India -US relation can only be transactional ?

India -US relation can only be transactional ?

By C.M.A.Nayar

Synopsis : The ongoing discussions for reaching a trade-agreement between India and USA can be seen only in the background that India-USA relations have always been transactional .  President Clinton identified the need for a constructive co-operation with India for mutual benefit and every US president who succeeded had similar objectives . However the biggest obstacles for moving forward in  a big way were the close relation between the deep state in USA and the Military administration in Pakistan and the  warm relation between India and Russia whom India considers as an all-weather friend . In spite of prolonged discussions between USA and India during the last three decades , these two factors remain unchanged  and hence a long term strategic relation between the Governments of USA and India has not been possible and the relation continues to be  transactional . The open support of US administration to Pakistan during the ongoing “ Operation Sindoor “ and the US attempt to equate India with Pakistan are seen with considerable concern by India . In any case , India  does not accept  the US attempt for playing the role of a mediator between India and Pakistan and trade-negotiations  have nothing to do with this matter  . Although India ranks low in the list of major  trade-partners of USA ,  India has to be pragmatic in accepting the reality that an action plan will be needed for achieving balanced trade with USA in a time bound manner . Agriculture is a heavily subsidized activity in most of the developed nations including USA and India has to be extremely careful for  preventing dumping of  subsidized US farm-products in to India to the detriment of Indian interests . India should give priority for import of farm-products required by India ( edible oil , ethanol etc )  . As per US statement , India’s trade surplus in goods with USA in 2024 ( year ending September 2024 ) was around 46 billion $ with around 87 billion $ of US import from India . India and US will have to work out a suitable figure for trade  for achieving balanced trade within five years .  India should not be unduly concerned about US tariffs because its relative impact on Indian products in the US market may not be much because US is charging higher duty on import from most of the countries . The real problem will be the mercurial behaviour of US negotiators who may not hesitate to change positions on matters already agreed. In such a situation , India has to stand firm  . Afterall , the reality is that the relation between USA and India will continue to remain transactional.  

1.Introduction

While the most populous democracy in the world could have had a very cordial relation with the most powerful democracy in the world , fact remains that the relation between India and USA has always been transactional and perhaps even without mutual trust. Immediately after the Second World War and immediately after the Indian independence , USA made an attempt to recruit India as its subservient ally in its fight against the Soviet Union . USA wanted India to embrace its free market capitalism for making progress. Pandit Nehru who was a socialist in his  mindset was very sceptical about US offers and did not really want to cooperate with USA. It was in this context , India had the negotiations with US steel companies for setting up a steel plant in India . While an agreement was almost reached , US companies insisted on having management control of the plant and India refused and the negotiations fell apart . USSR which was waiting in the wings accepted Indian conditions and the Steel plant in Bhilai was set up . As a young engineer , I had occasions to visit the Bhilai Steel plant on several occasions and I have no hesitation to say that Bhilai Steel Plant was the real foundation for a long standing friendly relation between India and USSR.  USSR has always been an all-weather friend of India and relations with Russia continues in the same spirit .                                                                                                                                               Admitting Pakistan in SEATO and declaring Pakistan as a US ally , USA had publicly taken position that It will side with Pakistan in any conflict with India . US did so in 1965 and in 1971 when Pakistan had suffered humiliating defeat . For  the first time , US did not support Pakistan during Kargil war in 1999. In 2004, George Bush Jr declared Pakistan as a non-NATO ally and it continues to be so  now also . The recent statement by President Trump that he brokered peace between India and Pakistan using trade as a bait shows very clearly that US position on Pakistan remains unchanged . Everyone in India knows that there was no war between India and Pakistan . It was only a military retaliation by India against a terrorist attack organized from Pakistan. India has maintained the position that the discussion was between the two Army Generals and there was no Govt to Govt discussion . The meaning of the message from US president is clear that USA treats India and Pakistan in the same footing . India can not and should not accept such a position even at the cost of loss of business with USA . It is in this background that I would like to analyse the India -US trade negotiations  to be concluded by November 2025.

2. India – US trade ( figures in billion $ ) India has been having a trade surplus with USA during the past several years. I give below the trade- figures ( export and import ) from 2020 to 2024

Source  https://www.census.gov/foreign-trade/balance/c5330.html#2024                                                                           Note : The trade during 2020 and 2021 was at a low level level because of COVID 19.

