Riding a bumpy road to economic partnership

As the shine begins to wear off PM Modi's much-talked-about US visit in June 2016, a foreign policy expert from the Washington DC based Centre for Strategic & International Studies analyses the scenario beyond small but important goals achieved so far. Prime Minister Narendra Modi's June visit to Washington DC was meant to put a capstone on what has been a close and productive relationship with President Barack Obama and to 'lock in' the gains of the past two years as the American presidential transition approaches. The visit, particularly Modi's well-received address to the US Congress, went off without a hitch. But six weeks later the glow has dissipated somewhat; the achievements of the visit have faded and the stress points in the relationship are clearer. Modi's visit casts into relief the central question of current US-India relations: can ever-closer security ties sustain the development of the relationship in the absence of common ground on economic issues The gap between the economic and defence/strategic areas of the US-India relationship was clear from the Joint Statement issued following Modi and Obama's meeting. While the statement marked substantive deliverables in the areas of maritime security, joint cooperation in the Indo-Pacific region, disaster relief, and defence sales, it was far weaker outside the security arena. The highest-profile non-security item was the announcement that Westinghouse would begin preliminary work on building a six-reactor nuclear power plant in Andhra Pradesh. Observers in both the US and India have long hoped that the US-India Civil Nuclear Agreement would lead to a robust civil nuclear trade between India and the US. But India's harsh nuclear liability law has for years kept US. manufacturers from entering the market. Westinghouse's decision to go forward is thus an important vote of confidence-but the Joint Statement made clear that no contract has been signed, and legal issues may still prevent the plant from ever being built. Modi's visit failed to push forward a number of other important trade-related initiatives. There was no mention of negotiations towards a Bilateral Investment Treaty (BIT) in the 2016 Joint Statement, despite the commitment to work towards a “high-standard” BIT in the January 2015 Joint Statement. Both India and the US have since revised the text of their standard BITs, driving them even further apart on this issue. The statement dwelt on US support for India's attempt to gain membership in the Nuclear Suppliers' Group and the United Nations Security Council, but the US offered only token support for India's quest to join APEC, a trade-oriented grouping where India's mercantilist tendencies would not be welcome. Recent success in the US-India security relationship is the result of relatively small steps backed by strong strategic good will. The Modi administration, perhaps inspired by concerns over China's rise, has proved willing to re-think India's national interest and to reject old foreign-policy orthodoxies, such as the rigid adherence to non-alignment. The US, for its part, sees India as a natural security partner in Asia and a possible counterweight to China's power. The excitement surrounding this strategic convergence has allowed bureaucrats on both sides to work patiently towards small but important goals. It is unclear whether the US and India can generate the same reservoir of goodwill to overcome bumps in the road to economic partnership. Bilateral US-India trade, at roughly $100 billion a year, doesn't yet generate its own momentum; furthermore, it's down slightly this year (albeit amidst a global trade slowdown). The Modi administration is reluctant to open India fully to trade, but at the same time envisions India as the world's next great export powerhouse. In short, it seeks to follow the path that China has forged-a path that has led to huge trade deficits for China's trading partners, and deep ill-will within the US. The two sides will have to work hard to avoid building a one-sided relationship.

Sarah Watson is an associate fellow in the Wadhwani Chair in US-India Policy Studies at the Centre for Strategic & International Studies (CSIS), where she focuses on India's economic and foreign policy.