Special Content


volume-49, 07-13 March, 2020

India-USA trade and economic cooperation

Dr. S P Sharma and Ms. Bhawna Kakkar

India and USA are the world's two largest democracies. Both the economies occupy a significant position in the world economy with a combined contribution of around 27% in the world GDP. Over the years, the two nations have played a crucial role in the promotion of world trade and prosperity; their collective share in world merchandize trade stands at around 13%. Bilateral relations between India and USA are based on increasing economic cooperation and shared democratic values. The two countries have common interests in promoting global economic prosperity through trade, investments, and connectivity. The two countries view one another as important strategic partners to promote peace and stability regionally and globally. Both the nations have been working together to provide a positive and forward-looking vision to the bilateral partnership.

Mutual visits at the leadership-level have been an integral part of the bilateral engagement between India and USA. Prime Minister Shri Narendra Modi after assuming office in 2014 has visited USA on a number of occasions involving participation in high-level multilateral summits and also conclusion of bilateral engagements. During June 2017, our  Prime Minister met the President of USA, Mr. Donald J. Trump

and exchanged views in strategic areas such as defence, security, energy, among others.

Further, India and USA have more than 50 bilateral inter-governmental dialogue mechanisms in place for exchange of views on wide ranging areas. Many of such dialogue mechanisms are held at the Ministerial-level. Some of them are listed below:

High-Level Dialogue Mechanisms between India and USA

Source: PHD Research Bureau, PHDCCI, compiled from Ministry of External Affairs, Government of India

The outcomes of these visits have been instrumental in further strengthening the multifaceted ties between the two countries. Apart from the visits at the leadership-level, there have been other significant engagements in the recent years at the senior officials level.

In September 2019, our Prime Minister visited USA for a series of high level events and interactive sessions with the Indian-American community and the CEOs of leading energy companies in USA. He addressed over fifty thousand people at the

"Howdy Modi" event in Houston, Texas and was joined by the US President. The energy and the enthusiasm at the event reflected the increasing synergy between India and USA.

Recently, a new dimension has been added in the bilateral relations between the two economies by way of landmark maiden visit of the US President, Mr. Donald Trump to India. India warmly welcomed the US president and his delegation with tremendous vigour. The US President arrived in Ahmedabad, Gujarat where he addressed more than 1,00,000 people at the "Namaste Trump" Event at the Motera Stadium. The event was highly extravagant and full of euphoria and indicated a far greater and closer India-USA partnership. The US President also visited the Sabarmati Ashram in Ahmedabad and the Taj Mahal in Agra. Later on, he arrived in New Delhi and held wide-ranging discussions with our Hon'ble Prime Minister on various national and international issues.

The two leaders announced a series of measures to increase economic cooperation between the two countries including major defence deals, agreements on healthcare and energy sectors and onset of negotiations for a mega trade deal. The two nations also discussed at length about the upcoming 5G technology and the need for the emerging technology to be a tool for freedom, progress and prosperity.

Impact of Announcements made during USA President's State Visit to India

S.No.

Sector

Announcement

Impact

1

Defence

To take India-USA bilateral relations to the level of a Comprehensive Global Strategic Partnership India to purchase  more than USD 3 billion of advanced US defence equipments including Apache and MH-60 Romeo helicopters      

This will significantly help in increasing defense and security cooperation between India and USA.

Cooperation in ultra-modern defence equipment and platforms will enhance the defense capabilities of both the countries.

2

Healthcare

Memorandum of Understanding (MoU) on Mental Health Memorandum of Understanding on the Safety of Medical Products

This will help both the countries to address mental health challenges through innovative approaches.

This will help in promoting access to high quality, safe, effective, and affordable medications for Indian and US consumers.

3

Energy

Letter of Cooperation

This will establish a system of transportation infrastructure to expand gas access in India.

4

Trade

To start negotiations for a mega trade deal and to promptly conclude the ongoing negotiations that can become phase one of a comprehensive bilateral trade agreement.

This will help in realizing the full potential of the bilateral trade, advancing prosperity, investments, and job creation in both the countries. The deal would provide long-term trade stability resulting in mutual benefits for India and USA.

Source: PHD Research Bureau, PHDCCI

India-USA bilateral economic relations

India's trade and economic relations with USA have seen phenomenal growth in recent years. The volume of merchandise trade between India and USA has significantly increased from around USD 62 billion in FY2014 to around USD 88 billion in FY2019. India's exports to US have increased from around USD 39 billion in FY2014 to around USD 52 billion in FY2019. India's imports from US have increased from around USD 23 billion to around USD 36 billion during the same period. Moreover, India-US bilateral trade in goods has registered double-digit growth in recent years and bilateral relations have noted tremendous progress.

India-USA bilateral merchandise trade (in USD billion)

Year

Exports

Imports

Total Trade

2013-14

39

23

62

2014-15

42

22

64

2015-16

40

22

62

2016-17

42

22

65

2017-18

48

27

74

2018-19

52

36

88

Source: PHD Research Bureau, PHDCCI compiled from Ministry of Commerce and Industry, Government of India

During FY2019, USA's share in India's total merchandize exports stands at around 16%. India's top 10 export items to USA are Pearls, Precision or Semiprecious Stones, Pharmaceutical Products, Machinery and Mechanical appliances, Vehicles, Mineral Fuels, Mineral Oils, among others.

