US – India: Thinking Beyond Trade Wars

Ever since Prime Minister Modi was re-elected, the one thing that just refuses to fade away is the news related to the strategic relationship between these two democracies. A day after Modi was sworn in for a second term, the Trump administration rescinded preferential trade privileges through which $6 billion worth of Indian goods had duty free access to the US market. India responded by imposing tariffs on over 20 items imported from the US with a total value of about US$ 1.4 billion.

There are other contentious issues too. India believes in having strategic autonomy to maintain a complex web of foreign relationships especially with countries like Russia and Iran. However, in recent times pressures from Washington have pushed India not to purchase crude oil from Iran. Washington has also objected to India’s plans to purchase S-400 air defence system from Russia as well as using Huawei equipment as it prepares to roll out a 5G network across the country.

All this does not augur well for the relationship between the two countries which have often been described as “natural partners” by leaders from either side. But should these political overtones really impede the trade between US and India. I don’t believe so. The bilateral trade in 2018 stood at US$ 162 billion, up from 66 billion a decade earlier.

With Modi and his team back in power for a full 5-year term and with US not showing signs of making up with China – the only option Washington has from a long term trade perspective is India. Despite what Washington may think and do, US businesses cannot afford to bypass the Indian market. At the same time, the Indian political and business leadership must ensure conducive environment in the country to let US companies enter and settle down. In particular, those US owned businesses that are willing to shift their operations from China to India should be given sops, such as, direct tax benefits, faster clearances & export incentives for manufacturing in India.

At a G2G level too, there has to a consistent and continuous effort to bring the two governments closer. To understand and appreciate the constraints of both sides and to work through dialogue and resolutions. Leading industry chambers must organise delegations of entrepreneurs, cutting across industry lines, for facilitating further growth of business. US must infuse vitality into the failed Defense Technology Trade Initiative (DTII). US must not view India as just a market for finished defense products but also help India in acquiring some off the shelf products in exchange for technology sharing in other.

On other fronts, education and cultural exchanges need to carry on. Counter terrorism cooperative measures, which was established way back in 2000, need to be further strengthened. At the international level, India and the United States should continue to cooperate closely at multilateral organisations such as the United Nations, the G-20, IMF, WTO and World Bank. Good news for India is that United States supports a reformed UN Security Council that includes India as a permanent member.

Both countries, particularly US needs to appreciate that India is wedged between two adversarial nuclear powers and the fact that India is the only military power in the region that stood up to China’s One Belt One Road (OBOR) initiated and is slated to become a US$ 5 trillion economy by 2024.

 

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