Tag Archives: U.S.-India economic relations

India-US Relations Blog

Missed Opportunities, Promising Trends

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The year was filled with missed opportunities but also promising developments in U.S.-India relations.  2012 is shaping up to be the same.

 

President Obama’s state visit to India in early November 2010 appeared to impart new dynamism to a bilateral relationship that had been listless since his inauguration. The trip offered an effective tonic for Indian concerns that he had forsaken New Delhi in pursuit of G-2 collaboration with Beijing. The president spoke of India as “an indispensable partner of the 21st century” and dramatically endorsed its long-standing bid for permanent membership on the United Nations Security Council. Reporting on his giddily-received address to a joint session of the Indian Parliament, the Times of India noted that the “audience lapped it up, with no less than 25 rounds of applause in a barely 45-minute speech. The cherry on the cake, of course, was the ‘Jai Hind’ [Hail India] with which he concluded.”

But the promise of re-energized partnership quickly dissolved as leadership capacity in Washington and New Delhi dramatically waned. In retrospect, the trip’s maladroit timing and messaging should have been a tip-off. That the president’s Democratic Party received an electoral “shellacking” just days earlier meant that he arrived in India a much diminished political figure – a condition that became increasingly evident as time progressed. The White House also put out the word that the trip was essentially a jobs-hunting mission rather than one connected to grand strategy, telegraphing how domestic economic anxieties would continue to take attention away from the foreign policy agenda.

Prime Minister Manmohan Singh also was about to undergo his own political declension. A week after the state visit, the multi-billion dollar 2G telecommunications scandal exploded, igniting a crisis of governance and corruption that continues to engulf Mr. Singh’s administration. For the past year, Singh has been forced to deny that he is a lame duck even as his Congress Party colleagues openly pine for his replacement by Rahul Gandhi and his coalition partners – especially Mamata Banerjee’s Trinamool Congress – feel increasingly free to defy him. As 2011 unfolded, it became more and more clear that Singh’s government was adrift and ineffectual.

The leadership void has contributed to the “Delhi disillusionment” that is now a staple of Washington’s foreign policy conversation as well as the transactional approach some advocate vis-à-vis India. Experts now debate just how steadfast this “indispensable partner” really is. Deputy Secretary of State William J. Burns even felt it necessary to make a rhetorical nod to this discussion with this title to a recent address: “Is There a Future for the U.S.-India Partnership?”

Whatever its technical merits, New Delhi’s rejection of Boeing and Lockheed Martin’s bids in its lucrative fighter aircraft competition – an issue on the Obama administration lobbied aggressively – was handled so ineptly that it reportedly hastened Ambassador Timothy Roemer’s departure from New Delhi. Indeed, many discerned a deliberate snub of Washington. Ditto for the stringent nuclear liability law that is so divergent from international norms that it effectively locks out U.S. participation in India’s nuclear power sector – something that the nuclear cooperation agreement was suppose to bring about. Last week’s debacle on retail sector liberalization underscored U.S. concerns that New Delhi has permitted domestic political concerns to impede closer economic interactions, while the WikiLeaks revelations about the Indian debate over the nuclear accord further undermined confidence in New Delhi’s credibility as a serious strategic partner.

All of these episodes only sharpened questions in Washington about whether New Delhi is as compelling a geopolitical collaborator as the Bush administration had envisioned. They also help explain why the Obama administration has yet to bother nominating Roemer’s successor.

To be sure, the Indians have valid reasons to complain about the paucity of American leadership. President Obama’s announcement of an accelerated disengagement from Afghanistan – a decision driven more by the exigencies of domestic politics than by a careful assessment of U.S. security objectives in South and Central Asia – affects India’s security interests in unpalatable ways. Looking towards the exits, Washington does not seem overly concerned about the exact details of a possible political settlement while New Delhi is all too focused on how the strategic terrain in its neighborhood is shifting to its detriment. This lack of solicitude explains why, according to one analysis, “few tears are being shed in the top levels of the Indian establishment over the state of ties with the US.”

Yet beyond the top-level ructions, the past year also witnessed the growing density of bilateral affairs, especially the accelerating pace of economic interactions. Even with the global economy in the doldrums, 2010 was a banner year for the trade relationship, with two-way goods exports surging nearly 30 percent to $48.8 billion. Merchandise exports were also up significantly in the first half of 2011 compared to the same period last year. All told, India is now America’s 12th largest goods trading partner and one of the fastest-growing destinations for U.S. exports. This is a welcome trend, as increased private-sector linkages are key to limiting the risks that today’s political and diplomatic frictions could escalate and disrupt the overall partnership.

Notwithstanding the disappointments over the fighter competition, the United States has also become a critical player in the ambitious military buildup India is undertaking. New Delhi was the third largest buyer of U.S. weapons this year, with purchases amounting to $4.5 billion – a level ahead of such long-time American allies as Australia, Saudi Arabia, Israel and Japan. Indeed, over the past year or so the Indian government has either purchased or taken possession of a number of key weapons systems: the AH-64D Apache attack helicopter, the C-130J Super Hercules transport aircraft, and the C-17 Globemaster III strategic transport aircraft.

Finally, as the constant parade of Cabinet officers and senior officials between the two capitals attests, bilateral relations have acquired a scope and depth that were unimaginable less than a decade ago. Among other things, Washington and New Delhi now hold regular consultations on policy vis-à-vis China, Deputy Secretary Burns has just concluded talks in New Delhi about strategic and economic cooperation, and a trilateral U.S.-India-Japan security dialogue will meet for the first time next week. Indian foreign policy elites are growing more comfortable with the notion of strategic intimacy with the United States. And the expansion of Chinese strength will undoubtedly push New Delhi to tighten its security relations with Washington in the years ahead, though the process will neither be as smooth nor as speedy as many Americans would like.

