PM Modi’s visit marks pivotal milestone in the India-US partnership
The recent visit of Indian Prime Minister Narendra Modi to the United States has created waves of excitement and anticipation for the future of India’s trade and economic landscape. As only the second Indian Prime Minister to be invited for an official state visit to the US, PM Modi’s interactions and engagements during the trip have set the stage for a new era of collaboration between the two nations.
Beyond the diplomatic engagements and high-profile interactions, this visit has unlocked new promise for the “Make in India” initiative, besides encouraging deeper trade ties and collaboration in key sectors including manufacturing, technology, and defence. The resolution of trade disputes and restoring GSP status for India are clear indications of the strong commitment to strengthening economic ties.
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Prime Minister Narendra Modi concluded his week-long visit to the United States and Egypt to return to India late Sunday. Throughout his trip, he captured headlines and sparked attention with a series of significant moments in New York, Washington DC, and Cairo. From high-profile meetings to impactful speeches, Prime Minister Modi’s visit marked an important chapter in India’s diplomatic engagements on the global stage.
The visit has undoubtedly generated a new equation between the two nations, with far-reaching effects on various aspects, including the “Make in India” initiative and bilateral trade. It has opened up avenues for enhanced cooperation in critical sectors such as manufacturing, technology, space exploration, defence, and more, creating new opportunities for investments and employment.
What’s New in Investment and Bilateral Trade?
The US has been India’s largest trading partner for four out of five fiscal years since 2018-19 (excluding 2020-21), as per data from the Ministry of Commerce & Industry. Notably, trade between India and the US witnessed growth from $87.9 billion in 2018-19 to $128 billion in 2022-23. While India’s exports to the US have grown to US$ 78.5 billion (CAGR of 10.6%), imports from the US have grown to US$ 50.2 billion (CAGR of 8.9%) during this period.
The US is undoubtedly an important market for India’s software exports and a major buyer of Indian goods. Furthermore, the trade relationship has been bolstered by increased exports of gems and jewellery and other products from India to the US. Being the third-largest source of foreign direct investment (FDI) inflows into India in 2022-23, the US accounted for 9% of total inflows from April 2000 to March 2023. Cumulative FDI equity inflows from the US during this period amounted to US$ 60.1 billion.
Despite this significant growth in trade and FDI between India and the US, a free trade agreement (FTA) that reduces trade barriers is yet to materialize. Instead, the focus is achieving greater market access and ease of doing business between the two countries. The two are also engaged in various bilateral and multilateral forums including the Indo-Pacific Economic Forum (IPEF), which aims to build an inclusive and flexible Indo-Pacific Economic Framework. India has joined three Pillars of IPEF, related to supply chains, tax and anti-corruption and clean energy
According to the joint statement issued after the meeting between Prime Minister Narendra Modi and US President Joe Biden, India expressed its interest in restoring its status under the US Generalized System of Preferences (GSP) program. The US could consider this restoration subject to eligibility criteria determined by the US Congress. To take you back to 2019, the previous Trump administration revoked India’s Generalized System of Preferences (GSP) status, which allowed duty-free exports of eligible products to the US. Around 1,900 Indian products, including chemicals and engineering goods, have enjoyed duty-free access under the GSP since its introduction in 1976.
Boost to ‘Make in India’
India and the US have reached several significant agreements during PM Modi’s visit. One notable development in the defence sector is the collaboration between General Electric and Hindustan Aeronautics Ltd to jointly produce fighter jet engines for the Indian Air Force. This partnership will involve a substantial transfer of technology and indigenous production.
Additionally, the US Navy has finalized a Master Ship Repair Agreement with Larsen and Toubro Shipyard in Chennai, and discussions are underway with Mazagon Dock Limited in Mumbai and Goa Shipyard. This agreement allows US Navy ships in the region to undergo service and repair at Indian shipyards, providing a significant boost to India’s ship servicing industry. Boeing has also announced a US$ 100 million investment in infrastructure and programs to train pilots in India, giving a push to the aircraft servicing industry. The announcement came on the sidelines of PM Modi’s visit to the US.
Micron Technology, an American technology firm, has announced plans to invest up to US$ 825 million in building a semiconductor assembly and test facility in Gujarat, supported by the Indian government. Applied Materials is also establishing a Semiconductor Centre for Commercialization and Innovation in India, aiming to enhance the diversification of the semiconductor supply chain.
LAM Research has proposed to train 60,000 Indian engineers through its Semiverse Solution virtual fabrication platform. Similarly, NASA will be providing advanced training to ISRO for a joint international space station in 2024. These initiatives would be beneficial for India’s future goals in tech and space.
Development on MSP, iCET and IPEF
India has joined the Minerals Security Partnership (MSP), a US-led initiative, with 12 other partner countries, plus the European Union, to establish diverse and sustainable critical energy mineral supply chains. With its inclusion, India aligns with the goal of transitioning towards electric vehicles in both public and private transportation. The focus on electronics manufacturing and semiconductor development emphasizes the importance of securing a stable supply of critical minerals.
The two countries have also unveiled a roadmap for enhanced collaboration in high-technology areas, with a focus on addressing regulatory barriers and aligning export controls for smoother trade and “deeper cooperation” in critical areas. This roadmap is part of the Initiative on Critical and Emerging Technology (iCET), a framework established between the two countries for cooperation in critical and emerging technologies such as artificial intelligence, quantum computing, semiconductors, and wireless telecommunication. Under the iCET, both countries will sign a new implementation arrangement for a Research Agency Partnership between the National Science Foundation and Indian science agencies to expand international collaboration in the above areas.
Apart from these developments, the US wants India to join the trade pillar of the 14-nation bloc IPEF by the end of 2023. While India remains open to examining proposals, it has been cautious due to concerns about protecting local industries and livelihoods in the agricultural sector. Joining the trade pillar requires careful consideration as with this, India would have to accept agreements made by the member countries.
Resolving Six Trade Disputes at WTO
In what is being seen as a significant confidence-boosting measure, India and the US have reached an agreement to resolve six trade disputes at the World Trade Organization (WTO) through mutually agreed solutions. These disputes involve various issues such as countervailing measures on certain carbon steel products, measures related to solar cells and modules, renewable energy sector measures, export-related measures, measures on steel and aluminium products, and additional duties on certain US products.
As a result of the agreement, certain steel and aluminium products exported from India to the US will be exempted from additional duties, boosting India’s exports in these sectors. In return, India has shown its willingness to remove retaliatory customs duties on specific American products including chickpeas, lentils, almonds, walnuts, apples, boric acid, and diagnostic reagents. This resolution will undoubtedly enhance bilateral trade and strengthen economic ties between the two countries.
By resolving these trade disputes, India and the US are taking a significant step towards fostering a more conducive and cooperative trade environment. The agreement not only benefits the respective industries involved but also smoothens the path for further collaboration and harmonization of trade policies.
The Indian industry will certainly see cause for cheer after the new developments on the restoration of preferences for exporters under the GSP scheme, trade dispute agreement and revocation of “wrongful’’ penal duties on steel and aluminium. While an FTA with the US does not immediately look plausible, the decisive push in sectors of interest provides much room for optimism on enhanced business relations. The visit, therefore, marks a major milestone in India’s diplomatic engagements and highlights the ever-growing importance of the India-US relationship on the global stage.