India and America: Friendship with benefits
Powered by investments in physical infrastructure and an enviable lead in digital platforms, India is emerging as a bigger and more evolved economy.
Serendipity, a critical catalyst in the sequence of political events, is frequently under-appreciated. Blaise Pascal, the French philosopher and mathematician, observed in his seminal work Pensées (Thoughts) that if Cleopatra’s nose had been shorter, the history of the world would have been altered— she wouldn’t have been Pharaoh, Julius Caesar and Mark Antony wouldn’t have been besotted and Octavian aka Augustus wouldn’t have established the Roman Empire.
The ‘what if’ posit merits attention in the analysis of modern history too!. What if the Nixon Administration had not hugged Pakistani dictator Yahya Khan to befriend Mao? What if successive US presidents had not paved the way for China’s admission into the WTO and invested in its growth? Since 1971 China’s GDP has shot up from $ 99 bn in 1971 to over $ 19 trillion and enabled it to find $ 224 bn to fund the second-largest defence budget in the world. The Nixon-Kissinger doctrine, followed by the wishful thinking of China turning democratic, defined US State policy and influenced business investments and US relationships elsewhere for decades.
To borrow a phrase from Hollywood, the US was not that much into a relationship with India. Every decade, since the right turn by Indira Gandhi and her meeting with Ronald Reagan in Cancun, Mexico, US administrations have found reason and occasion to articulate the need to align with India. The critical milestones were reached during the Vajpayee era and with the signing of the Indo-US Nuclear Deal by George Bush and Manmohan Singh in 2005. Progress, however, has spluttered at crucial roundabouts.
This week, Prime Minister Narendra Modi heads to the United States, where he will meet with US President Joe Biden. The pandemic and the war in Ukraine have catalysed major shifts and the rule-based world order is at an inflection point. Geo-economics is necessarily informed and influenced by geopolitics. The emergence of the Quad and the Indo-Pacific Economic Framework for Prosperity is an attempt to reflect this approach. The alignment of the world’s oldest democracy with the largest democracy is seen as a counterbalance to China’s stated goal to annex Taiwan, its tactics on India’s border and “wolf warrior” expansionism.
The second leg of the rationale is India’s rising economic heft – particularly the scale of its domestic market to create optionality. Every minute 55 Indians subscribe to and log on to the telecom network. Every hour over 1800 Indians buys new two-wheelers. Every day Indians drive off in over 10,650 passenger vehicles. Every month nearly 13 million flights take off from Indian airports -- flying nearly half a million passengers every day. India, despite its low-middle income per capita status, is expected to consume over 800 tons of gold this year, as per World Gold Council estimates.
Powered by investments in physical infrastructure and an enviable lead in digital platforms, India is emerging as a bigger and more evolved economy. In 2023 India is the fifth largest and the fastest growing large economy in the world. Thanks to the tech prowess and demography, as ratings agency Moody’s observed recently, “India will be the fastest-growing G-20 economy over the next few years”. Its GDP is expected to touch $ 10 trillion by 2035.
The reconfiguration of the rule-based order and global supply chains affords India and the United States an opportunity to move past the history of mistrust to install friendship with benefits. India aspires to harvest its demographic dividend by expanding investments in manufacturing and services. The China-plus-One grouping of supply chains has been largely leveraged by Vietnam and Mexico.
It is true that recent reforms, the newly launched PLI schemes, offer a springboard, but India needs to unclog regulatory cholesterol and change land and labour laws to attract investors. Advanced economies have legislated the reshoring of manufacturing. India will need access to the corridor of “friend-shoring”. It will also need collaboration to confront the challenge posed by generative AI to its tech prowess.
The US is concerned about India’s dependence on Russia for defence equipment. Resolving this requires the US to address the guardrails on technology transfers. The proposed deals for F414 engine manufacture and armed drones suggest progress and a way forward. While Apple’s decision to produce a quarter of its iPhones in India has spurred hopes, it is useful to remember the biggest corporations in the US are deeply invested in China.
This March, the bigwigs of US corporations and leading academics were in attendance at the China Development Forum. In 2022 US trade with China at $ 760 billion set a new record. On Tuesday, Treasury Secretary Janet Yellen warned that “decoupling with China would be disastrous”. As the Indian delegation prepares for Washington, US Secretary of State Antony Blinken is visiting China. The outcome of the meetings is yet to play out.
The biggest challenge for both sides is the management of expectations. Unlike in the past, virtual walls define the new cold war. The contours of relationships must navigate interests and moats of vulnerabilities. The reality is the powerful are also dependent.
The Third Eye
Author of The Gated Republic, Aadhaar:
A Biometric History of India’s 12 Digit
Revolution, and Accidental India