As earlier posts have argued, relations between Washington and New Delhi – which not too long ago seemed destined to reach for the stars – are now feeling the heavy tug of gravity. In place of soaring rhetoric and high-profile undertakings, ties between the two capitals are weighed down by bureaucratic inertia and small-bore ideas.
Two recent episodes confirm this downward trajectory. The annual U.S.-India economic and financial partnership talks took place this past June in Washington, though few beyond the personal staffs of Treasury Secretary Timothy Geithner and Finance Minister Pranab Mukherjee took any notice. The anodyne communiqué that was issued highlighted the deepening of “institutional relationships” as a major achievement of the talks, but the lack of specific commitments contrasted unfavorably with the detailed work plan that emanated from the U.S.-China economic dialogue occurring just six weeks earlier. Indeed, the Washington-Beijing nexus has a way of upstaging U.S.-India economic exchanges. When Geithner traveled to New Delhi in April 2010, for the launch of the bilateral economic partnership, all of the media attention was focused on whether he would fly off on a spur-of-the-moment trip to China, to engage in talks over the relative value of the yuan. (To nobody’s surprise, he subsequently did end up in Beijing.) Similarly the U.S.-India Strategic Dialogue that took place six weeks ago in New Delhi was an exercise in modest output and mutual frustration.
Given the serious domestic problems diverting the attention of both capitals, it is difficult to imagine how the government-to-government relationship can be advanced significantly in the next few years. Nonetheless, the outlook for bilateral affairs is not entirely dim. One exceedingly bright spot is the accelerating pace of economic engagement. A decade ago, then-U.S. ambassador to India Robert Blackwill lamented that the volume of bilateral trade was as “flat as a chapati.” But trade levels have risen markedly in the years since. Indeed, even with the global economy in the doldrums and the torpor in official ties, 2010 was a banner year for the trade relationship, with two-way goods exports surging nearly 30 percent to $48.8 billion. Merchandise exports are 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 good trading partner and the country constitutes one of the fastest-growing destinations for U.S. exports.
It is true that the economic relationship is very far from achieving critical mass and that U.S.-China trade flows eclipse the U.S.-India figures many times over. Still, the trend lines are quite hopeful and they illuminate the vital role that economic engagement plays in securing the growth of a resilient partnership over the long term. This last point is persuasively set out in a new book, The Eagle and the Elephant, by Raymond E. Vickery, Jr. A former U.S. Assistant Secretary of Commerce in the Clinton administration and now a leading figure in the U.S.-India Business Council, Vickery argues that “economic engagement is fundamental to the ability of the United States and India to cooperate politically.” He demonstrates in great detail how over the past decade the private sectors on both sides forged the foundation for the diplomatic rapprochement that eventuated in the path-breaking civilian nuclear accord and an ever-closer security relationship. (Importantly, too, the book illustrates how mismanaged episodes of economic interaction can have far-reaching negative impact, such as the Dabhol debacle in the mid-1990s that continues to impede bilateral cooperation on energy and environmental matters, as well as impairing India’s international credibility as a respecter of contractual rights.)
So how can policymakers in Washington and New Delhi leverage the vitality of the economic relationship in order to re-energize the overall partnership? Two of the usual answers – concluding a broad-based free trade agreement and an investment treaty – are problematic, at least for the next few years. Considering that the two countries are at loggerheads in the Doha Round of multilateral trade negotiations, plus the neuralgic agricultural issues that must be dealt with, the prospects for a comprehensive trade accord are well off in the distance. And although U.S. and Indian policymakers recently agreed to accelerate discussions over an investment treaty, its full value is really contingent upon additional reforms within India – such as liberalizing foreign direct investment in the retail and financial sectors, deregulating labor markets, regularizing the land acquisition process, and dramatically addressing infrastructure bottlenecks. With decision-making in New Delhi all but paralyzed these days, it is anyone’s guess when these key reforms will be enacted.
There are several initiatives that have more promising prospects, however. Washington and New Delhi should aim to build upon their striking record of engagement in the innovation economy sectors by crafting a free trade mechanism relevant to advanced technology products and drafting an immigration accord that allows high-skilled Indian professionals to work in the United States. Both undertakings would capitalize on important economic complementaries and would build up economic capacities that are so significant to the long-term prospects of both countries.
Continuing to think outside the box, negotiators also might explore a quid-pro-quo agreement, in which India addresses manifold U.S. concerns about its regime for protecting intellectual property in exchange for a totalization agreement covering Indian technology workers temporarily posted to the United States (as Derek Scissors suggests) or for a special restoration of trade privileges (amounting to $3.5 billion in value in 2010) that expired when the U.S. Congress failed to reauthorize the Generalized System of Preferences at the end of last year.
Finally, taking page from its successful campaign several years ago to bring India into global nonproliferation institutions, the United States should use the upcoming APEC Summit, which takes place this November in Honolulu, to lobby for New Delhi’s admission into the group. Given that India is poised to become one of the world’s top economies in the coming years, its absence is a serious lacuna for the organization.
With the intergovernmental drivers of the U.S.-India partnership now in a period of languor, it is time for the economic relationship to return to the forefront. This is the moment for business leaders in both countries to once again step forward.
(An earlier version of this post appeared at http://www.usinpac.com)
