Although over four years away, the path to Modi 3.0 seems under way, and Trump 2.0 (if it happens), might result in major shifts in the global political and business architecture. But Donald Trump’s denial of the Generalised System of Preferences (GSPs) to India in the past and the insistence on a new Foreign Trade Agreement (FTA) can turn India’s $5-trillion economy target into a pipe-dream.
Trump’s arrival in India is, reportedly, minus a business delegation. He will, instead, hard-peddle defence supplies, patent protected medicines/medical devices and cheap agricultural produce. Imagine India importing milk, edible oil, grains and chicken from the US. Are our PL-480 days back? Overall, India accounts for only three per cent of US trade. The bilateral trade is more consequential to India — 16 per cent of exports and over 6 per cent of its goods are imported from the US.
Trump has triumphed against all odds and has survived a Democratic party onslaught, which is a spectacular feat indeed. Recall how Trump’s presidency campaign was marked by racial undertones and support in rural America, including from white supremacists, as a backlash against eight years of the Barack Obama presidency. His acquittal in the impeachment proceedings by the US senate in February has granted him the confidence to destabilise the global trading architecture. In real political terms, the US is split in the middle: The rural (dominantly Republican) versus the urban (dominantly Democrat) divide. The urban demographic across the US is characteristically unique due to the concentration of pluralistic, multi-ethnic and multicultural communities in cities and workplaces — largely the result of a positive immigration policy.
Right now, the race for the White House has begun in earnest. The outcome of the 2020 US presidential election will have an impact around the world, especially on the global economy. Though there is still some time to cover, a second term for Trump looks like a possibility. The US policies vis-a-vis India, then, during 2020 and beyond, might depend on who Trump appoints as his advisers and to his cabinet.
Effective from June 5, 2019, Trump terminated India’s eligibility for GSPs, scuttling forever the very basis of India’s preferential market accesses. The withdrawal of the “least developed country tariff” and imminent negotiations towards a new FTA would pose huge losses to India sooner rather than later. It will be disastrous for India to anchor its economy on current US policies, which lack coherence, transparency, continuity and respect for international rule of law.
The reckless immigration and visa policies of the US have also hurt the prospects of Indians in the technology sector — the US has increased the cost of visas and tinkered with dependent visa (H-4) holders, who have only received partial and temporary relief from the courts. Although the number of Indian students in American universities has increased marginally, they have no hope of establishing a stable livelihood in the US after having spent large sums to meet their education expenses.
How much does India really stand to gain from the US? The structure of trade is a helpful pointer: The total bilateral trade stands at about $85 billion, the balance favouring India. Compare this with the US-China two-way trade, which was $660 billion in 2018. The structure of Indian exports to the US does not support higher growth spurts. Trade in services seems to be neutral. The Indian export structure, when it comes to manufacturing and consumer goods, is somewhat rudimentary. It appears that the top items for both exports and imports between India and the US are what can be termed as “re-exports”: That is, import raw or semi-finished goods and export them back after processing. Gems/jewelry and processed petroleum are India’s top re-exports and the net gain to the economy is just the value added or the cost of labour.
As a regular at US mega-stores, I have found only one major store selling garments made/stitched in India. Although we hear and read about India-made pharmaceuticals that are exported to the US, the “made in India” imprint is often missing. There are a good number of Indian or South Asian grocery stores across major cities, but most of them sell products made in New York or Chicago.
Given such a weak trade link, why is the Trump visit hyped so much? It is not trade, stupid. It is the politics of defence purchases.
At the very least, India must push for diversified oil imports and higher FDI and FII investments linked with technology transfers. Despite the government’s efforts to enhance foreign investments, new data suggests that FDI flows have slowed down to a trickle — at $8 billion in the last nine months. This is the lowest FDI seen during comparative months since 2015. Further, despite improving its standing in “ease of doing business” indices, India has failed to attract international investors mostly due to institutional failures. Global investors are wary of unstable policies in banking, international financial flows, legalities of business contracts, land and property acquisitions, and, politically biased judicial pronouncements.
The writer is with the US-India Policy Institute, Washington DC and the Centre for Research and Debates in Development Policy, New Delhi