Economic Highlights

New Delhi, 24 February 2025

US-India Trade

$120 b SURPLUS, NO DEFICIT

By Shivaji Sarkar 

India must proactively safeguard its interests in the face of potential US tariff actions by pursuing a dual strategy—reducing economic dependence on the US while pushing for its exit from the WTO. This shift could position India as a leader in the Global South’s decoupling from superpower economies, requiring a bold new vision and an aggressive expansion of trade networks. 

Meanwhile, shifting geopolitical dynamics demands close attention. As US President Donald Trump and Russian President Vladimir Putin grow closer, the implications for Ukraine could be significant, especially with Trump criticising Zelensky for avoiding elections. If US support wanes, can Ukraine hold its ground? NATO allies remain uncertain, grappling with questions about their future as the US economy teeters. With America’s moves growing more unpredictable, Europe faces an era of instability. 

The US is the 2nd largest goods exporter in the world, behind only China. The US goods exports to the world totaled $2.1 trillion in 2022, up 17.5 per cent ($307.3 billion) from 2021. It’s 8.5 per cent of the world’s total exports. It is the world’s largest economy by nominal GDP and second largest by purchasing power parity (PPP). As of 2024, it has the world’s sixth highest nominal GDP per capita and eighth highest GDP per capita by PPP. The U.S. accounted for 26 per cent of the global economy in 2023 in nominal terms, and about 15.5 per cent in PPP terms. 

In this scenario, keeping off the US may not be easy. It is extremely challenging for any developing nation to overlook the US even if President Donald Trump blatantly speaks of imposing of “reciprocal” tariff. It means unilaterally the US would impose high tariff and there is no scope for protest. Diplomatically it may be interpreted as intimidation. Worse, Trump says that a not so efficient one-engine F-35 single engine stealth fighter would be dumped because in his perception the trade balance is in favour of India. That is a myth. 

He even says that the Indian tax system itself is a high tariff barrier. The World Trade Organisation or its predecessor, GATT, empowers countries to protect their trade and business. But Trump even says that a uniform goods and services tax (GST) itself is a barrier. Indeed, Indian lawmakers may now realise that they were told not to enact the GST. The multiple and variant state sales and other taxes created a natural wall against trade intrusion. The GST pulled that down and now one-nation GST itself is the target. India has the option to go back. The policy planners may now be realising that a one-nation tax is not in the interest of India’s domestic trade and revenue realisation. Should such moves be considered an interference in internal affairs is a potent query. 

If Trump has his way, he would bulldoze the domestic economy of many countries for boosting profits of the US businesses. There is time till April 1 when Trump’s new tax proposal and reciprocity formula would be made public. India as a sovereign nation need not follow every dictat but it also has to mull. It can’t take a step that might flare up. 

Regarding trade deficits, the US consistently records deficits with several key trading partners. The largest deficit in goods is with China, which was about $279 billion in 2023, highlighting the US’s heavy reliance on Chinese manufactured goods. Mexico follows with a deficit of approximately $152 billion, primarily due to automotive parts and vehicles. Vietnam has also emerged as a significant contributor to the US trade deficit, with figures around $104 billion. 

In 2024, the US had a trade deficit of $45.7 billion with India, which was a 5.4 per cent increase from 2023. In 2024, the US exported $41.8 billion worth of goods to India, which was a 3.4 per cent increase from 2023. The US imported $87.4 billion worth of goods from India, which was a 4.5 per cent increase from 2023. From April to December 2024, the US had a merchandise trade deficit of $210.77 billion. Last year, the US goods and services deficit increased $133.5 billion, or 17 per cent, from 2023, according to the US.  

In 2023, the United States exported $36.33 billion in services to India. This was a trade surplus of $6.47 billion for the US, as India imported $29.86 billion in services during the same year. In 2024, the United States exported an estimated $32.66 billion worth of services to India in December, and $251.94 billion in the period from April to November. 

The US exports to India include machinery, nuclear reactors, and boilers: $3.29 billion, aircraft and spacecraft: $3 billion, electrical and electronic equipment: $2.21 billion, optical, photo, technical, and medical apparatus: $1.99 billion. The US goods trade deficit with India was $45.7 billion. On the contrary, during April to November 2024, the US had a services trade surplus of $119.48 billion with India. 