India's top 10 export items to USA during FY2019

S.No.

Commodity

1

Natural or cultured pearls, precious or semiprecious stones, pre.metals, clad With pre.metal and artcls thereof; imit.jewlry; coin. 

2

Pharmaceutical products 

3

Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof. 

4

Vehicles other than railway or tramway rolling stock, and parts and accessories thereof. 

5

Other made up textile articles; sets; worn clothing and worn textile articles; rags 

6

Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes. 

7

Articles of apparel and clothing accessories, not knitted or crocheted.

8

Fish and crustaceans, molluscs and other aquatic invertabrates.

9

Articles of apparel and clothing accessories, knitted or corcheted. 

10

Organic Chemicals

Source: PHD Research Bureau, PHDCCI compiled from Ministry of Commerce and Industry, Government of India

In terms of imports, USA stands 2nd amongst India's top 10 sources of imports with a share of 7% in FY2019. India's top 10 import items from USA are Pearls, Precision or Semiprecious Stones, Mineral Fuels, Mineral Oils, Machinery and Mechanical appliances, Organic chemicals, Aircraft, spacecraft, among others. 

India's top 10 import items from USA during FY2019

S.No.  

Commodity

1

Natural or cultured pearls, precious or semiprecious stones, pre.metals, clad with pre.metal and artcls thereof; imit.jewlry; coin.

2

Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes. 

3

Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof. 

4

Organic chemicals  

5

Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and

Parts. 

6

Optical, photographic cinematographic measuring, checking precision, medical or surgical inst. And apparatus parts and accessories thereof;

7

Aircraft, spacecraft, and parts thereof. 

8

Plastic and articles thereof. 

9

Miscellaneous chemical products. 

10

Edible fruit and nuts; peel or citrus fruit or melons. 

Source: PHD Research Bureau, PHDCCI compiled from Ministry of Commerce and Industry, Government of India

In terms of investments, USA is the 6th largest foreign investor in India with cumulative Foreign Direct Investments (FDI) equity inflows of close to USD 28 billion from April 2000 to June 2019. FDI equity inflows in India from USA stand at USD 3 billion during 2018-19. Given the huge size of the Indian market, there are several major US companies operating in India in sectors including manufacturing, agriculture, IT, retail, among others while major Indian companies in USA include Reliance, HCL Technologies, Infosys, TCS, Wipro, among others. Going ahead, India's continued improvement in the Ease of Doing Business rankings and the recent cut in corporate tax will attract large chunk of investments from USA considering the growing interest of American businesses in the Indian economy.

Hence, the India-USA bilateral cooperation is broad-based and multidimensional, covering trade and investments, defence and security, education, science & technology, cyber security, high-tech, civil nuclear energy, agriculture, health, among others. One of the most important foundations of this special partnership between India and USA are the people-to-people relations. The Indian Diaspora in the US (estimated at around 4 million) has been the biggest contributor to the growth and development of the US economy leading to successful bilateral relations over the years.

Conclusions

India-USA bilateral relations today not only encompass the major pillars of their strategic partnership but have deepened with greater bilateral economic engagement and ever increasing people-to-people contacts. In the last few years, the bilateral relations have expanded into a global partnership with greater convergence of views in wide ranging areas and shared approach towards a rules-based order in the Indo-Pacific region.

The visit of the US President, Mr. Trump to India has been eagerly awaited by businesses, academicians and thought leaders to lay the foundation for greater trade ties between the two economies. The thrust of the bilateral discussions has been on building the economic and energy ties along with an alignment of mutual strategic interests.

The decision to finalize a USD 3 billion defence deal and the signing of three significant MoUs in the health and oil sectors is highly appreciable. Further, the announcement of negotiations for a mega trade deal with USA is a major step forward for India for enhancing its trade and investments relations with USA.

Significant discussions on the importance of a secure 5G wireless network and the need for this emerging technology to be a tool for freedom, progress and prosperity between the leaders of the two nations is highly appreciated and a significant step towards modernization of India's telecom networks.

In recent times when national safety and security of its citizens is of utmost importance for any country, a significant defence deal with the US for providing India with the best and most feared military equipments, including Apache and MH-60 Romeo helicopters, will be a big leap forward in further building our defence cooperation.

Based on strong complementarities and growth prospects, both the countries have significant potential to enhance bilateral trade (goods and services both) to the level of USD 500 Billion by 2025 from the current level of less than USD 150 Billion. The current visit of the US President will significantly boost the sentiments of businesses to enhance the trade and investment trajectory between the two economies. At this juncture, there is a need to outline the contours for a sustainable trade negotiation between the two countries which is broad based and encompasses wide ranging potential sectors of development.

Going forward, there is an unparalleled potential for development of bilateral relations between India and US and we expect a comprehensive trade agreement to be successfully signed between the two Nations in the near future, taking the Indo-US ties to a global partnership level.

 In a nutshell, the time is most opportune for the two economies to forge an indispensable partnership by utilizing the plethora of opportunities. This will enhance and deepen bilateral ties on various fronts which will be strategically and economically beneficial to both India and USA. The trickle-down effect of the enhanced India-USA partnership will take the bilateral relations between the two economies to a distinctly higher level in the coming times.

(S.P Sharma is Chief Economist and Bhawna Kakkar is Research Associate with PHD Chamber of Commerce, New Delhi. e-mail: spsharma@phdcci.in)

Views expressed are personal.

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