n 2000, the former Indian Prime Minister Shri Atal Bihari Vajpayee termed India-USA relationship as that of “natural allies” in 2000. India-US bilateral trade relations have gradually turned into a “global strategic partnership” based on the shared democratic values and increasing convergence of interests on bilateral, regional and global issues. The emphasis has been placed by the Indian government on the grounds of constant development and good governance to reinvent and enhance bilateral ties in conformity with the motto – “Chalein Saath Saath: Forward Together We Go” and “Sanjha Prayas, Sab ka Vikas: Shared Effort, Progress for All” adopted during the first two summits of Prime Minister Modi and President Obama in September 2014 and January 2015 respectively. A joint statement was issued post the summits calling the India-US relationship an “Enduring Global Partners in the 21st Century” in June 2016. The exchange of high-political visits seems to have sustained momentum to the bilateral cooperation.
The former President Donald Trump was also fond of the trade and foreign relations policies formulated by PM Modi. The relationship between the two countries is strengthened on six pillars: Strategic Cooperation, Energy and Climate Change, Education and Development, Economy, Trade and Agriculture, Science and Technology, Health and Innovation and Commercial component. However, market access and other trade barriers with India have been longstanding concerns among some members of the US Congress, exporters and administrators. Some analysts believe that trade ties can be improved if the current trade barriers are addressed appropriately. During the preceding administration, the trade tensions grew over trade tariffs. A trade deal to address the issues nearly concluded in 2020 but failed to materialize. In the current Biden regime, the tensions appear to be less strained.
India was regarded as the world’s third largest economy in terms of purchasing power parity for GDP in 2020 but the consequences of the pandemic did not leave the economy alone. For the first time in four decades the economy reported -7.3% GDP. Rising unemployment, inflationary pressures and weak infrastructure have arisen as ongoing economic challenges. The measures by Modi government regarding increasing tariffs and restraint on trade for the time being in order to boost domestic growth through policies such as Make In India, has posed concerns for trade relations with the US.
Bilateral trade with India accounts for a small share for the US but a consequential one for India. In 2020, the US-India merchandise trade led to 2% of the US merchandise trade and about 12% for India. India was US’ 11th largest trading partner and the US was India’s third largest merchandise supplier. The top traded goods between the two countries include mineral fuels, precious metals and stones, machinery, aircraft and pharmaceutical products. In the services trade, travel for business, profession or education purposes was the top US export and telecommunications, computer and information services were the top import. The major FDI of the US in India is in the professional services and manufacturing along.
Refusal in the beginning
In 2021, the new Joe Biden administration indicated that it is no longer interested in securing a bilateral Free Trade Agreement with India. Evidently, the US is India’s largest trading partner and this action by the administration of calling off the deal has provided an opportunity for India to holistically review its stance on global trade. India, under the US-India mini deal demanded the resumption of export benefits to certain domestic products under the Generalised System of Preferences (GSP) and greater market access for products in the sectors namely agriculture, automobile, auto components and engineering. Simultaneously, the US demanded greater market access for its dairy and manufacturing products. The US Trade Representative has also regarded India’s measures to restrict companies from sending citizen’ personal and sensitive information to foreign companies as a key trade barrier. However, there is a non-exhaustive list of reasons that led to trade issues between the two countries.
- The US has concerns over India’s tariff regime especially high tax rates on agriculture. India can easily at any time increase its own rates without violating the provisions under the WTO, which is ambiguous for the US exporters.
- In 2019, the US removed India from GSP, a US trade and development program, due to certain market issues. This termination led to imposition of tariffs on the goods from India, which were earlier duty-free. India aims to reinstate its eligibility and regain the status.
- Certain barriers in India limit the US agricultural exports. The US time and again questions the scientific reasons behind the barriers. Simultaneously, the countries see each other’s agricultural programs as market distorting and India’s view through food safety protocols complicates the process.
- The two nations differ on protection of Intellectual Property as well to support innovation. Some stakeholders have been disappointed by the pace of India’s inclusion of new regulations. The “Special 301” report by the US highlighted the issues Indian regime has with regards to patent protection and relaxed trade secret protection.
- The next issue pertains to India’s excessive restriction on the digital content. Though India has increased the FDI cap, yet US has its concerns with India’s regulatory policies, transparency and other localization policies.
- Defence sector in India attracts another issue. India is ready to inculcate technology and advanced techniques in its defence sector but the United States urges more reforms in the sector including increasing the FDI cap and change in the offset policies.
