US-India Relations: A Test Case for the Sullivan Doctrine

of Indian Prime Minister Narendra Modi state visit to the US last week provided a venue for the two countries to deepen their relationship at a time of heightened tensions with Russia and China. This is because economic ties have increased over the past decade as India has opened up its economy and US companies have made significant direct investments there.

India has overtaken China as the the most populous country in the world and has one of the youngest populations in the world. India’s economic growth recently surpassed China and India is now the fifth largest economy in the world, and may become the third longest at the end of the decade.

Behind these developments is a new sense of dynamism that has turned India’s former skeptics to optimists. In fact, the billionaire investor Ray Dalio Career with Modi that “India’s time has come.”

Journalist Fareed Zakaria quotes three revolutions they are transforming India. The first is a government initiative called adharwhich gives every Indian a 12-digit identification number that is verifiable and allows you to set up a protected bank account in minutes.

The second is the revolution started by business tycoon Mukesh Ambani who offers very cheap phones and data packages through his telecom service provider Jio. Today, half the population of India has access to the Internet.

The third is a infrastructure constructiont in which public spending has quintupled since 2014 and is resulting in improvements to roads, airports, trains and other projects.

So how could the US increase ties with India?

To begin with, it is important to appreciate how far India has come since it gained independence in 1947. Indian politicians pursued import substitution policies then because they did not want to be at the service of foreigners.

The policies included setting high tariff barriers to discourage imports while requiring manufacturers to obtain import licenses to conserve scarce foreign exchange. In the process, the Indian economy averaged only 3.5 percent average annual growth in the first three decades after independence.

In the 1990s, the Indian economy began to open to trade and foreign investment amid the collapse of the Soviet Union and its own internal problems. Trade liberalization included drastically lowering tariff rates, removing licensing controls, and floating the exchange rate. Although India initially lacked the means to increase exports rapidly, the technological revolution coupled with the liberalization of the economy has produced visible results.

The most notable changes occurred in the last decade as the Modi government tackled some pressing issues. Among the major catalysts for change are that India has become a hub for global software development, and is now prominent in technology, pharmaceuticals and steel, among other industries.

According to the Wall Street Journal, Modi’s vision for India is based on six giant conglomerates who have the ability to raise vast amounts of capital and navigate India’s entrenched bureaucracy.

Recognizing these achievements, the US Council on Foreign Relations believes that improving trade relations is the best way to strengthen ties. While the US is India’s largest trading partner, with two-way trade topping $190 billion last year, there are significant barriers to trade on both sides.

One challenge is that the two countries disagree on some key international economic issues. For example, India’s Minister of Energy and Renewable Energy, Raj Kumar Singh, has criticized the Biden administration’s climate initiative, the Cut Inflation Act, on the grounds that it disadvantages developing countries that cannot subsidize their own transition to green energy. India has also excluded of the business pillar of the Indo-Pacific Economic Framework, which is the flagship business initiative of the Biden administration.

However, the Council sees several ways the US can improve trade relations. They include the lifting of tariffs on steel and aluminum that were imposed for national security reasons during the Trump presidency, as well as the renewal of the Status of the Generalized System of Preferences (SGP) for India which was removed then.

But the council also maintains that the relationship must be reciprocal and that the United States should pressure Modi to adhere to democratic principles amid signs of backsliding. In this sense, he sees the outcome of Modi’s visit as a litmus test for a “values-based US trade policy.”

India also poses a test of how National Security Adviser Jake Sullivan’s vision of international trade could be implemented. In an April speech at the Brookings Institution, Sullivan argued that the “Washington Consensus” that favored free trade and globalization should be replaced by a new consensus that “invests in the sources of our own economic and technological strength.”

For the journalist of the Financial Times edward lightHowever, Sullivan’s vision represents a loss of faith in economic multilateralism. He observes: “The old consensus was a positive sum game; if one country gets richer, others do too. The new one is zero sum; The growth of one country occurs at the expense of that of another.

My view is that the rejection of free trade in favor of industrial policies dismisses the gains from the mid-1980s to 2007, when globalization served as a launching pad for developing economies to lift themselves out of poverty through growth. driven by exports and increased foreign investment.

President Biden’s proposal to Modi is expected to mark a new phase in the deepening and broadening of US-India relations. While India has a long-standing non-aligned status, Russia’s overtures to China should encourage India to reach out to the US as US multinationals look to diversify their supply chains out of China. As the Wall Street Journal points out, Big offers for jet engines and chips during Modi’s visit are a promising start.

However, for the ties to be lasting, the mutual political and economic interests of the two countries must continue to expand as India becomes more prominent globally.

Nicholas Sargen, Ph.D., is an economic consultant with Fort Washington Investment Advisors and is affiliated with the Darden School of Business at the University of Virginia. He is the author of three books, including “Global Shocks: An Investment Guide for Turbulent Markets.”