Major items of trade between USA and India in 2023 ( figures in billion $ )

Source : ministry of commerce India  . Note : there are differences in the figures released by India and USA mainly because of the difference in fiscal year ( October to September for USA and April to March for India )

It is clear that US has been having a trade deficit with India year after year and it was     43.31 billion $ in 2023 and 45.66 billion $ in 2024. . While it is true that  USA  has a trade deficit with all its top trading partners and India is low in the list , there is a need to examine the issues related to India for finding appropriate and mutually acceptable solutions .  US has a trade deficit for 10  major items with India while India has a trade deficit for 5 items . It will be necessary to examine item by item and work out solutions for bridging the overall gap .

3. What does US want ?

It could be true  that the huge trade deficits of USA year after year is because of the lower tariffs in USA and large number of countries have been taking advantage of this situation . USA wants to correct the situation by imposing dissuasive  tariffs  for import and it should be considered as a reasonable step for protecting US interests. . While most of the tariffs are country-specific,   there are also items like steel and aluminium for which tariffs are uniform for all . Will  the local industries in USA rise to the occasion by manufacturing products  at competitive prices so that supply and demand will match without causing inflation ? . Most likely not . Since this analysis pertains only to India , I will examine the details of US-India trade . As far as I understand USA wants to apply reciprocal tariffs with India . US thrust will be centred around agricultural products  ( HS codes 12 /10/8 ) , automobiles/ automobile components  ( HS code 87 )  , pharmaceuticals  ( HS code 30 ) ,  electrical and electronic equipment ( HS code 85) and iron & steel  ( HS code 73 ) .

4. What does India want ?   

As an aspiring global power,  India has every reason for maintaining good relations with all the countries in the world particularly with USA. India is not yet in the list of top five  trade -partners of USA and a bilateral trade agreement with USA  protecting the interests of both the nations is of importance for India . India has to adopt a three-pronged approach :

a) work out a mutually  acceptable tariff structure with USA,

b) protect national interests in the fields of agriculture , automobiles, pharmaceuticals and electrical /electronic equipment

c) Move towards balanced-trade ,

5. Mutually acceptable tariff structure

It is necessary that India and USA work out a mutually acceptable tariff structure for all the major items of trade irrespective of what USA is doing with other countries .  Since most of the items being supplied by India are also supplied  by other countries being subjected to a new tariff structure  , Indian products could still be competitive in USA at least for the time being .  However , what is important is a lasting solution which protects the overall interests of both the nations . India has prohibitively high tariffs for certain products and USA wants this matter to be re-examined for supplies from USA. In the overall interests , it may be necessary for India to make suitable adjustments .  Two critical areas are Agricultural products and automobiles. Import of aluminium and iron & steel from India could be a strategic choice for USA for reducing  its dependence on China.  Import of hydrocarbon from USA could help India to balance the trade.

5.1 Agricultural products

Agriculture is a strategic economic activity in most of the countries  and it is becoming less attractive for farmers for different reasons : difficult and strenuous job, higher labour cost , younger generation do not want to continue farming etc . Most of the nations would like to maintain the agricultural activities for ensuring food security to some extent and they give huge subsidies as incentives to the farmers . This is an important aspect to be considered while analysing agricultural trade because the subsidies mask the real cost . USA has been a net exporter of agricultural products during several decades and up to the year 2022 ( export 196.1 billion $ and import 194.1 billion $  in 2022 ) . In 2023 , USA became a net importer with import of 195.3 billion $ and export of 178.2 billion $. This trend continued in 2024 and is likely to be the case in 2025 also . USA would like to change the situation by persuading each major trade- partner to import more agricultural products from USA.  In 2024, US exported around 2.7 billion $ worth of agricultural products to India with a net deficit of around 2 billion $. India is one of the biggest importers of edible oil ( around 18 billion US$ ) in 2024  with US supplying only  for around 38 million $. It will be possible for USA and India to  examine a higher import of soyabean oil by India without affecting the soyabean farmers  in India .  Another product could be corn based ethanol ( import of 441 million $ in 2024 ).

6. Conclusion

6.1. The relation between India and USA has always remained transactional mainly because of  lack of trust . From India’s point of view , USA has always given undue consideration to Pakistan  whenever there was an issue between India and Pakistan probably because of the services rendered by Pakistan to USA . There is every reason to believe that the relation between India and USA will continue to be transactional

6.2. India has been having a trade surplus with USA during the last several years . Present US administration considers that US can not anymore accept such a situation and both the countries will have to work together for balancing the trade . It will be in mutual interest to work out a solution acceptable to both .

6.3. The fact that USA is imposing import duty on products from all the countries , Indian products are likely to be competitive in US market at least for the time being .

6.4. The US objective is to go in  a big way for “ Make in America “ and India will have to recognize this fact for doing business with USA.