Howdy Modi: US-India bonhomie marred by trade disputes

Published: September 20, 2019 5:14 PM

A report compiled by the Department of Homeland Security, every fourth non-resident foreign nationals in the US in 2016 was an Indian.

PM Narendra Modi on corporate tax cut, Make in India, PM Narendra Modi, Jobs in india, CIT, FM Nirmala Sitaraman, MAT, Stock Market, India USD 5 trillion economyTwo issues which have bogged India US economic relations have been India’s policy on data localization and American withdrawal of GSP benefits that it used to give India.
  • By Rajesh Mehta, Anand Mishra

As Prime Minister Modi touches the US soil in his journey to cement the already flourishing US-India relations, two news events make a proper background to the journey. A report compiled by the Department of Homeland Security, every fourth non-resident foreign nationals in the US in 2016 was an Indian. Another news mentioned about a bipartisan group of 44 lawmakers that urged the Trump administration to reinstate India’s designation as a beneficiary developing nation under the Generalized System of Preferences (GSP) trade program which was terminated in June this year. Add to the equation the fact that President Trump has decided to attend the “Howdy Modi” Houston event, along with more than 50 other lawmakers, and the forthcoming visits of governors of five US states to India, the picture starts to become clearer.

It is about Indians in the US, about the willingness of the American policymakers to address issues of Indian concern, and about the top American politicians courting Indian community, just about a year ahead of the presidential election. Suddenly, India and Indians are looking important in the policymaking apparatus in Washington DC. What lies beneath these developments, in addition to the cold political and strategic calculations on both Capitol Hill and Raisina Hill, are some cold, calculated, and hard-nosed alignment and acknowledgment of economic interests that are served best when both India and the US work together. We outline a few such areas in which India and the US need to work together to serve their respective interests.

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The single most potentially defining feature of the changing economic landscape of the decade is the US-China trade dispute which has simultaneously resulted in massive and immediate punitive tariff imposition by both countries and gradual but more fundamental shift of operation of American businesses out of China. While Southeast Asia is preferred to many of such companies because these countries are already part of the value chain, India, with its well developed legal and institutional infrastructure, is a serious contender for hosting investments leaving Chinese shores. India would like to secure every penny of investment to create jobs for millions of Indians that join the workforce every year.

Two issues which have bogged India US economic relations have been India’s policy on data localization and American withdrawal of GSP benefits that it used to give India. The ownership of data has become an important issue after the news of data leak from Facebook came out last year. However, the concerns of countries, including India, about the collection and usage of massive volumes of data by global organizations such as Google and Twitter have gradually increased over the last few years. Last year, RBI enacted laws requiring foreign payment companies to store all of their transaction-related information involving Indian customers exclusively on servers located within the country. Realizing the value of such data, Industry and government naturally want Indian data to stay within the country. While negotiations on the issue have been going on between the US and Indian authorities, data localization continues to remain a crucial irritant in the US India economic relations.

The withdrawal of GSP benefits to India by the US and the subsequent tariff imposition by India on select American imports have also led to increased tensions between the two countries. While GSP benefitting exports from India never exceeded a quarter billion Dollars, the symbolic value of GSP benefits was quite high for India. On its part, the U.S. Trade Representative’s annual National Trade Estimate on trade barriers has blamed India for raising such barriers in form of high tariffs on metals, import bans and quotas on agricultural products like peas and lentils, and price caps on medical devices. Under Trump, the US has generally taken a highly transactional approach to trade and the fact that India remains among the highest tariff imposers in the world has only increased the frictions between the two countries on trade and commerce issues. It is likely that during this visit of Modi, negotiators would want to come to some sort of agreement on the issues of GSP and market access to the US players.

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Another big discussion point for India business has been the tighter work visa rules by the US which can potentially drastically reduce the number of Indian tech workers which are the main beneficiary of the H-1B visas. While it is accepted that some of the work can be completed from Indian offices, the overall negative impact of such restrictions on the revenues of Indian IT firms is not in doubt.

However, there are many upsides too for US India economic relations that Modi will be hoping to build on during his visit. Most important and emergent on the list is the energy trade. India is steadily increasingly crude imports from the US. Between Nov 2018 and May 2019, India imported 184,000 barrels of oil per day from the US, a more than four times increase over the same period of the previous year. With Middle East politics becoming more volatile, this dependence is only going to increase. It is also not unlikely that in due course, Indian oil majors would want to get into the oil exploration business in the US.

Defense-related commercial relation is an area where there is much less friction. As India puts its defense modernization in top gear and looks to buy major weapon systems including fighter planes, American suppliers are sensing big opportunities in India. With the US government further easing high-tech export restrictions and in view of the increasing strategic alignment between the two countries, we can expect more complex defense systems to be outsourced from India. Tata Advanced Systems making F-16 wings and Tata Boeing JV making Apache Helicopter fuselage are examples of a trend which will likely accentuate.

The biggest export of India to the US, however, is the Indian diaspora. The NRIs have not only acted as a cultural bridge between the two countries, but they have also contributed to the technological progress of the US in a big way. Modi government has looked at the diaspora not only as a cultural phenomenon but also as a source of technical knowhow and managerial capabilities. Increasingly, we are witnessing the energy of diaspora being harnessed in areas of innovation, startup and educational endeavors in India. There is no doubt that the Indian government will continue to seek the support of Indian in the US in these areas.

As Modi prepares to address more than 50,000 NRIs in Houston, he would try sending a message simultaneously to Indians in the US and Americans. To Indians, he would encourage to contribute more to India story with not just their money, but also their know-how. To Americans, he would underscore the unlimited potential that exists in cooperation between the two great people.

(Rajesh Mehta is Founder/President of Entry-India, EU Gate India and Mehta Software Services and Anand Mishra who is research scholar at Johns Hopkins School of Advanced International Studies in Washington DC)

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