All of these factors are contributing to the steady accumulation of bilateral bonds. The key question for the approaching year is whether Washington and New Delhi will exhibit the constancy of leadership needed to capitalize on these favorable developments. Alas, the prospects do not appear promising. With 2012 shaping up to be one filled with turbulent politics in both countries, the focus of President Obama and Prime Minister Singh will continue to remain inward.

India-US Relations Blog

Retail Reverberations

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India’s retreat on economic liberalization has broad consequences for the country’s international standing and for U.S.-India relations specifically

Just when it looked like Prime Minister Manmohan Singh would make something out of his second term, he beat an ignominious retreat on opening up India’s huge retail sector to foreign companies. The stunning turnabout — actually more of a debacle –has a number of significant implications for the domestic economic and political landscapes. In particular, it confirms what many have increasingly suspected: Regardless of whether he manages to hang on through the Uttar Pradesh state elections early next year or miraculously serves out his allotted term, Singh is very much a lame duck presiding over a government that is hopelessly adrift and ineffectual. He and his long-time Cabinet associates, once lauded as the “economic dream team,” have proven themselves incapable of making the bold decisions many believe are crucial for India’s future.

The capitulation also has far-reaching consequences for the country’s international standing and for U.S.-India relations specifically. The retail liberalization was hailed as a landmark economic reform, evidence that New Delhi had finally overcome the chronic leadership paralysis and policy contradictions that have made foreign investors wary. This leeriness is the reason India is perpetually unable to lure in the levels of global capital that have fuelled China’s stratospheric economic ascent. It accounts for the marked withdrawal of foreign investment that has caused the rupee’s rapid depreciation in recent months. And it explains why the business community felt it necessary to launch a “Credible India” marketing campaign to address India’s image problem. Yet the retail retreat will only solidify international skepticism.  After the rescindment, the chairman of Microsoft India announced that the country could no longer even be regarded as a magnet for technology investment.

The backtracking similarly reinforces the growing perception that India is the Godot of great powers – its arrival in the top tier of countries is much heralded but never quite happens. The country’s elites speak assuredly of the coming “Indian Century” and yet are haunted by the shadow of the long-defunct East India Company, a corporate entity that is in any case now owned by an Indian entrepreneur. The contrast with China is instructive. Even with its own history of foreign exploitation, Beijing was confident enough about its strengths to allow Walmart, Ikea and other foreign retail enterprises to set up shop more than 15 years ago.

India possesses a multitude of latent resources necessary for national greatness but is conspicuously bereft of strong political institutions capable of mobilizing them in a purposive direction. This absence habitually condemns India to punching far beneath its strategic weight. A few days ago, Jim O’Neill, the progenitor of the now ubiquitous BRICs saga, pronounced India the “most disappointing” member of the quartet and ranked it on par with Russia in terms of governance and corruption. And Jyoti Thottam, Time magazine’s South Asia bureau chief, warns that the reversal “may be remembered as an inflection point in the ‘rising India’ story, a moment when skepticism about India’s future finally started to overshadow optimism.”

The episode will also have repercussions for relations with the United States. It will ensure that bilateral commercial ties remain far below their potential and that U.S.-India trade levels continue to be eclipsed by U.S.-China economic interactions. This is most unfortunate since, as Raymond E. Vickery, Jr. points out in his new book, The Eagle and the Elephant, private-sector linkages are a key driver of the overall U.S.-India relationship.

Many have proposed that Washington launch negotiations on a free trade agreement with New Delhi, while others criticize the Obama administration for dragging its feet on crafting a bilateral investment accord. But the logic of these measures is now in severe doubt. Given the obvious inability of Indian leaders to make the bold decisions that would be necessary, there is no reason why a beleaguered U.S. president would spend precious political capital on ventures that promise so little chance of success.

On the geopolitical level, Singh’s retreat further undermines the seriousness with which Washington views with the current Indian government. From the political soap opera that accompanied the parliamentary debate over the nuclear cooperation agreement three years ago to last year’s nuclear liability law that effectively locks out U.S. involvement in the nuclear energy sector, and from this spring’s rejection of American entrants in the lucrative fighter aircraft competition to this week’s retail rollback, doubts have been steadily rising about New Delhi’s capacity for strategic engagement. It is little wonder why, six months after Ambassador Timothy Roemer departed New Delhi, the Obama administration has yet to bother nominating a successor.

A chorus of critics accuses Washington of being derelict in relations with India. In a just-published article, for example, the Wall Street Journal’s Mary Kissel rebukes the administration for “neglecting” and “ignoring” New Delhi. She’s right that the Team Obama was too slow in distilling rhetorical professions about “indispensable partnership” into meaningful policy initiatives. But even if the administration had been more pro-active and creative, would it have made much of a difference? Sadly, the record of the past few years indicates that leadership dysfunctions in New Delhi would have precluded any sort of serious response.

Ever since President Obama’s inauguration, Indians have vocally complained that he has forsaken them in favor of the Chinese. The grievance has some justice, though many in New Delhi are oblivious to how they too bear some of the blame (see here and here). They would be wise, however, to heed the warning just issued by Ashley J. Tellis, one of the architects of the Bush administration’s strategic entente with New Delhi. In the coming years, he cautions, Washington may become “hard-pressed to justify preferential involvement with India at a time when U.S. relations with China – however problematic they might be on many counts – are turning out to be deeper, more encompassing, and, at least where the production of wealth is concerned, more fruitful.”