- The last issue pertains to the absence of both the nations in major regional trade agreements namely Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP). Therefore, it has to be seen whether India and the US take part in other trade arrangements or revisit their position in these agreements.
India’s trade policies must be supported by various economic reforms that might potentially lead to an open, competitive and technologically driven Indian economy.
Subsequent agreements
On 23rd November, 2021, India and the US held the twelfth Ministerial-level meeting of the India-United States Trade Policy Forum (TPF) in New Delhi. The meeting was co-chaired by the Indian Minister of Commerce and Industry, Shri Piyush Goyal and US Trade Representative, Ambassador Katherine Tai. The TPF was convened in order to advance the goal, announced by President Biden and Prime Minister Modi, to “develop an ambitious, shared vision for the future of the trade relationship”. After recognizing the trade issues between the two nations, the Ministers recognized the importance of engaging in collaborative discussions. The importance of TPF was also recognized over the forging robust bilateral trade ties and enhancing the economic relationship to benefit working people in the countries. Moreover, a 50 percent growth, as compared to 2020, has also been appreciated in the year 2021 and the bilateral merchandise trade is poised to surpass US$ 100 billion mark.
The economic reforms recently initiated by India such as liberalization of FDI in the insurance sector, elimination of retrospective provision in income tax and launching a “Single Window System” for facilitating investment, were appreciated by the Ambassador. She also encouraged the inclusion of additional provisions to ease business and establish a conducive environment. The issue of being absent in multi-lateral treaties was also addressed and the Ministers focused on the importance of bilateral ties and partnership between the nations amidst the global and economic challenges. Additionally, the dynamic nature of technology and trade was also underlined by the ministers and the significance of establishing secure supply chains was also recognized. One of the most important sectors for India-US bilateral ties is health. The Ministers have agreed on the importance if health-related goods and services and aimed to pursue a constructive dialogue on the trade aspects. However, given the pandemic, the US Food and Drug Administration (FDA) is focused on conducting prioritized inspections to identify the areas with minimal risks. Simultaneously, the importance of pharmaceutical products was also identified in the supply chain. Lastly, on the general discussion front, the ministers agreed to share regular opinions on technology, Artificial Intelligence and 5G/6G.
Resolving issues specific to Bilateral Trade
During the meeting, the Ministers highlighted the issues and a future course of action as well.
- Agriculture: The esteemed Ministers considered the mutual benefits that can be attained by the farmers of both nations through bilateral ties. They also acknowledged agreements to facilitate market access for mangoes and pomegranates, pomegranates arils from India and cherries & alfalfa hay for animals from the US. To ease the process, the US agreed to sign the Systems Approach Operational Work Plan to easily import and India agreed to finalize phyto-sanitary work to allow import. The TPF Working Group on Agricultural Goods was formulated to facilitate and monitor the same.
- Services: The ministers highlighted the role of services including digital services in India and the US and the potential of investments in the sector. The movement of professional and skilled workers, students, investors and business travellers between the countries was deemed to be extremely beneficial.
- Intellectual Property: The Ministers acknowledged the enhanced engagement on IP and identified that the protection of IP leads to innovation and subsequent investments. The TPF IP Working Group, in identifying the IP rules, traditional knowledge of nations and genetic resources, simplified the administration of the patent regime and compliance with the WIPO Copyright Treaty and WIPO Performance & Phonogram treaty.
- An aspect of importance of the legal, nursing and accountancy services was also recognized by the Ministers in the facilitation of trade and investment. Thus, the potential engagement on this front was also decided.
The ministers primarily focused on harnessing the vast and untouched potential of digital trade to spur economic growth and innovation.
Suggestions and Conclusion
In this period of global flux, it is wise for the world’s two largest democracies to come together; strengthening trade and investment ties through a reimagined US-India Trade Policy Forum is a great place to begin. Initiating tariff removal while committing to the US might be a leap of faith but it shall be beneficial for a long-term bilateral trade relationship. The health market, post the pandemic, also poses opportunities for the nations wherein India can take steps to ease barriers that harm American workers and Indian patients. Like the growing cultural and strategic alignment between the nations, better trade partnership will help the countries better navigate their way through the global trade landscape. The decision to enhance bilateral trade ties by Indian and the American minister can go either way. The future holds the fortune of India, its foreign policies and its trade relations with the US.