Indo-US ties contingent on Indian economy, reforms and openness

It is India’s economic strength and its growing middle class with increasing purchasing power and India’s ability to pay for imports from the US which will induce US to deepen collaboration.

Indo-US ties contingent on Indian economy, reforms and openness

Ajit Ranade

Kamala Harris will become the first ever Vice President of America to have Indian ancestry.

Senator Harris’s mother Shyamala Gopalan arrived in the United States at the age of 19 to do her PhD in nutrition and endocrinology at the University of California in Berkeley.  Harris has maintained her links with her maternal grandparents and other Indian relatives.

In her short speech accepting the people’s verdict, she paid a tribute to her mother, and spoke of her with deep gratitude. Her ascent to the Vice Presidency is extraordinary for many reasons, not least because she will be the first woman, and a woman of Colour, to occupy that office. It’s a matter of great pride for immigrants from India to see a second generation child rise to such great heights in American society.

Harris already had an impressive track record, having been twice elected Attorney General of the largest State of the country, i.e. California. Along with President-elect Biden she is sure to leave a lasting influence on the next administration and policies of the U.S. Does her Indian ancestry mean that Indo-American ties will be closer? Of course not. She is first of all an American citizen, and will always act in the best interests of her country. She may in fact be under pressure to lean the other way lest she be accused of bestowing undue favours on India.

The prospects for closer Indo-American ties will not depend so much on Harris’s ancestry, as on India’s own economic strength and growth. These ties got an unexpected boost with the signing of the Civil Nuclear Cooperation Agreement in March 2006. The background work for such cooperation dates back to the hectic diplomatic exchanges that followed the Pokhran nuclear test of 1998.

The team under Prime Minister Vajpayee worked strenuously to persuade the major powers of the world that India would never be a maverick nuclear power, would use nuclear power only for peaceful purposes, and would be pledged to the no-first-use doctrine. It is a testimony to their hectic diplomacy and persuasion, that after barely twenty-two months of strict sanctions against India by most of the Western economies, the President of the US made an official five-day visit to India.

That visit of President Bill Clinton was to set up the conditions for a dynamic and lasting relationship with India, encompassing all aspects of trade and investments even in military areas. It was the precursor to a strategic alliance, and closer business ties. This happened despite the U.S. being unable to persuade India to sign the Nuclear Non-Proliferation Treaty (NPT).

Incidentally India recently, before the Biden-Harris result was announced, signed the last of the four foundational military agreements with the United States. This was the Basic Exchange and Cooperation Agreement (BECA).  The other three agreements had been signed respectively in 2002, 2016 and 2018. Together these military agreements increased the “embrace” of the two countries, provided for the sharing of sensitive intelligence and data including satellite and geo-spatial, geo-magnetic and geodetic data, and also aided in interoperability of forces.

Of course, much of the details of these agreements remain classified. But suffice to say, that thelatest agreement is a culmination of a process which began two decades ago. India has already increased its military purchases, and to date has bought hardware worth 20 billion dollars from the United States in the past thirteen years. The biggest boost of course was the signing of the nuclear deal. India was “brought in from the cold”, from being a nuclear pariah, and from being denied uranium fuel by the Nuclear Suppliers Group. It was due to the insistence and championing of India’s cause by the US that the NSG made an exception for India, to be supplied nuclear fuel despite not being a signatory to NPT.

How much the signing of the nuclear deal has been beneficial to the US is beyond the scope of this column. But the main point to note, is that the US saw an opportunity in engaging with India due to its rising economic clout. India’s economic size reached 1 trillion in 2006, 2 trillion in 2014 and was closing in to 3 trillion at the beginning of this year.

Bilateral trade with USA is more than a 100 billion dollars presently. The rising and sizeable middle class is attractive to both investors as well as American consumer companies. On its part India’s software industry has played a crucial role in the American economy.  These exports are about 120 billion dollars and growing. Owing to these services exports, India enjoys a trade surplus of nearly 30 billion with the US. This is in sharp contrast to the 45 billion-dollar trade deficit with China, which is mostly about manufactured goods. It is only India’s economic strength, its growing middle class with increasing purchasing power which will induce America to deepen collaboration. Of course, India is also seen as a countervailing force to China, a factor which is certainly in America’s strategic calculations.

For its part India has started importing crude oil from the U.S. It has also promised to import 40 billion dollars worth of liquified natural gas from the US in the coming year. The feasibility of higher imports from the US depends on stronger domestic growth in India. Only then can it have the leverage to ask for a higher quota of H1B visas needed for software exports.

As such the incoming administration of Biden-Harris will be bogged down in battling Covid, and reviving the economy. It will continue the somewhat hostile stance with China. As such, since early 2018 the Americans have turned much more protectionist, raising tariffs on all kinds of imports, which have affected India’s exports too.

Hence an increased and deeper relationship with India is contingent more on India’s own domestic economic performance. Only stronger growth, more openness and economic reforms will get the Americans more favourably disposed towards India. (The Billion Press)

(Dr.Ajit Ranade is an economist and Senior Fellow, Takshashila Institution)

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