Prime Minister Narendra Modi’s “state visit” to the US commences on June 24. Building up to it there is much diplomatic activity. On May 17 the Defence Policy Group met in Washington. Thereafter, the US Defense Secretary Lloyd Austin and later the National Security Adviser Jake Sullivan visited India. The forthcoming visit is being treated as special as PM Modi’s earlier ones have been “working visits”.
Consequently, the full protocol treatment will be extended, including an informal meal and a banquet by the US President Joe Biden. PM Modi will also address a joint meeting of both houses of the US Congress a second time. That is an honour earlier extended to very few dignitaries like Winston Churchill and Nelson Mandela. For the BJP the timing is perfect as the next Lok Sabha election is just ten months away.
Two interesting analyses of Indo-US relations have appeared in The Economist magazine and a Carnegie publication. The latter has a piece titled “How Does Business Fare Under Populism” by Rachel Kleifield, which studies Brazil, Hungary and India. It concludes that overall populist leaders, whether from the left or the right, cause similar economic distortions, though for different reasons. She explains that the populist strategy of building intense voter loyalty corrodes social trust, which affects GDP and entrepreneurship levels. Personalised decision-making yields unpredictable policies, increasing uncertainty and risk. It also, she adds, breeds cronyism and corruption at higher levels. She quotes a study of populist leaders from 1900 to 2020, by economist Manuel Funk and two others, that found that such leaders create a drag of 1% on GDP after an initial honeymoon period.
The White House may “affirm the deep and close partnership” with India on the eve of the Modi visit, but in reality pragmatism drives it. The Economist argues that for the US India is “an indispensable accomplice in their rivalry with China”. Besides that, the Indian economy is, as Tim Cook of Apple said, seen at a tipping point. Indian share of global GDP is 3.6%, where China stood in 2000. Ironically, the US is now turning to help India balance China much as it helped China, driven by its Cold War rivalry with the Soviet Union. Goldman Sachs assesses that the Indian GDP should overtake that of the Euro-Area in 2051.
Therefore the INDUS-X scheme under the initiative for Critical and Emerging Technologies (iCET) is important to advance Indo-US collaboration. The Indian economy however has some limitations. Manufacturing only has a 17% share in GDP, with services dominating it. Services have a 40% share in Indian exports, but employ only 5 million persons. The challenge for India is to absorb new technologies quickly, especially in the defence and space sectors. The biggest need being to successfully align the bureaucracies and regulatory regimes of the two nations. For instance, the American International Traffic in Arms Regulation (ITAR) can be daunting for those seeking technology transfer or even discussing it.
The Economist sees India facing three challenges. One, whether growth in India’s Information Technology (IT) services can be sustained? The threat is emerging from Artificial Intelligence (AI), which may help foreign clients reduce the need for human IT professionals. Two, the impact on foreign investors of news reports about ethnic cleansing in Uttarakhand or disturbances in Manipur. It is one thing for cynical US political players to ignore the democratic erosion and majoritarianism in India, but the investors may view it differently. Finally, there is the concern that the trickle-down economics of the Modi government may be leaving the working and lower-middle classes out of the growth story with political consequences. Widening income disparity can have socio-political consequences.
Despite possible headwinds, the opportunity for India is obvious as there is a convergence of multiple factors. The Indian government’s business-friendly policies have allowed private sector participation in defence manufacturing and space. The defence technologies in the US are mostly in the hands of the private sector. They find it easier to work with Indian counterparts like Tata, Mahindra, Godrej etc. The US aims to wean India off Russian defence equipment by forging joint ventures, including by permitting technology sharing or co-development. In the last four years India has imported defence equipment worth over $ 9 billion from the US. To reduce drain of foreign exchange and increase self-reliance the US partnership can be useful, if not critical.
Therefore, as supply chains are reconfigured the US would like to string them through friendly nations. It involves the linking of defence manufacturing facilities, venture capitalists, incubators and universities in partner nations. India is lagging in this kind of lateral and vertical collaboration across public and private sectors, as indeed teaching institutions. The silos must be broken to optimise quick absorption of new technologies and enthuse research and development. However, a festive US welcome cannot banish the reality that a sustainable Indo-US partnership can only rest on both nations remaining committed to liberal and democratic values. Coincidentally in both nations 2024 elections will decide that.
(KC Singh is former secretary, Ministry of External Affairs)