The US has been pressurising India even during the Joe Biden regime. In November 2024, India’s top imports from the US included petroleum, pearls, precious stones, coal, and electric machinery, mostly items that are available closer home at competitive prices. India is made to compromise to enhance the US interests. A developing country, India at best has nominal surplus. It should not have a hyped reaction from Trump. 

The U.S. has a surplus of services, meaning it exports more services than it imports globally. The U.S. trade-to-GDP ratio was 27 per cent in 2022, which is lower than the global average of 63 per cent. This means that compared to the average of all countries, the U.S. has a smaller proportion of its economy tied to international trade. A lower trade-to-GDP ratio is interpreted as the U.S. economy is more self-sufficient and relies less on imports and exports for its economic growth compared to other countries on average. 

India must recalibrate its approach, positioning itself as an economy grappling with multiple challenges and seeking global support. At the same time, it should push for WTO reforms, particularly revisiting the special and differential treatment clause to ensure fairer global trade. India must reclaim its leadership among developing nations, exposing the widening gap between the global rich and poor. It should also boldly assert that the US, with its trade surpluses, has a greater responsibility to extend concessions rather than demand them.---INFA 

(Copyright, India News & Feature Alliance)

Round The World

New Delhi, 28 February 2025

India-Ukraine-USA

Thinking the Impossible

By Dr. D.K. Giri

(Prof. NIIS Group of Institutions, Odisha) 

Donald Trump in his second term is moving and shaking things in international politics. On the eve of Trump’s resumption of office, Israel and Gaza truce took place resulting in a ceasefire and release of hostages and rebuilding of Gaza. After taking over as a President, Trump has swiftly moved to end the war in Ukraine. It was anticipated that Trump would pro-actively bring about a ceasefire in Ukraine. What is worrying the world is the manner in which he is doing it. His strategy and steps seem to disrupt the traditional alliance like NATO, disowning Ukraine to the point of betrayal, embracing Russia amounting to sleeping with the enemy. It is in order that we analyse the geo-political implication of Trump’s engagement in Ukrainian war, and its impact on India. 

First of all, Donald Trump dramatically as well as astonishingly bypassed Europe in his negotiation with Vladimir Putin, let alone the other party in the war, the Ukraine. Europeans consider Ukraine as the victim of blatant aggression by Russia. Isolating Europe is a conscious act undertaken by Donald Trump. His Vice-President JD Vance made an uncharacteristic, undiplomatic and worse, a scathing attack on European leadership in the Munich Security Conference. Trump did not distance himself from the speech made by his Vice-President. Trump has been asking Europe to foot the bill for NATO. In his negotiation with Putin, he left Europe out. It is another matter that European leadership is regrouping to respond to the Trumpian snub. 

The French President rushed to Washington to talk to Trump and transmit European feelings. He said that no peace deal should be concluded by making Ukraine fully surrender to Russia. Other European countries like Britain have increased their sanctions against Russia. The British generals have been advocating putting British boots in Ukraine to fight the war. The German Chancellor in waiting after last Sunday (23 February) elections Joachim-Fredrich Martin Joseph Merz has strongly responded to Trump’s policy on Ukraine and his leadership style. He said, “After Trump’s remarks last week… it is clear that his government does not care much about the fate of Europe”. What is more, he called for, “German Independence from the United States”. He added that it would be his “absolute priority” to strengthen Europe so it does not have to rely on Washington for its defence”. 

Remember, Germany is by far the strongest economy in Europe. Berlin somewhat assumes, along with France, the leadership of Europe, leading the European Union comprising 27 member states. Ironically, dumping of Europe by Trump may auger well for the European countries mainly the EU, as they should begin to build themselves as the third pillar of global political and security order. When the European Union completed the political integration after the commercial and economic harmonising, the EU had promised to promote a certain set of political values – human rights, freedom, diversity, integration etc. Without a formidable security apparatus, they were not able to do so.  Worse, under the American political security umbrella, the European countries continued to carry out brisk business regardless of human rights and liberty etc. 

How Europe would react to will determine the ensuing geo-political order. Unarguably, Donald Trump’s latest manoeuvre amounting to complete disruption has resulted in chaos and confusion. That is typical of unusual leadership of Donald Trump. Europe is going through internal churning. With its history of domination of the world, Europe cannot be brushed aside. Trump will commit a grave error by detaching from Europe. 

