Economic Highlights

New Delhi, 2 March 2020

Trump In India

HIS VICTORY TO REAP BENEFITS?

By Shivaji Sarkar

The visit of US President Donald Trump would be remembered for the huge business that India has given him to revive the American economy as well help him in his election for a second term. On the other hand, India gains an international brand image it has created, thanks to Prime Minister Narendra Modi. The head of the most powerful nation, Trump, is obliged to come to his friend, Modi, helping him swell political support at home. This is a reversal of what Indian leaders used to do till some time back by showcasing their gains in a foreign country.

Trump has changed that dynamics. He has shown to his countrymen that India matters for changing the course of the US (world!) economy. The $3 billion arms’ deal with India is a large sum to help the US economy, sagging because of the trade war and other domestic issues. In fact, Trump made the right noises for his home audience. Trade remains crucial for him. He harped on his pet peeves like India’s high tariffs, Harley Davidson and others that help his farmer and industry friends.

Does it not affect India? Possibly not. Such deals have many an unsaid part. The political dispensation understands that re-election of a friend has its import. Post-poll many negotiations are possible to reap benefits. That’s a diplomatic risk for creating the right balance between protection and global engagement. This is a precursor to foreign investment.

The American concern for striking the defence deal has its ramifications in its engagement in the Indian subcontinent as also its eagerness to reduce its involvement in Afghanistan. He has carefully improved his relationship with Pakistan and said so at the Motera stadium ‘Namaste Trump’ rally in Ahmedabad. Trump did not mind calling his relation with Pakistan as “a very good one”. The US has also struck a deal with Taliban, its own creation over 30 years back. It may usher in a new kind of diplomacy and ties in the region.

Trump goes satisfied with the copter deal. India is happy with the highly agile sophisticated choppers that apparently give it supremacy over its neighbours.  However, India cannot be a mere buyer. It needs transfer of technology and co-production facilitation so that it can be a hub for Asia and Africa.  It needs defence technology and trade capabilities to suit the country’s strategic convergences. It is having relationships with other powers and needs to strengthen those alliances for a congenial atmosphere in the subcontinent.

On terrorism his assertion “working on a positive way with Pakistan” may be a way to read that the US is pressurising Pakistan to smoothen its gradual exit from Afghanistan as it is causing a heavy drain on its resources. A void is emerging and India has to be circumspect and gird up to counter any design of its western neighbours.

It also has to make up with the Democrats, who control the House, so that the benefit that has been edged out of Trump is not seen as partisan. Balancing the relationship with other political entities in the US is an equal need to ensure that it is accepted as an American deal. That is how the US industry would perceive. In diplomacy, different formations have to be on board so that whosoever sees appears beneficial to it. Leaders matter in international issues but a country has to move pragmatically.

Trump has sought lifting of caps on foreign investment and for making rules more “transparent” and lowering tariffs to get market access in India. No future US leader could budge from it. That is the challenge the Indian leadership would have. Even the ruling BJP has to take care of its own in-house allies such as the Swadeshi Jagaran Manch (SJM). Under the SJM pressure, the NDA government withdrew from the RCEP causing some unhappiness among ASEAN countries.

India has its concern too. Its economy is at a plateau and even Moody’s predict that the growth in 2020-21 would be “shallow” and “slower” around 5.4 per cent. This is less than the budgetary projection.

Then there are noises also about high repatriation of profits abroad. It is not easy for the NDA government to open up to Trump’s demands. It could be understood as Trump’s election rhetoric but the successive US rulers of any colour would harp on it.

Trump is looking at the 4 million Indian American constituency as well as wants to show that he has won jobs back home. That would be pressure on any US leader after the November election.

India has its problems. It is aiming at creating a $5 trillion economy. It is not easy. Inflation is inching at a higher level and growth is not matching it. It is pressurising the rupee against the dollar. If it yields more benefits to the US economy, it can help the US increase its imports but put severe pressure on Indian economy. The demanded freer entry of US farm goods and other products may hit India’s own critical domestic production.

Its negative impact will be on the rupee and many other aspects. If the US inflation increases, may be up to 7.5 per cent, as World Bank former Chief Economist Kaushik Basu says, then only or if India achieves a growth of 10.5 per cent it can sprint to its goal. Both are unlikely.

So what Trump says a defining partnership of the 21^st century extends beyond defence to oil and natural gas. It gives India energy security and adds $10 billion to the US economy.

More deals from the US are guaranteed as the US wants to create an alternative to its ties with China. Trump emphasised how large a volume of trade he has with India. For Modi, who is trying to liberate Indian economy from its Nehruvian shadow of protectionism, it is a challenge to make it as large as the largest world economy – the US. India has to chart out strategically conceding a little at times but trying to grab the major chunk.

Diplomacy has become more subtle, competitive, noisy and nosy. India has done well in the past five years. Modi liberates the economy and can lead it in world trade. Whatever Trump has added is a new facet and India can steal the show in the coming years if it can live up to competition.---INFA

(Copyright, India News & Feature Alliance)