Dr. Mukesh Aghi
President and CEO
Contact Sukanya Sen
Even as President Trump prepares to embark on his maiden visit to India, he has told reporters – “We’re not treated very well by India, but I happen to like Prime Minister Modi a lot.” The solid bond between the two leaders, however, does not automatically create a “natural alliance” between the two nations. Of late, differences on a wide range of issues—rising protectionism, trade frictions, and New Delhi’s desire to purchase S-400 air defense system from Russia— have threatened to disrupt the relationship. President Trump’s visit offers an opportunity to not only manage some of these differences, but also lays the groundwork to realize the unique strategic and commercial convergence of the bilateral relationship.
The U.S.-India relationship is unusual in many ways — the partnership does not carry any expectations of political, diplomatic, military or economic support. But even without any formal commitment, the list of accomplishments is long and there is scope to firm up our ties even further.
First, the strategic ties between the two countries has continued on an upward trajectory with the designation of India as a “Major Defense Partner” of the United States. Defense trade between the U.S. and India has reached $18 billion. The two countries are pushing the boundaries of bilateral defense engagement— whether it is through the Communications Compatibility and Security Agreement (COMCASA) facilitating ‘interoperability’ between the countries’ defense forces, joint military exercises, or the Industrial Security Agreement to allow private sector collaboration. During the upcoming visit, the countries are expected to sign a $2.6-billion deal to procure 24 MH-60 ‘Romeo’ Seahawk helicopters. However, this progress could be shadowed by the impending threat of U.S. sanctions under Countering America’s Adversaries Through Sanctions Act (CAATSA) if India continues procurement of the Russian
S-400 missile system. Simply put, sanctions would have a disastrous effect on U.S.-India relations for decades to come. It is helpful to note that a report from the Parliament’s Standing Committee on Defense shows U.S. firms concluded 13 contracts with India worth roughly $4.3 billion over the last three years, while Russia secured 12 contracts for only $1.2 billion. This trend is a great one, and industry will continue to repeat it as long as sanctions don’t upset the equation.
Further, the U.S.-India Strategic Energy Partnership has made energy cooperation a centerpiece in the bilateral relationship for enhancing energy security, expanding energy and innovation linkages across energy sectors of both sides. As a next step, President Trump and Energy Secretary Dan Brouillette’s visit has the potential to advance both countries’ comprehensive energy strategies. India is an important market for U.S. crude oil, LNG, coal, and biofuel exports, and U.S. energy resources are helping to provide the energy security and diversity required for India’s dynamic economic development and energy demand. Both countries also have a mutual interest in increasing India’s domestic energy production by building the critical infrastructure that will facilitate the development and production of those resources. USISPF recently participated in a delegation from the U.S. Nuclear Energy Institute to India to discuss regulatory support for U.S. nuclear exports to India and to promote U.S. products and services to Nuclear Power Corporation of India Ltd. and other potential customers.
Finally, while it is not clear whether the two sides will get a partial trade deal across the finish line during the visit, there should be commitment to lay groundwork for a long-lasting commercial relationship. Today, U.S.-India bilateral trade is growing at 10 percent, on a year-to-year basis, and it reached $160 billion in 2019. More than 2,000 U.S. companies have a presence in India. Over 200 Indian companies have invested $18 billion in the U.S., creating more than, 100,000 direct jobs. From 2017 to 2018, the U.S. trade deficit with India decreased by 9% for goods— a major point of concern for the Trump administration. However, while India has substantially liberalized its economy, limitations remain on incoming investment in key sectors such as banking and insurance, single-brand retail, and media and entertainment, among others. India should actively prioritize removal of investment limits to remain the fastest growing emerging market.
Moreover, to conclude any large trade pact with the United States, India will need to address the big-ticket reforms – IP protection, free flow of data across borders, flexibility in labor policies, and streamlining land acquisition. The success of a uniform Goods and Services Tax (GST) regime and the Bankruptcy Code introduced in PM Modi’s first term can be multiplied with additional rationalization and simplification measures. These domestic reforms minus protectionism will make India an important player in the global market.
Most of these flash points center on U.S. concerns about the Indian economy, primarily because the U.S. economy remains one of the most open economies in the world. Yet, there are issues that India brings up on the goods trade and services front. India has sought market access for its fruits, including grapes, in the U.S. market, in addition to restoration of GSP benefits (worth $6.3 billion goods exports) that India enjoyed until May 2019. The U.S. recently removed India and several other countries from its list of developing countries that benefitted exemptions from Countervailing and Safeguard Duty investigations. However, the implications of this removal in the ongoing trade negotiations is not entirely clear.
India has also flagged barriers to the “free movement of natural persons” imposed by the H1B visa regime in the U.S. During the talks, the Indian side is expected to discuss specifics on the definition of “employment” and “specialty occupations” under the H1B visa on behalf of the Indian IT industry that allows American businesses to remain competitive globally.
The world’s oldest and largest democracies with different beliefs and needs may drive each other crazy, but they know they need one another more than ever before. We hope that the two leaders who are meeting for the fifth time in eight months are able to make some final agreements on bilateral defense, energy, and trade issues.
This article appeared in the Financial Express on February 23, 2020.