Ukraine seems to be left in the lurch. Europeans are rallying behind the embattled Ukraine. In the third anniversary of the bloody war, the European leaders and those from Canada landed in Kiev in solidarity with Ukraine. President of European Commission, the Executive Body of European Union, Ursula von der Leyen was also there who declared that Europe will provide the resources needed by Ukraine to fight the war. According to observers, Ukraine was led to the war by Americans and Europeans, now left alone while negotiating a deal. Ukraine is protesting against being thrown under the bus by the Americans. Perhaps Ukraine should have read the famous lines of Henry Kissinger, the Secretary of State in the govt of President Richard Nixon, “To be an enemy of United States is dangerous, but to be a friend of USA is fatal.” To look at the brighter picture, Donald Trump is focused on ending the war. It may not be in line with the Ukrainian expectation. But the end of bloodshed is a good thing to live with. Trump seems to focus on end not the means. 

As said before, Europe’s reaction to a deal between America and Russia is important. If, under American ‘betrayal’ and European solidarity, Ukraine does not agree to the peace deal and continues to fight that will show Trump in a bad light. It is inconceivable that America will support Russia in the war. May be not, one can think the impossible under Donald Trump’s administration. Another possible interpretation is that Trump may be obliging Russians and winning their confidence through his statements and support in the United Nations. Calling Russia an aggressor is just use of a term. Getting Moscow to agree to end the war is what counts. Trump is calling out Zelenskyy as dictator, sub-par comedian and what not. These may be confidence tricks with Russians. 

Trump likes to confuse his counterparts by making startling statements. Then he would do what he likes to and allow the things to settle down for business as usual. He is doing the same with India. He calls Indian Prime Minister great friend, a good negotiator, hard working for his (Modi’s) country. Yet, he calls India the biggest tariff imposer. He arm twists India to buy weapons from USA. At the same time, he promises to raise India-America trade to 500b USD upto 2030. So it is difficult to decipher Trump’s statements. 

What is, however, certain is that Trump’s approach to Ukrainian war should eventually help India. Trump is trying to decouple Russia from China. If that happens, China will be left alone in challenging United States for respective spheres of influence. Xi Jinping has a confrontational attitude. On the other hand, Trump had declared China as the main strategic rival. If China is weakened, having been deprived of its biggest ally Russia, Beijing will cease to be aggressive towards its neighbours. That will be good for India. India has not become a close ally yet of America and it stands by its friendship with Russia. So, may be unconsciously, Trump’s actions are leading to a convergence between India and America on Ukraine. That is a good development for India. ---INFA 

(Copyright, India News & Feature Alliance)

REWIND

New Delhi, 27 February 2025

Fresh Look At Indo-US Ties

By Inder Jit 

(Released on 11 December 1984) 

The poll battle is hotting up. Salvoes are being fired from both sides. Nevertheless, normal life and work must go on. New Delhi has consequently been taking a fresh look at international relations, especially those with the US. The initiative for this has come from Washington. Top American leaders appear anxious to woo Mr Rajiv Gandhi and try to open a new and happier chapter in Indo-US relations. Initially, Mr George Shultz, US Secretary of State, broached the subject when he visited New Delhi following Indira Gandhi’s assassination and talked politics, unlike Mrs Margaret Thatcher, who kept her call on Mr Gandhi strictly personal. Subsequently, the visit was followed first by Senator Clairbone Pell and then by a four-member Senators’ delegation led by Mr Sam Nunn. All of them had only one message. The US strongly supports “a united independent and prosperous India” --- and earnestly desires to strengthen Indo-US friendship and mutual cooperation. 

From all accounts, Mr Shultz and the Senators who followed him went back satisfied. Their talk with Mr Gandhi was warm, cordial and open. Senators Nunn, Glenn and Johnston were particularly pleased to find Mr Gandhi pragmatic and modern in his approach and outlook. America appears willing to extend its best help and cooperation to India, especially in the field of technology so long as it is assured of a fair deal and does not have to work under the threat of socialisation or nationalisation, directly or indirectly. They even urged Mr Gandhi to go in more for free enterprise and a policy of de-socialisation. Mr Gandhi assured them that he was interested mainly in results. Free enterprise had already been assigned an important role in India’s development. He was willing to consider any proposition so long as it subserved the best national interest. He did not accept the suggestion for a policy of “de-socialisation”. But he said enough to indicate that he is no prisoner of any ism and wants time-bound results from the public sector too. 

