India-U.S. Economic Relations: In Brief *

By Martin, Michael F.; Akhtar, Shayerah Ilias et al. | Current Politics and Economics of Northern and Western Asia, January 1, 2015 | Go to article overview

India-U.S. Economic Relations: In Brief *


Martin, Michael F., Akhtar, Shayerah Ilias, Kronstadt, K. Alan, Kumar, Samir, Siskin, Alison, Current Politics and Economics of Northern and Western Asia


OVERVIEW

The United States and India have been pursuing a "strategic partnership" since 2004, and a Fifth Strategic Dialogue session was held in New Delhi in mid-2014.1 Economic and trade relations are a key facet of this engagement. A May 2014 parliamentary election seated a new Indian government led by the Bharatiya Janata Party (BJP) and Prime Minister Narendra Modi. Modi has a reputation as a pro-business leader, and top U.S. officials express eagerness to engage India's new government and re-energize what some see as a flagging relationship. On Capitol Hill, some Members of both chambers took positive note of India's democratic exercise and its new government, and expressed recognition of the importance of the bilateral relationship. S.Res. 571, introduced on September 18, 2014, designates the final day of September as "United States and India Partnership Day" and calls the U.S.-India relationship "a special and permanent bond."

Many view the deepening of the U.S.-India partnership as a landmark geopolitical shiftaway from the Cold War-era in which the two countries were mostly estranged. Today, the U.S. government considers strengthening of diplomatic, economic, and security ties with India a crucial aspect of efforts to foster a stable and prosperous Asia in the 21st century. In the words of Secretary of State John Kerry, the partnership "is on the cusp of an historic transformation," and "the world's oldest democracy and the world's largest democracy can forge a new era of shared prosperity and security for hundreds of millions of people in India, across Asia and the world."2

Bilateral economic and trade relations, as well as India's role in international trade bodies, represent major pillars of the still relatively new major power friendship. The U.S. government aspires to reach $500 billion in annual bilateral goods and services trade with India by 2024, a more than fivefold increase from the $97 billion total in 2013.3 The relationship also supports employment in both countries.4

India is the world's second most populous nation (after China) and its third largest economy (in terms of purchasing power parity), having recently supplanted Japan in share of global GDP.5 However, the country is also in the midst of its worst economic slowdown since the 1990s, with two full years of sub-5% annual growth and persistently high inflation.6 Experts generally agree that, for India's international influence to continue to grow-and thus further boost its attractiveness as a U.S. partner-the country's negative economic trends need to be reversed.

U.S. officials have lauded Modi's efforts to create a more stable and taxfriendly investment climate in India's western state of Gujarat during his 15- year tenure as chief minister. One of Modi's key lieutenants, Finance Minister Arun Jaitley, has vowed that luring both foreign and domestic investment into fast-tracked major projects in infrastructure and skills development would be the primary goal of the new government.7 This approach was central to the "Gujarat miracle" that Modi may seek to recreate at the national level.8

High hopes that India and the United States would more effectively resolve outstanding issues and pursue new initiatives have been moderated in recent years. Some observers saw a notable cooling of U.S.-India ties after 2013 following a serious diplomatic dispute triggered by the arrest of Indian consular official Devyani Khobragade in New York.9 There are also serious disagreements over intellectual property rights protection, multilateral trade negotiations, U.S. immigration law, and stalled efforts to initiate civil nuclear cooperation, among others.

Although considerable optimism exists about the potential for Prime Minister Modi to substantively alter India's approach to trade and investment policies, many U.S. business leaders are seeking positive changes in India's business environment. While the United States welcomed the scrapping of the statist Planning Commission and moves toward establishing a new goods and services tax, Modi has yet to demonstrate that he will significantly scale back his predecessor's legacy of restrictive land-use regulations, food subsidies, and other investment-deterring policies. …

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