The US economy is in trouble. Growth is sputtering. Unemployment is high. Given debt and taxes, further fiscal stimuli are difficult. Mid-term elections, so to speak, have already punished the President. One can understand President Obama?s priorities, and India, in an indirect way, has a vested interest in the US economy recovering. But for all the talk about trade being ?a dynamic two-way relationship for jobs and higher living standards?, what are the 10 billion dollars worth of ?landmark? deals? They will create 50,000 jobs in the US. Boeing will sell planes to SpiceJet and perhaps aircraft to IAF. GE will sell aircraft engines to Indian army and power equipment to Reliance Power.
While defence and aircraft may be bad examples, couldn?t one have required ?Buy Indian? clauses for power equipment? To use President Obama?s own doubtful logic, isn?t job creation in the US against interests of job creation in India? Defence and civil aviation aren?t competitive markets where one can float global tenders. However, there are commercial and strategic (spare parts, changes in weapons systems) considerations that determine purchases. Is removal of DRDO, ISRO and Bharat Dynamics from black-list (for high technology) carrot enough for the defence market to realign from Russia, France and Israel to the US?
While that?s what the US wants, what?s the quid pro quo we obtain, even on sourcing from Boeing, as opposed to Airbus? Indeed, there is a plausible argument that our purchases of civilian aircraft haven?t been leveraged enough for strategic purposes. Agreements on shale gas reserves, weather forecasting, health and energy cooperation, commercial satellite launches and even joint army exercises are symbolic and relatively innocuous. However, on hard business decisions, it is difficult to avoid ennui at being lectured to about virtues of competition. Indeed, we should open up FDI in retail, banking and insurance. But first, do we need lecturing from a country that is now unabashedly protectionist? There are ?Buy America? provisions in American Recovery and Reinvestment Act. The Border Security Bill increased fees on H1-B and L-1 visas. Ohio has banned off-shoring of IT. This is in addition to restrictions in agriculture, steel and high tariffs on garments and other labour-intensive products. India alone is not guilty of complicated tariffs and trade and service barriers. If competition is what has made the US prosper, how about throwing open domestic civil aviation services in the US to external competition? If import/GDP ratios (for merchandise trade) are an indicator of how open an economy is, the Indian ratio is about 2 percentage points higher than the American.
Second, President Obama has told us outsourcing is a political issue in the US. Ipso facto, economic rationale cannot be followed because there are political constraints. However, the test of true political leadership is in handling such political concerns and pushing the economic agenda nevertheless. The President?s track record, both before and after becoming President, doesn?t inspire confidence in his faith in free trade principles. But that is between the US President and America?s citizens. However, if the logic is accepted, political constraints also inhibit opening up of retail, banking and insurance in India.
Third, negotiations (bilateral and multilateral) are about reciprocity, even though there are welfare gains from unilateral liberalisation. So far there is no evidence on how the US is reciprocating on liberalisation, beyond a vague statement about ?committing?. India becoming the largest American trade partner is conditional on that, as is the win-win argument. That quid pro quo doesn?t necessarily have to be in the area of trade and business, but it has to figure somewhere. By all accounts, India?s concerns on terrorism and Pakistan (there is also the permanent Security Council seat) aren?t going to be met. There is a parallel in Indo-Bangladesh relations, where Bangladesh?s cooperation on security enabled trade and business agenda to move forward.
Thus, to use clich?d language, what India brings to the table is clear enough. But there is lack of clarity about what the US brings to the table, apart from removal of restrictions on high technology trade. This isn?t carrot enough. And nor are assertions about democracy and shared values. Consequently, hype over this visit isn?t warranted. It isn?t going to transform relationships the way Clinton and Bush did. Let?s by all means have vague and sanctimonious motherhood statements, reminiscent of G20 communiques. Let?s discuss China, yuan, the globe and environment. ?Change will not come if we wait for some other person or some other time. We are the ones we?ve been waiting for. We are the change that we seek.? That?s an oft-cited Barack Obama quote. It is unfortunate that we will have to wait for some other person and some other time. For the moment, after these motherhood statements, we can wish President Obama bon voyage for Indonesia. In listings of countries, India usually comes before Indonesia and after Iceland. There is a moral there somewhere.
The author is a noted economist