India-US economic relations have a history of stability and progress

Biden administration may continue the same with small changes

US election and Kamala Harris: the view from India
US election and Kamala Harris: the view from India

Subrata Majumder/IPA

India-USA economic relations have a long history of continuity irrespective of the changes in the White House. The burgeoning market of India, the availability of Indian technical manpower and the use of English language by the educated Indians, have made Indian market most attractive to the US administrations for decades.

Before President Donald Trump took office in 2017, five Presidents – two Democratic and three Republican – tried to foster closer relations , in part offering military assistance and develop economic relations, by advocating lower tariff and investment barriers. Notwithstanding trade convulsion with USA, India’s political tiff and trade overdependence on China beacon hope for boosting US-India relation.

In 2020, a new dynamism in the US-India relation was demonstrated, given the rising tension with China. According to observers, this deepened the relation between Washington and New Delhi. After the border clash in June, India gave a relook to the burgeoning trade relation with China. It scrapped several trade channels with China. It banned nearly 60 mobile apps, restricted FDI from China and imports of TV. It launched Atmanirbhar (self-reliance) initiative and initiated hunt for alternative to China to curb its over-dependence on China for emerging industries like mobile phone and pharmaceutical.

These steps testify India’s determination to undermine the spirit of Modi-Xi Jinping summit in Wuhan and in India, overturning Modi’s campaign that China was not a foe, but a friend. It pushed India for a challenge to Beijing in Asia- Pacific. It declined to join BRI (Belt and Road Initiative) and decoupled from RCEP. All these measures by India aimed at China led to further schism.

Following the border violence, US Secretary of State Mike Pompeo endorsed New Delhi’s stand that China’s PLA “escalated border tension”. He pledged to work closely with India to counter an increasing aggressiveness by China. Indian media was overwhelmed by Pompeo’s endorsement. News reports suggested that Modi government was considering closer military ties with USA after Washington sided with India on border issue.

Prior to this, the seeds for military cooperation were sown, when USA declared India a “major defence partner” in 2016. The 2+2 dialogue between two countries yielded a significant outcome and that was with the signing of Communication Compatibility and Security Agreement (COMCASA). This was the beginning of journey for consolidation of military power between the two countries. COMCASA paved the way for supply of equipment with transfer of technology. Under FMS (Foreign Military Sales), it is mandatory for the sale to be approved by US President under Arms Export Control Act of USA. The signing of COMCASA was a breakthrough in defence partnership, albeit India has a strong military partnership with Russia.

The decision to start exchanges between US Naval Forces Central Command (NAVCENT) and Indian navy was another milestone for strengthening maritime cooperation in the Western Indian Ocean. The strengthening of military ties, coupled with strong economic relation paved the way for a new synergy in US-India relation.

Now with Joe Biden poised to take over as the new President of USA– India’s strategic partnership with USA will not change dramatically. America’s relative power vis-à-vis China has declined in Asia over the periods with China’s BRI initiative and consolidating trade power through RCEP. It will haunt America’s power, if it does not step up to counter China. India under Narendra Modi is making use of US-India strategic partnership to fight China’s expansionism in Asia. .

USA is now the biggest export destination for India. USA plays an important role in India’s external economy. It accounts for 16 percent in the exports of goods exports and 50 percent of IT and BPO services. It is the potential lever to enhance India’s export. Export is now an important economic parameter for upturn in the economic growth in Modi 2 period. India targets US$ 5 trillion economy by 2024-25. To achieve this, India targeted export at US $ 660 billion by 2024-25. The categorical difference between USA and China for trade is that while trade with USA surged due to exports by India, trade with China increased due to large imports from China. This translates that trade buoyancy with USA is more gainful for India than China.

Exports to USA attach greater significance to weed out various domestic economic problems, which are shadowing the economy. For example, major items of exports to USA are apparels, diamonds, marine products and footwear. These industries are labour intensive. Eventually, this will pave the way for more employment opportunities in the sectors which is reeling under distress.

Trump’s trade balance obsession exacerbated US-India trade dynamism. Although, trade between USA and India increased, trade tensions also intensified. One of the reasons was India’s unabated trade surplus with USA. Given the fact that USA is the biggest export destination, USA ensures a potential destination for achieving the export target.

To dilute the trade tension, surge in oil imports can be a case in point. India’s crude oil import from USA made a steep increase. Eventually, it impacted trade balance. India’s trade surplus declined from US $ 21 billion in 2017-18 to US$ 16 billion in 2018-19. Oil is vulnerable to India’s economy. Over 90 percent of crude requirement is imported. It is also a springboard for export, such as exports of refinery products..

India-US economic relations have a long history and India is one of the biggest markets for India. So the US administration under the Democratic Party is expected to continue the policies with some small changes and twists here and there. One good thing is that there will be a stability in Biden’s policies unlike Trump and that works well for India-US relationship.

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