It will come as a surprise only to the politically naïve that the India-US framework agreement on an interim bilateral trade deal contains nothing that hints at a sellout of India’s national interest.
The agreement does contain concessions from the position of absolute protection that Indian producers would consider ideal, but give and take are part and parcel of any trade negotiation. And, India has special constraints when it comes to dealing with the US, placed by China’s refusal to settle the border with India and accept India’s role as a shaper of the fortunes of the Indo-Pacific, if not of the world.
US trade deal could bring in big-bang reforms for India
♦ Lower tariffs boost India’s export competitiveness
♦ Repair of strained India-US trade relations
♦ Clearer access to the US market
♦ Manageable import commitments over time
♦ Competitive pressure forces industrial upgrading
The deal signals that the seeming rift that had developed between India and the US has been repaired.
It lowers the import tariff on imports from India to the US to 18 per cent on a wide range of goods that pass the rules of origin test, and promises to significantly lower levels on other goods subject to further negotiations that will take the deal forward from framework to interim and from interim to final.Volume of imports
Considering that India’s major competitors in traditional export goods — Bangladesh, Pakistan, Sri Lanka, Vietnam and China, which competes across the board and not just in traditional goods — all face a higher import duty than India does, the deal does hold the promise to restore Indian exports to the US to a great extent. To the extent that the price American consumers have to pay would be higher, there could be a fall in volume.
The $500 billion volume of imports that India has to undertake from the US looks a whole lot more reasonable, now that it is officially clarified that this is to be achieved over five years and will have in its ambit lumpy purchases such as passenger aircraft, $77 billion of which are on the wait list, defence equipment, and oil and LNG.
Jets, oil and more
India might be able to buy military transport planes from the US, but not advanced fighter jets. These are more or less locked into the electronic tracking and intelligence systems of the US military, and will become unusable at their full operational level in case the US government, for whatever reason, decides to withhold the Mission Data Files (MDF) or their updates. MDFs include data on the jamming frequencies used by target systems seeking to avoid radar identification, and target specifications.
India can easily purchase some of its oil from the US as well as LNG. These can be swapped with, for example, Europe’s or Japan’s purchases of like commodities from the Middle East, so that India can be spared the higher cost of transporting the cargo all the way from the US to India.
If India builds data centres using advanced Nvidia chips made in the US, or nuclear reactor parts, that would add up sizeable imports.
In any case, what happens to the deal after Trump’s inevitable departure from the scene is anyone’s guess.
Impact on Indian industry
However, there is no gainsaying that the high degree of competition to which Indian industry is going to be exposed — from the US and all the countries with which India has been striking trade deals. Industry can either go under or upgrade, to withstand the pressure.
Most segments would upgrade, as was the experience of the big bang opening up of trade in 1991, when the reforms began, and import duties were slashed and quantitative restrictions removed, especially after joining the World Trade Organisation (WTO).
In any case, the manufacturing universe is in for a shake-up, with artificial intelligence (AI) getting embodied in machines, and entire ranges of operations getting automated. What used to be labour-intensive industries in the past could suddenly turn into robot-intensive sectors.
There already are over 4.5 million industrial robots in operation, 2 million in China alone, and their numbers are growing rapidly, as is their ability to handle delicate, precise operations. The trade deal will expose Indian industry to the pressure to evolve and that is an example of what, in Indian tradition, is called Urvasi’s curse — it blights your life, on the surface, but helps you immensely, in practice.
India's salvation
Let us not be too eager to damn the trade deal. All it does is to demand an increase in the pace of internal changes that integration into the global economy demands from India’s governance practices, entrepreneurs, educators, workers and the people at large.
The government is happy to preside over a broken education system, combined public and private R&D expenditure that adds up to an abysmal 0.65 per cent of GDP, and prioritisation of skills, which tend to be transient, rather than of education, which allows people to learn new skills all the time.
Globalisation calls for changes in politics. This is where the ruling party fails India, badly. It persists with, in fact, is intensifying its project of marginalising non-Hindu communities, preparing the ground for loss of internal cohesion that could escalate to active strife. This politics also serves to transform external perceptions about India from that of a struggling democracy of immense scale and potential to one of a failing nation that runs the risk of being consumed by its own toxicity, a perception fostered by the misogynistic and rowdy behaviour of Indian tourists and Indian migrants abroad.
The Indian elite see the people at large not so much as human beings, each a potential embodiment of immense talent and creativity that could improve life and society, but as low life from whom, thanks to electoral democracy, a political mandate has to be extracted every now and then by feeding them money, hope and illusory promises, on the one hand, and hatred towards groups amongst themselves.
India’s salvation lies in deepening and strengthening India’s democracy, not in striking better trade deals.
(The Federal seeks to present views and opinions from all sides of the spectrum. The information, ideas or opinions in the articles are of the author and do not reflect the views of The Federal.)