India and the US should normally have been the best of friends. Both are democracies and committed deeply to fundamental freedoms. Prior to 1947, President Roosevelt played a crucial role in helping India and other British colonies win independence. Yet, things have not gone off well between the two countries, thanks mainly to the difference in their perceptions in regard to the Soviet Union and Washington’s obsession with communism. The US continues to view the Soviet Union as the greatest threat to peace and security and its way of life. Consequently, it evolved during the time of John Foster Dulles a policy of containment of communism through a ring of military bases around the Soviet Union. India was approached to join the military pacts. But Nehru firmly turned down any question of joining a military bloc -- and came forward with his own policy of non-alignment, a projection of India’s sovereignty at home to sovereignty abroad. Matters worsened when in sharp contrast Pakistan became America’s military ally---and Dulles denounced non-alignment as “immoral”.  

New Delhi’s relations with Washington hit its lowest when America backed Pakistan on Kashmir at the UN. New Delhi was forced to fall back on Moscow, which is now seen as a true friend in need --- both in regard to Kashmir and the 1971 war. Indeed, Kashmir and Pakistan still largely determine India’s foreign policy. Few in New Delhi today care to recall that in 1962 it was Washington which gave India timely help against China, not Moscow. India was then only a friend to the Soviet Union and China an ally! Alas, the misunderstanding has been deepened by the developments in Afghanistan, even when the Soviet occupation of the country goes against India’s interests. (Nehru held the firm view that India’s security frontier lay along the Oxus.) New Delhi viewed the Soviet action as constituting a new threat to the sub-continent. But the US decision to rush military aid to Pakistan without a word with New Delhi instantly changed the situation. A threat to the sub-continent was transformed overnight into a renewed threat to India from Pakistan. 

India continues to be strongly opposed to renewed military aid to Pakistan and, more especially, to the supply of the deadly F-16s and, possibly, of AWACS. Mr Gandhi made this abundantly clear to Mr Shultz as also to the Senators -- a view followed up by the Prime Minister’s top aides at their meetings with the visiting VVIPs. Mr Gandhi also conveyed to the US Secretary of State India’s concern over Pakistan’s nuclear plans. New Delhi is convinced that Pakistan is going ahead with its plans to build an “Islamic Bomb”, notwithstanding President Zia’s repeated denials and the noises made in Washington. In fact, one top expert even told the Senators that unless Washington woke up to this harsh reality, it would face the biggest ever problem of nuclear proliferation, notwithstanding dedicated efforts by Senators Glenn, Cranston and others. Islamabad, according to the expert, will be able to produce the “bomb” before very long and then sell it to the Arab world as the “Islamic Bomb”. Pakistan and Gen Zia would stand greatly to gain. But the world would be pushed closer to the brink of nuclear disaster. 

Tragically, President Reagan and his administration fail to see reason and good sense behind New Delhi’s stand and continue to miss out on India’s psyche and basic approach. Washington does not still view its aid to Pakistan as constituting a threat to India. It insists (as did the Senators) that its decision to rearm Pakistan is vital from the viewpoint of containing the Soviet Union. The Senators even argued --- as did John Foster Dulles in the early 1950s --- that the military aid being pumped into Pakistan is in the larger interests of India and the sub-continent. But in doing so they ignore the fact that the rearming of Pakistan is no answer either to the Soviet occupation of Afghanistan or to the containment of communism. All the aid that is being poured into Pakistan cannot possibly stop the Soviets militarily. But the aid has further bedevilled relations between India and Pakistan and prevented New Delhi from putting its head together with Islamabad to meet the threat to the sub-continent. 

