Bold, transformative and sustainable. These above three words summarise India’s growth story. The country’s trajectory today is being crafted by the transformation of states and cities into regional powerhouses and multi-billion dollar economies, some even larger than developed countries. Prudent monetary and fiscal policies, along with the implementation of several domestic structural reforms, have helped strengthen the macroeconomic fundamentals and raised the bar for effective governance. Interestingly, India today is probably the only large growing economy with the potential to achieve double digit growth (an ambition the current government has been fairly vocal about) on the back of rising consumption-led demand, rapid infrastructure development and a growing share in global trade.
With the gradual shift in economic activity from the West to East, and the emergence of the Indo-Pacific as an important geopolitical construct, one can expect India to play a pivotal role in shaping the future of this region.
India-U.S dynamic: Contextualising today
Bilateral trade has grown significantly, and efforts are underway to achieve a more balanced trade relationship. Both countries today are focusing on collaborating in core areas such as aerospace, defence, infrastructure and energy, which is expected to impact large scale job creation, increased technology transfer, and a bilateral security advantage in the Indo-Pacific, while strengthening people-to-people ties. Though nascent, these well-calibrated steps might go a long way in reinforcing the equilibrium and defining the economic partnership of the century.
No developing relationship is devoid of areas to work on, and the bilateral dynamic does have certain gaps which require attention. High tariffs, enforcement and protection of intellectual property and limited market access in services are a few pressing issues that a section of US companies operating in India have been most vocal about. India’s insistence on localisation in the manufacturing sector is at times viewed by foreign companies as detrimental to the growth and collaboration in key sectors such as electronics, medical devices and solar.
While there is little doubt that India’s infrastructure requirement is a massive opportunity for domestic and foreign investors alike, there is some distance that needs to be covered in simplifying the processes around construction permits, land acquisition and other areas.
Similarly, on the tax and regulatory front, while India has made its own efforts towards digitisation and simplification, the US tax reforms caught the global business community unawares, and corporate India was no exception. The broad-based reduction in corporate tax rates is forcing a rethink in the operating strategies for corporations operating in the corridor. Add to this, the recent debate on the renewal of India’s Generalised System of Preferences (GSP) status and the ongoing tariff posturing on traded goods, ranging from steel to walnuts, are not helping the cause.
There is potential and value in this relationship
First, while one could argue that the above gaps are transitory and not unique to the India-U.S. dynamic, the rules of the tradeoff game suggest that there should be a sustained effort by both governments to move the needle on at least a few areas that are currently up for debate. Second, with regions and cities becoming individual markets requiring specific solutions, state-state and city-city collaboration could be the way forward.
Third, US’s alignment with India’s Blue Economy ambition offers comprehensive partnership opportunities, including all forms of energy, technology and infrastructure necessary to ensure this goal is met. The Indo-Pacific region, having abundant natural resources and a growing untapped target population, contains significant synergies for both nations to drive a market-driven Blue Economy framework for growth and development. Clear opportunity areas such as grid modernisation, energy efficiency and renewable technologies are becoming more real every day. A start has been made with the recent dialogue on energy cooperation, and the policies that New Delhi and Washington pursue hereon could define the future.
In essence, the India-U.S. bilateral dynamic is unique as it rests on both strategic and commercial interests. Amidst the shifting sands of geopolitics globally, both countries must join hands to address the gaps and increase cooperation in strategic interest areas (defence, infrastructure, cyber, energy) to propel the bilateral dynamic in the times to come.
Naveen Aggarwal is India-US Corridor leader, KPMG in India