By: Neeta Lal
Although India is looking forward with rapt anticipation to US President Donald Trump’s February 24-25 visit to New Delhi, it isn’t likely that much will happen beyond the usual grip-and-grin photo ops.
While a half-dozen pacts are being readied to sign on homeland security, trade facilitation and intellectual property rights ahead of the meeting, the big prize, an omnibus trade pact, is unlikely. The president set the tone on February 18, saying that “We’re not treated very well by India,” before he reversed course and said he likes Prime Minister Narendra Modi “a lot.”
He went ahead to cast doubt on whether a major trade deal would be completed before the Presidential election in November, saying that on the trip “We can have a trade deal with India. But I'm really saving the big deal for later."
The United States Trade Representative office earlier also recalibrated India’s economic standing as a developed economy from developing status, making it ineligible for trade benefits extended by Washington to growing economies along with several other countries, stripping them of an array of trade benefits. US Trade Representative Robert Lighthizer, the point person for trade negotiations, is likely to not accompany the president, another indication that no major trade development is expected.
A developing country is classified as one when it has less than 0.5 percent share of global trade. India crossed the limit a few years back. As of 2017, India’s share in global trade was 2.1 percent for exports and 2.6 exports. The USTR has argued that as India, is also part of the G20 bloc, it qualifies as `developed’ despite having a per capita GNI below US$12,375 according to the World Bank data.
Trump’s statement and the US move has triggered tumult within Indian political circles, simultaneously casting a pall of gloom over chances of a mini trade deal to be signed between the US and the Hindu nationalist government of PM Narendra Modi. India Inc, as the country’s business community likes to style itself, had great expectations from Trump's maiden visit to India. It is seeking higher investment commitments from American companies, more commercial exchanges and better receptivity to exported Indian goods sans heavy trade duties.
Industry leaders are thus keeping their fingers crossed that India’s changed economic status, and Trump’s mercurial nature won’t jeopardize trade talks. A special CEO’s Round Table has been organized in New Delhi to facilitate exchanges between Trump, top Indian honchos and American business elite. Leading industry stalwarts including Reliance Industries CMD Mukesh Ambani, Bharti Airtel Chairman Sunil Bharti Mittal, Tata Sons Chairman N Chandrasekaran, Mahindra Group Chairman Anand Mahindra, Larsen and Toubro Chairman A M Naik and Biocon CMD Kiran Mazumdar Shaw, are expected to attend the round-table.
Though the news of the upgrade disappointed many in India, some were even delighted that India was, at last, being perceived as a `’prosperous’’ country by the world’s leading superpower. However, Commerce and Industry Minister Piyush Goyal astonished many by commenting that “India does not need development assistance like GSP hitherto provided by other nations and should be able to become competitive on its own, the issue has continued to be part of trade talks between India and the US.”
That may have been expected from Goyal, who earlier snubbed Jeff Bezos last month when the Amazon chief visited India to announce investments to the tune of US$1 billion.
“Amazon is not doing any favor on India by investing a billion dollars,” Goyal said – then, facing a severe backlash, did a U-turn. Trying to make amends he later said that his words were misconstrued and that he welcomes Amazon’s investment. Critics thought it foolhardy to slam foreign investors at a time when the country is facing severe economic headwinds and record unemployment. It is also at variance with the Modi government’s attempts to project an image investment-friendly.
Indian traders, meanwhile, are stressed that the change of India’s economic status by USTR will scupper India’s chances of reclaiming its benefits under the US’ Generalized System of Preferences. The GSP, America’s oldest preferential trade scheme, offered Indian exporters tariff-free access. India is the largest beneficiary nation under the GSP, with total benefits from tariff exemptions amounting to US$260 million in 2018 alone.
“We’re already reeling under pressure from increasing competition by low-cost rivals across other Asian and South East Asian countries,” said Abhimanyu Gupta, a Delhi-based textiles exporter. “Trump administration’s latest move will further erode our market share especially in sectors such as jewelry, leather, pharmaceuticals, chemicals and agricultural products which will now face higher costs and competition.”
Foreign policy pundits say the move signals Trump’s frustration that large and fast-growing economies like China and India are getting away with preferential trade benefits hitherto reserved only for genuinely developing countries.
Since the beginning of his tenure in 2016, Trump has sought to rejig trade deals with India and China, to make the arrangements more “fair” to US interests. Trump has also been peeved that US gets short shrift from India on the trade front due to heavy duties. In 2018, the US launched an eligibility review of India’s compliance with GSP market access criteria. It concluded the country had implemented a wide array of trade barriers that create “serious negative effects” on commerce. Subsequently, Trump signed an executive order that terminated duty-free status for 50 items.
India has maintained that GSP benefits were "unilateral and non-reciprocal in nature extended to developing countries" and that they couldn't be used for advancing Washington DC's trade interests and non-discriminatory benefits.
Be that as it may, India and US have enjoyed fruitful commercial ties in the past. In 2018-19, India's exports to the US stood at US$52.4 billion, while imports were US$35.5 billion. Trade deficit dipped from US$21.3 billion in 2017-18 to US$16.9 billion in 2018-19. India received FDI worth US$3.13 billion from the US in 2018-19, higher than US$2 billion in 2017-18.
The two nations are also currently working out a trade package to promote two-way commerce. India is seeking exemption from high duties imposed by the US on certain steel and aluminum products, resumption of export benefits to certain domestic products under the Generalized System of Preferences, and greater market access for its products from sectors like agriculture, automobile, auto components and engineering.
On the other hand, the US wants greater market access for its farm and manufacturing products, dairy items and medical devices, data localization, and cut on import duties on some information and communication technology products. The US has also raised concerns over high trade deficit with India.
It will be unfortunate if both sides are not able to leverage this visit, reportedly Trump’s last foreign tour before November elections, to cement trade ties and consolidate a more enduring economic partnership.
Research by CII shows that at least 100 Indian companies have invested nearly US$18 billion and created over 1.13 million jobs in the US. Most of the Fortune 500 US companies have an overwhelming presence in India, while leading Indian corporates in manufacturing and services enjoy commanding positions across the US market according to the trade body.
Neeta Lal is a New Delhi-based editor and journalist and a longtime contributor to Asia Sentinel. She tweets at neeta_com.