The Hindu Business Line : Bush re-election: Terror, trade and ties

THE US President, Mr George W. Bush, has been re-elected for another term. The convincing victory, with a few million popular votes in his favour, must be reassuring for Mr Bush. The US approach to eliminating terrorism and encouraging trade will have different implications on Indo-American ties in the coming years.

The re-election of Bush is in one sense a vote for his `war against terrorism'. Post 9/11, Americans seem to consider their security the main issue. The conviction with which Mr Bush declared his strategy of waging a war against terror helped him win the elections. Mr Bush's Democratic rival, Senator John Kerry, tried to project the Iraq invasion a deviation from the "war on terror." But he failed to convince as he had no better alternative to offer. So the mess created by the US military action in Iraq and the huge sum of money spent notwithstanding, the Americans gave their mandate to Mr Bush and for his overall approach in ensuring the safety and security of his countrymen.

Trade travails

Mr Bush may offer to protect his people from physical attacks, but what of the fiscal offensive his policies have unleashed?The sharp increase in the US current account deficit to 4.5 per cent of GDP, a budget profile that is rapidly getting out of its control and oil prices that are on a rise are all matters of serious concern. The dependence of the US on countries such as China and the latter's pegged currency is widening its current account deficit. The series of corporate tax cuts in the hope that it will generate employment has further complicated the situation.

The families already bankrupted by the insatiable thirst on spending, indeed future incomes; the increasing population without coverage for medical benefit; and the `stealing of jobs' by other countries through outsourcing have all been hotly debated in recent months. Since the US economy and its major trading partners depend on the unabated spending habits of the Americans, any cut in their spending or a new tendency to save out of insecurity will lead to a slow down of the world economy. The inherent conflict seems to be that while continued spending by the consumers will aggravate weak financials and weaken the dollar, any reduction in spending will equally hurt the US economy.

The cumulative effect of all these could also lead to the imposing of trade protectionism. The champion of free trade and a heavy weight in the World Trade Organisation is known for pampering its steel industry and subsidising its farm industry.

"Outsourcing" as a business proposition benefits the American corporations. The justification for outsourcing is essentially the inability to access to leverage local skills cost effectively and an aging population. There can be two long-term effects. One, it will cut down costs and improve the profitability of American companies, and therefore, the tax collection of the US Government. It will also sustain the competitive advantage of such companies which can invest in value addition and research and development.

The temporary loss, of course, is the immediate threat to the jobs of millions of Americans who survive on jobs with low skill-sets. Surprisingly, the Americans have not bought the attractive argument of `stealing of jobs' by developing countries that will hurt the wage-earner. This will eventually remove the uncertainty on outsourcing deals, and accelerate them towards China and India.

The development in both terror and trade spheres may have different implications for India, and this may well promote the country's common interests.

Refreshing ties with India

The US will discover the potential of India and partner with it in various spheres. On the terror front, Pakistan has been so far enjoying a unique position in the coalition of anti-terror countries even as it encourages terrorist activity against India. The US tolerates Pakistan's double-speak, perhaps on the single expectation of flushing out Osama bin Laden and his terror outfits from the Pakistan-Afghanistan border. There is evidenceeven with Washington that India has been the victim of terror in the past two decades, much before the US discovered "war on terrorism" in September 2001. This double standard is bound to vanish in the coming years as the "war on terror" intensifies. The US will realise that in sharp contrast to Pakistan, India is a large democracy with cultural diversity, a responsible nuclear power and a deserving candidate for permanent membership of the UN security council — in short an emerging super power. This change in the US' perception will force Pakistan to correct itself and significantly reduce its contribution to global terrorism.

The US' trade ties with India are also expected to improve, considering the huge domestic market, and the army of skilled manpower. India will be perceived as one of the best destination for business process outsourcing in various manufacturing and service sectors.

In addition to India's strength in software, sectors such as alternative medical systems, auto components and design, engineering refurbishing industry and contract research activities will find increasing investments. Without being too optimistic about these developments, nor being immune to them, hopefully India's political system will gear itself up and capitalise on the opportunity.

(The author is a Chennai-based practising chartered accountant and advocate.)