A path forward for US-India economic ties

Mukesh Aghi | Updated on November 22, 2019

The first step is to build on our areas of economic convergence, and then secure at least a partial trade deal in the near-term

The last few months have witnessed a rising tide of bipartisan support for US-India relations. The Howdy Modi summit in Houston, featuring President Trump and Prime Minister Modi, was attended by a number of top US lawmakers. House Speaker Nancy Pelosi, in her remarks on Mahatma Gandhi’s 150th anniversary, categorised US-India relationship as “a shining example of mutual cooperation, prosperity, and respect.” Beyond just optics, these reaffirm a new era of greater strategic and economic convergence.

However, since 2018, the Trump administration has criticised India as a “tariff king”, increased duties on 14 per cent of India’s exports, and withdrawn India from the Generalised System of Preferences (GSP) programme. India retaliated by slapping tariffs on about 6 per cent of US exports. On the strategic side, too, our “natural alliance” cannot be taken for granted.

At a recent hearing on Capitol Hill, Democratic lawmakers questioned India’s democratic credentials. None of these differences is new, but they show the cracks in the relationship and tell us that it cannot claim automatic support — even from the people who have built it.

The US needs a richer and more powerful India to drive economic opportunity for the US private sector across the region. For its part, India needs the US in its fight against terrorism, counter a hegemonic China, and sustaining economic conditions and technology investments for growth.

Areas of convergence

It is time we set a geo-economic direction to the bilateral relationship, with economic cooperation as the bedrock of the relationship. The first step is to build on our areas of economic convergence that can ultimately work in the national interest of both countries.

For instance, US energy exports to India have grown rapidly in the past few years. This helps both to meet India’s growing energy demands, and to shrink the US trade deficit with India — a major concern for the Trump administration. The US can support India’s shift towards alternative energy source through exports of natural gas and bio-fuels, and investments in renewable energy technologies. Healthcare also stands to benefit from the US and India collaborating on innovative solutions to patient costs, regulatory, and access issues.

On defence cooperation, the US can help India meet its military modernisation goals. India has the world’s fifth largest defence budget, and the US has become India’s second largest defence supplier, following Russia. As US companies expand manufacturing operations in India, this should create additional opportunities for US Tier 2 and Tier 3 suppliers, allowing India to grow its manufacturing capacity and reduce trade deficit with the US.

On the other side, US remains one of the top destinations for India’s services exports. The US is still supply-constrained when it comes to technology, and India is helping to fix the gap. Indian companies provide world-class IT services to global companies, and are now deeply entrenched in the American ecosystem through local hiring, innovation centres, and facilitating STEM education opportunities for the communities they work in.

Second, it is necessary to set the foundation for growing bilateral trade by securing at least a partial trade deal in the near-term. Remarkably, even without any formal arrangements, US-India trade has been on the upswing. According to a USISPF study, US-India trade is projected to grow to $238 billion in 2025 from the current $143 billion if the 7.5 per cent average annual growth rate is maintained.

A partial deal would be a great start to lay the groundwork for a future free trade agreement, providing policymakers a platform for binding our economies more purposefully. A US-India trade deal could also secure a political win for the Trump administration in an election year — especially if India’s GSP benefits are reinstated, providing relief to American farmers and manufacturers to the tune of $250 million.

Trade matters

Finally, both Prime Minister Modi and President Trump need to “walk the talk” on free and fair trade. India needs to move forward on some much-needed market reforms, such as eliminating preferential market access and instilling regulatory coherence in the business environment. On the US side, actions like the Section 301 review of India’s e-commerce policies or leaning hard on India to ban Chinese telecom giant Huawei from supplying equipment for 5G wireless technology deflects attention from current and future areas of economic collaboration.

The commitment to build a strong US-India bilateral economic relationship with an eye towards the future needs to start now. The stakes for this relationship are way too high — businesses and governments on both sides cannot afford complacency to set in.

The writer is the President and CEO of the US-India Strategic Partnership Forum

Published on November 22, 2019

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