New Delhi impressed on the Senators its view that Gen Zia is using Afghanistan for his own purposes and is, indeed, taking Washington for a ride. Nothing suits the General more than massive US military aid in the context of his plans to perpetuate himself in power --- plans since further confirmed by his farcical offer of a referendum which amounts to bluntly saying: “Heads I win, tails I win!” Senators, for their part, argued that India had no reason to fear Pakistan. India would be militarily superior even after all the promised aid was given. However, they were told that India’s military superiority was not new. It had proved itself superior initially in 1947 and again in 1964, 1965 and 1971. Nevertheless, this had not made Pakistan see reason and desist from repeated military adventures. These had cost India heavily and deflected it from its primary task of development and of banishing poverty. In fact, the Senators were candidly told that the recent riots in Delhi had underlined the need to step up the fight against poverty. They were marked by an attack by the have nots on the haves – the first shots in a class war.  

Much of the trouble stems from the fact that the US does not appear to be clear about the best way of getting the Soviet Union out of Afghanistan. Washington has advisedly ruled out military action. The answer lies in a political solution. India alone is in a position to play a useful role and provide the two Super Powers a meaningful channel of communication and dialogue. Yet, the US has not thought it fit to persuade itself and Pakistan to involve India in the exercise. New Delhi is clear that talks for a solution of the Afghan imbroglio have to be held not only with the Soviet leaders but also with the Afghan Government. True, this would amount to a recognition of the Babrak Karmal regime. But then New Delhi asks: Did not Washington recognise Red China when it decided to talk to Beijing? Did Sadaat not deal directly with Israel? New Delhi is also opposed to continued aid to the Mujahideen and feels it would only end up in turning Afghanistan into another Sovietised Mongolia, as amply indicated by Brezhnev to Indira Gandhi during his visit to New Delhi in December 1980.  

The Reagan administration needs to be clear on certain fundamentals vis-a-vis India, the sub-continent and the region. Washington cannot talk of greater friendship and a new chapter in mutual relations even as it plays politics in India’s backyard and ignores this country’s vital interests. India has as great a stake as Pakistan or the US in getting the Russian Bear only to drink the waters of the Oxus and not of the Indus or the Arabian Sea. The US also needs to take cognisance of the fact that its policy of rearming Pakistan is only pushing India more and more into the Soviet arms, as during the early 50s. (Where else does India get matching or superior aircraft or military hardware?) What is more, this policy is encouraging Pakistan to create trouble in Punjab through the extremists. The US administration also needs to understand that India is strong enough to deal with the extremists. Pakistan, too, has to be made to appreciate this. India may have its plate overfull. But it has, once again, showed its remarkable capacity to meet challenges as shown by Mr Rajiv Gandhi’s peaceful elevation to the office of Prime Minister.  

New Delhi has made it clear to the visiting Senators that India has no designs on Pakistan and, contrary to what Islamabad might say, is genuinely interested in seeing it strong and stable. India seeks nothing but peace and stability in the sub-continent. Washington’s interest lies in pursuing a policy which will strengthen peace and stability in the sub-continent. It can do so best by recognising India’s position and in making it an anchor of stability and development in the region. It must recognise that the more it diverts India from its primary task of development the more it strengthens the forces of destabilisation. Importantly, it appreciates India’s position in the region. Ironically, however, it builds up Pakistan as a bulwark. Mr Shultz assured Mr Gandhi that the US viewed India with “sympathy and understanding” and stood for “a stable and prosperous India”. The assurance will have meaning only if Washington corrects its perspectives, perceptions and priorities. New Delhi will judge Washington not by its professions but by its actions. --INFA 

(Copyright, India News & Feature Alliance)

Open Forum

New Delhi, 26 February 2025

Favouring Middle Class

AGAINST DEVELOPMENT?    

By Dhurjati Mukherjee 

Most governments have been favouring the middle class, and the present dispensation too has done so in the recent budget. However, it needs to be pointed out that this class is heterogeneous, classified by different occupations, education and income levels. The most important thing that needs to be understood is that the middle class cannot be considered as one unit as there is a wide difference in the income levels of the upper section and the lower section of this group. 

It is believed that the middle class represents a sizable consumer market for both domestic and global businesses. The economic potential of the middle class only became a major phenomenon in the 21st century when it started to attract attention for its potential to drive global consumption. India’s contemporary middle class is more multi-dimensional with economic growth since the 2000s spawning the formation of multiple middle classes -- an ‘old’ or established middle class and an emerging ‘new’ middle class, a section of which are very much near to the rich. 

