourced. For example, installing additional insulation in a home to reduce the winter heating bill is a job that has to be done locally.

Climate issues

Some of Mr Obama’s advisers feel that policies aimed at mitigating climate change should be delayed until the economy has recovered.

However, there is little doubt that the US policies — federal as well as individual States — towards climate change will shift dramatically. Indeed, it is very likely that the international climate change agenda will now be driven by the US, whereas the US was essentially obstructionist under Mr Bush.

India’s view is that the developed nations created most of the problem of climate change, and they, not the developing countries, should take the primary responsibility for mitigating climate change. India does promise that greenhouse gas emissions “will at no point exceed that of developed countries even as we pursue our development objectives”.

This promise has to be interpreted in per capita terms because India is already in the top five countries (along with China, the US, Russia and Japan) in terms of total greenhouse gas emissions. India does have a strong case that its energy use in the past was so low that it did not create the problem of climate change. The data support India unambiguously, and there is no controversy about it.

But, the concern is about the future. India’s promise sounds hollow because even a doubling, tripling or quadrupling of the country’s per capita emissions would not break this promise. Yet, such an increase would certainly worsen the prospects of climate change. This ‘lip service’ approach may have been internationally acceptable when the US was not willing to do anything to mitigate climate change. Why should India bear the burden of avoiding climate change when the US was doing nothing? But, will this approach work when the US is proactively making significant efforts to avoid climate change?

Probably, it will be difficult to sustain this diplomatically in the international arena, where Mr Obama’s standing is so much higher than Mr Bush’s. Very likely, India will have to come up with a new approach that goes beyond this pledge.

Beyond economics, Mr Obama and his foreign policy team are likely to shift the US’ attention from Iraq to Afghanistan, as promised in the election campaign. This will also mean increased attention to Pakistan, and perhaps to the terrorism problem that India is facing.

Mr Bill Clinton’s policies were never anti-India, and Ms Hillary Clinton is unlikely to be different. Still, it is too early to tell what the implications of the Obama administration’s foreign policies will be for India – partly because Mr Obama’s team has chosen to maintain a discreet silence so long as Mr Bush is still the US President.

(The author is a professor at American University, Washington, DC and an independent consultant. blfeedback@thehindu.co.in)

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