A trade deal for Donald Trump: India bends backwards to please the US
India is not only purchasing crude oil from the US, it has signed an agreement this month to store crude there. India now appears set to open up the dairy sector too under US pressure
With US companies and investors struggling to cope with the effects of the pandemic and the trade war with China and Mexico, a ‘limited trade deal’ with India is being eagerly sought by the Trump administration. Time is clearly running out with the Presidential election barely 100 days away. Prices of US dairy products have plummeted following tariff barriers put up by China and Mexico. The stockpile of products like cheese is at an all time high. US unemployment rate has soared and the White House is somewhat desperate to salvage the situation.
In the past few years, the US has arm twisted India into buying crude oil from it (see box) at much higher transportation cost than from other oil producing countries in the Middle East. The import of crude oil from the US, which began in 2017, is growing at a fast clip but is still less than 10 percent of India’s total crude import. But this month India and US signed a MoU to pave the way for ‘storing’ crude oil in the US.
Such agreements and trade-offs, as well as sale of US military hardware, may not be part of the trade deal, details of which are scant barring Indian and US officials saying that it will be a ‘win-win’ agreement for both the countries, provoking agriculture and policy analyst Devinder Sharma pose the question to Indian Commerce Minister Piyush Goyal, “If the trade agreement with US is almost ready, shouldn’t we as a nation be first discussing it, Mr Piyush Goyal? Perhaps people will come up with better suggestions!”
Experts in India fear that 160 million small and marginal farmers will pay a high price for the Modi-Trump tango. The ground is being prepared to pass of the trade deal, howsoever limited, as immensely beneficial for Indian agriculture sector. The three ordinances promulgated recently, which among other things do away with the Minimum Support Price (MSP) regime and allows the market to intervene, were clearly designed for the trade deal that the two countries are about to sign. The deal is aimed more at correcting the trade imbal ance between the two countries and provide the US President a talking point before the election than benefitting India, say some experts we spoke to. Farmers in Haryana, Punjab and Rajasthan have been demonstrating against the ordinances and demanding grant of MSP as a legal right. This week they drove their tractors in a symbolic protest and handed over memorandums against the ordinances to district officials. The Government is yet to respond to the protests.
A key component of the deal, being negotiated over the past two years, is opening up the Indian Dairy sector for US to dump its products. Withthe pandemic raging in the US disrupting business for restaurants and hotels, the powerful dairy lobby in the US is looking for potential markets to dump dairy products. India fits the bill.
The US dairy industry is facing an existential crisis. Prices of milk has crashed. Curiously, India had refused to join the RCEP (Regional Comprehensive Economic Partnership), a grouping of 15 countries including China, Australia and New Zealand last year. Trade agreement with RCEP would lead to dumping of dairy products from Australia and New Zealand and affect adversely India’s dairy farmers was then the reasoning offered. Now, following the Chinese aggression in Ladakh, India’s stand appears to be against any partnership with China. An added reason being cited is the Prime Minister’s call for self-reliance! But India is clearly finding it difficult to say ‘no’ to the United States.
The US President wants a trade deal with India before the election to impress his constituency that he has succeeded in opening up another huge market of opportunities. President Trump has maintained sustained pressure on India over the last four years, accusing India of unfair trade practices. He has been publicly demanding that India lower import tariff on US products. India’s tariff, he had complained, were among the highest in the world, and called it the ‘Tariff King’.While India reduced tar iff on Harley Davidson motorcycles— with Prime Minister Modi himself calling up the White House to give President Trump the news—the trade deal being signed will see lowering of tariff on many more US products. It would not be wrong to say that PM Modi has again succumbed to pressure from the White House.
While details of the deal are not being shared, officials have said that US IT products will be on the list of such products. While the justification is to bridge the gap being created by restrictions on Chinese companies and imports, it is not clear if the US companies would partner with Indian companies to manufacture these products in India or they would merely export them. At this point the latter seems far more likely.
Ironically, while Prime Minister Modi has gone out on a limb to invite investors to relocate to India from China, the US President had publicly asked US companies in China to relocate back to the United states, if they wanted, but not to India or any other country. This week again the Indian Prime Minister made another fervent appeal to US companies to invest in India. The time, if the PM is to be taken at face value, has never been better for US investment in India.
Notwithstanding political rallies (Howdy Modi in Houston and Namaste Trump in Ahmedabad) and bonhomie between the two leaders, the US President has shown little consideration for Indian tech companies or techies. Restrictions on H1B visa affected Indian tech companies the most. Complaining that India had put trade barriers and that India-US trade was skewed in favour of India, the White House has also been pushing for a $3 billion arms deal at a time when India is courting Foreign Direct Investment (FDI) in the defence sector and ‘Make In India’. But the US has been relentless in asking India to compensate the notional trade losses it claims to have suffered in the past.
Obliging the US President has already been costly. The high prices of diesel being paid by Indian farmers is at least partly due to the US insistence that India buy more expensive crude oil that it produces than the Indian basket of crude that India buys in the Middle east at far more reasonable prices. Add to this the cost of shipping oil from the US, which takes a month, and the transaction starts making even less sense. India was forced to cancel some of its long-standing crude oil contracts with Iran at lower prices.
Oil Minister Dharmendra Pradhan announced that the energy trade with US had reached $9.2 bn in order to ‘balance’ trade deficit. So, are we Indians being forced to pay more for petrol and diesel because Trump wants to have his way?
The US President had earlier classified India as a ‘developed nation’ and withdrawn the Generalised Trade Preference (GSP) for Indian companies. This meant that our jewellery, gems, food exports were subjected to higher duty by the US. Indian steel was also slapped with high tariff.
India is asking the US to restore the GSP on Indian products and shrimp exports. The US had so far refused to consider this. But indications are that a partial concession will be offered as a cosmetic sop for India to save face.
The trade deal therefore is likely to work much more to the advantage of the US than to India. The question to be asked of the Modi government is why we are signing such a deal? What is the ‘compulsion’ for Modi to please the US that it has to bend backwards to balance the trade deficit with the US?
What is also baffling is the silence of the Swadeshi lobby in India that once didn’t want any truck with the US. S Gurumurthy, who authored books on why we should stay away from the US, has not yet uttered a word on the trade deal. It can be argued that Prime Minister Modi has a lot at stake in the re-election of President Trump. But the question is the cost that India is eventually going to pay.
PM Modi is known to turn lemons offered by life to lemonade. But as caustic observers have been pointing out, this time he and Piyush Goyal seem determined to turn them into limestone deposits!