A section of this class also faces challenges such as increasing joblessness, underemployment, business failures and potential social unrest. Delving into the past, India’s middle class first emerged in the early 19th century, when the British policies gave rise to a small group of educated, upper caste, English-speaking Indian elite. 

According to rough estimates, just 6.6 crore Indians are middle class today. Most Indians earning $3-10 dollars a day may fit this broad profile. Well known economist, Thomas Piketty and his Indian collaborators, recently labelled this group as the middle 40 per cent, those between the top 10 per cent and the bottom 50 per cent in income terms. But the 40 per cent may be divided by the upper middle class constituting around 12 per cent and the rest belonging to the lower middle class. 

The wide variation of income within India’s middle class yields a substantial diversity in spending patterns. The lower rungs of the middle class spend much of their income on private healthcare and education, essential consumables but very few have money left for purchase of assets such as motorbikes and basic household appliances. However, it is only the upper rung that can afford to spend a part of their income not only on private healthcare and quality education but also discretionary goods, entertainment, property and personal services. The upper middle class is more likely to own assets such as cars, computers, air conditioners and washing machines. 

The recent justification of raising the income limit to Rs 12 lakh from the next financial year – which, in effect, comes to Rs 12.75 lakh (Rs 75,000 being standard deduction) -- to enhance consumption expenditure may not, however, be applicable to the whole group but to only the upper middle-income sections. A section of economists is of the opinion that this measure may not help in invigorating the economy as the reduced tax collection may hamper developmental expenditure, which could have improved the conditions of the lower echelons of society. 

A person earning over Rs 1 lakh per month cannot be out of the tax net as, in reality, his or her actual income may be much more. The other income, specially in the case of doctors, is by cash which is not shown in the Income Tax file. In a country like India, where developmental expenditure is huge, revenue generation must be boosted up. But it is unfortunate that there is no super rich tax in India, as suggested by agencies such as Oxfam, or an inheritance tax, which is there is most countries of the world.    

It needs to be pointed out here that the financial crunch has engulfed the states which have very little expenditure left for developmental purposes. With the new tax regime, estimates varying between Rs 2 to 3 lakh crore would be lost as around a huge number of people will not be paying taxes. Thus, the share of revenue for the states would further decline, leading to huge curtailment of development expenditure.    

Favouring the middle class has been a tenet with political parties and politicians, who must adapt to the old vote banks of caste and religion into micro-identities and coalesce into unpredictable social formations. Keeping in view the total middle class, there is a tendency to ensure all sorts of favour to this section. Though it would not benefit a big number, the 8^th Pay Commission would further increase that pay scales of Central government employees and put pressure on the state governments to revise the pay structure of their employees. 

This widens the income inequality between the urban and the rural populations – government employees, on the one hand and unorganised sector workers, farmers and small shop owners, on the other. The chances of a hike in the minimum wage for farmers are remote and also a revision in the commodity prices so that big farmers may have enough to pay their farmhands. Economists have predicted that farmers in agri-based economies like India have for long been subsidising the urban middle class. 

Note that in different parts of Central India, soybeans are presently selling at Rs 3800-Rs 4000 per quintal, way below its minimum support price of Rs 4892 per quintal, pushing farmers’ incomes significantly down. In fact, soybean prices are what they were in 2014 whereas the salary of a middle-class salaried person has increased by around 25 per cent at the least. No wonder then that outstanding crop loan of farmers stood at nearly Rs 35 lakh crore in the country as of March 2024 with Maharashtra leading with over Rs 7 lakh crore. 

In view of the policies of pampering the middle-income sections, the economically weaker sections and low-income groups are being left behind and do not gain in any way. Even with rising costs, a big percentage of the middle class whose annual income is around Rs 5-6 lakh a year also do not benefit in any way. 

If infrastructure development needs to be intensified, resource generation must be geared in a bigger way. It is strange why the government does not want to impose a one per cent tax on the super-rich, say for funding rural schools and health centres, which are in a dilapidated condition, and transferring the entire amount to say 40 to 50 schools and health centres in every state. Added to this, the incomes of professionals like doctors, engineers and architects, not to speak of developers and builders should be strictly monitored and, if necessary, a special cell should be created in the IT department. A clearer picture would help the government to make an informed decision and refrain from going all out to woo the voter.  ---INFA

(Copyright, India News & Feature Alliance)