Under the new U.S. administration, the economic relationship with India can be expected to be on the radar as India has enjoyed bipartisan support in the U.S. A closer economic partnership would bring gains to both sides in terms of GDP, employment, and productivity, given the complementary natures of their economies.
From the industry perspective, a robust collaborative agenda would rest on a comprehensive set of actions which can take bilateral trade in goods and services to the desired goal of $500 billion. In the five years to 2019, bilateral trade grew at a CAGR of 7.7% per year to $146 billion. If we assume the same rate of growth, the $500 billion target will be achieved by 2036. To ensure this, the CAGR would need to be set at 11.9%. This is doable if the right policy actions are taken. CII has outlined key areas for collaboration.
Areas for collaboration
One, a collaborative response to the pandemic would contribute to global containment of the virus. Business partnerships are already taking place in the supply chain to ensure coordinated shipping, distribution, and last-mile connectivity. As India becomes the hub of global vaccine distribution, building confidence in the Indian IPR regime, reviving the U.S.-India Health Dialogue, and mutually recognising standards and approvals will help drive healthcare exchanges.
Two, the macro trade architecture can be strengthened with a broad trade agreement focusing on resolving the low-hanging fruit. The U.S.-India Trade Policy Forum meetings can be revived along with a cross-sector track-2 group to look at convergence on issues such as market access. There is potential for flexibility from both sides for restoring the Generalised System of Preferences which would help lower duties for certain Indian products. The two countries should consider initiating discussions on a free trade agreement.
Three, mobility of professional labour would aid trade in services. Recent regulations in the U.S. have impacted labour mobility which can be addressed through immigration reforms for employment-based visa backlogs and smooth and timely processes. The MoU on labour cooperation signed in 2011 could be updated in line with India’s recent labour regulatory changes. This may also be a good time to reconsider a totalisation agreement pertaining to social security, given that both have already entered into such agreements with many of the same partner countries.
Four, defence industry ties can be stepped up in coordination with industry, as both sides benefit from U.S. technology and Indian manufacturing in this sector. A defence dialogue including the private sectors of both sides could help in co-production and co-development in the defence and aerospace sectors.
Five, engagement of small and medium enterprises (SMEs) can be stepped up. Smaller U.S. companies can find significant new opportunities for investments in India and sourcing from India. A U.S.-India SME CEOs Forum can be set up to catalyse such partnerships.
Six, clean energy and climate change, high priorities of the U.S. administration, are also areas where India has made rapid strides. The U.S.-India Strategic Energy Partnership should be geared towards joint investments in industrial decarbonisation, carbon dioxide removal and green hydrogen. The programmes of Partnership to Advance Clean Energy Research, Partnership to Advance Clean Energy Deployment and Promoting Energy Access through Clean Energy must be relaunched.
Seven, a digital economy partnership is critical. India has proved its mettle in this space with new opportunities opening up in robotics, space, AI and electric vehicles. It is also important to disseminate information on India’s IPR regime improvements and work towards taking India off the U.S. Trade Representative IPR priority watchlist.
Other opportunities in the bilateral economic relationship include education, innovation and R&D, and agricultural trade and technology. Industry is confident that the relevant dialogue mechanisms will be instituted at the earliest.
This article was first published in The Hindu on March 17, 2021.