India-US economic ties are beginning to resemble the trajectory in defence, security, and strategic domains
Provisional data from India’s Ministry of Commerce indicated Tuesday that the United States has retained its position as India’s largest trading partner. This is significant. Given the current fluidity in geopolitical climate and the crises in food, fertilizer, energy, and financial markets thrust on the world by interstate conflicts in Europe, predictability in India-US ties across all domains may address critical vulnerabilities, including in supply chains.
Close on the heels of Union finance minister Nirmala Sitharaman’s recent visit to Washington where she advocated “building strong foundations for a strong, peaceful and harmonious global community” through closer India-US ties and foresaw the relationship growing from “strength to strength”, it has emerged that two-way trade between India and the US is up by 7.65 per cent to $128.55 in 2022-23 against $119.5 billion in 2021-22 — the year America displaced China as India’s top trading partner.
The economic partnership between India and the US is now beginning to mirror the trajectory in defence, security, and strategic domains where the relationship has matured and the alignment deeper amid rapid converging of interests.
Already ‘major defense partners’, the US State Department in March this year named India as its ‘global strategic partner’, indicating New Delhi’s centrality to its Indo-Pacific strategy and its role as a democratic bulwark against China — the “only country with both the intent to reshape the international order and, increasingly, the economic, diplomatic, military and technological power to advance that objective,” as the Biden administration’s National Security Strategy, released in 2022, points out.
In 2020-21, when China still maintained its run as India’s top trading partner, Indo-US trade stood at $80.51 billion. The next two fiscals saw a dramatic rise in bilateral trade through the entrenchment of trade mechanisms, diversification of arenas, reinvigoration of existing trade institutions such as the US-India Trade Policy Forum (TPF), increased private sector participation and focus on increasing supply chain resilience.
Washington has made explicit its plans for reducing supply chain vulnerabilities in critical fields by closer economic integration with “trusted partners” such as India through an approach it calls “friendshoring”. US treasury secretary Janet Yellen, who was in India last year, had explained that “friendshoring approach involves partnering with developing countries to grow local industries and connect them to the global supply chain. For example, our development finance institution is providing America’s largest solar manufacturer with up to $500 million in debt financing to build a facility in Tamil Nadu in India. This facility will boost India’s solar manufacturing capacity.”
Moreover, India’s attractiveness as a trade destination for global businesses — and particularly for American firms and investors who are searching for the next best place to make a fast buck given the slowdown in the West and policy unpredictability in China — has gone up substantially given surprisingly bright outlook of Indian economy despite a global gloom. The Bretton Woods Institutions have consistently been rating India as an exceptionally strong economy that is expected to buck the global trend as the lone bright spot.
The US is now not only India’s most important export market for merchandise, Washington is also among those rare trade destinations where India enjoys a surplus. Latest commerce ministry data says exports to the US rose by 2.81 per cent to $78.31 billion in 2022-23 as against $76.18 billion in 2021-22, while imports grew by about 16 per cent to $50.24 billion.
This is excellent news for India which exports far less than its competitors of similar size. If the Biden administration manages to persuade the US Congress to recommence the Generalized System of Preferences (GSP) programme, from which India was removed in 2019 before the mechanism itself expired in 2020, thousands of Indian goods may get renewed duty-free access to the US market. Bilateral trade may take off further if some of the Indian market access and protectionist issues, perennial complaint areas of American businesses, are negotiated in lieu of the removal of Section 232 tariffs on steel and aluminium that were implemented by the Trump administration.
Amid the positive signs, however, the worry remains about a widening trade deficit with China. While India’s two-way trade with China declined 1.5 per cent $113.83 billion against $115.42 billion in 2021-22, India’s exports took a further hit by about 28 per cent to $15.32 billion in 2022-23, whereas imports from China rose by 4.16 per cent to $98.51 billion in the last fiscal, widening the trade chasm to a staggering $83.2 billion in the last fiscal. This is a direct incentive and fuel for the Chinese war machine.
Unless this endemic issue is addressed, which is intrinsically linked with India’s attempts to become a global manufacturing hub, New Delhi’s goal of achieving an export target of $2 trillion by 2030 will remain unfulfilled by a long shot.
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