India-US Growing Trade Relations

India-US Growing Trade Relations

Main Examination: General Studies Paper 2

(International Relations)

July 06, 2023

Foreword:

• India-US bilateral trade has grown rapidly in recent years. India and America, the world's two largest democratic economies, are partners in building a prosperous, free, fair and rule-based global economic order. Indo-US relations have been driven from time to time by the government, the private sector and society.

Trade Relations Between India and America:

• America has become India's largest trading partner in 2021-22 by overtaking China. Prior to this, from 2013-14 to 2017-18 and in 2020-21, China and before that UAE was India's largest trading partner.
• India's total exports to reach a record $418 billion in 2021-22, about five per cent higher than the government's target and 40 per cent higher than the previous year. Bilateral trade between India and the US is set to increase by 7.7 per cent to $128.6 billion in 2022-23 from $119.5 billion in 2021-22.
• The US is India's major export partner with a share of around 18 per cent. Exports from India to the US were to increase by 2.8 per cent to USD 78.3 billion in the year 2022-23 as against USD 76.2 billion in the year 2021-22, while imports increased by almost 16 per cent to USD 50.2 billion. In 2021-22, India has a favorable trade balance of $32.8 billion with total exports at $76.2 billion and imports at $43.3 billion.
• Bilateral trade between India and the US increased from $20 billion in 2000 to $142 billion in 2018 with a cumulative growth rate of 11.5 percent. During this period, there was a cumulative growth rate of 13.4 percent in service trade and 10.6 percent in goods trade. Since 2000, bilateral trade in services has grown at a very fast pace, from just $6 billion in 2000 to $54.6 billion in 2018 with a cumulative growth rate of 13.1 per cent. In this, India's export of services to America was $28.8 billion and India's import of services from America was $25.8 billion. During the year 2018, trade in services increased to $54.6 billion.
• According to the Foreign Direct Investment (FDI) data released by the Government of India, the US is the sixth largest source of FDI in India. Cumulative FDI inflows from the US during April 2000 to June 2019 were $27 billion, which is 6 per cent of total FDI in India. According to a report released by the Confederation of Indian Industry, as of 2018, US FDI in India amounted to $46 billion, while Indian FDI in the US stood at $13.7 billion.

Reasons for improvement in India-US trade relation:

• Growing Trust and Cooperation: Bilateral trade with the US has increased due to increased cooperation in various fields.
• Trade growth is expected to continue in the coming years as New Delhi and Washington seek to strengthen economic ties.
• Alternative to China: India is emerging as a reliable trading partner and global trading companies are reducing their dependence on China for their supplies and diversifying business to other countries like India.
• Vast Potential of the Indian Economy: India is the fastest growing market economy with a unique demographic dividend and offers vast opportunities for US and Indian business companies for technology transfer, manufacturing, trade and investment.

Significance:

• Indo-US bilateral economic relations can play an important role in India becoming the third largest economy in the world.
• India is on its way from a current account deficit economy to an export-oriented economy, in which India-US bilateral trade can help.
• India and US are emerging as a global strategic partner in terms of trade relations. This partnership is based on democratic values and mutual interest on bilateral, regional and global issues. Despite the global crisis, bilateral cooperation and partnership have increased in a wide range of areas including defence, security, health, trade, economic, science and technology, energy and civil relations.
• India has emerged as a reliable trading partner and global companies are diversifying their business to countries like India by reducing their dependence on China. India-US bilateral trade and investment ties have a lot of potential since the trade war between China and the US.
• India is involved in the US initiative to set up the Indo-Pacific Economic Framework, which will help strengthen bilateral economic ties.
• India-US bilateral partnership covers a wide range of issues including economic recovery, climate crisis and sustainable development, critical and emerging technologies, supply chain, resilience, education, diaspora, defense and security. India-US united to reform debt restructuring process and advance multilateral development bank development agenda. Both countries recognize the potential of 'Digital Public Infrastructure' in enabling an open and inclusive digital economy.

• Both countries feel the need of extensive efforts to promote inclusive growth, promote competitive markets and protect individual rights, and strengthen multilateral development banks to address common global challenges of the 21st century, including climate change, pandemics, wars, and cross-border challenges.
• Both countries to take action through greater partnership and technical cooperation to create resilient supply chains for emerging technologies, clean energy technologies and medicines; promoting the innovative digital economy; Committed to reducing barriers to trade and investment.
• Export-oriented sectors such as pharmaceuticals, textiles and agricultural products in India have been affected due to the US withdrawing duty-free benefits to Indian exporters from June 2019 by withdrawing exemptions from the Generalized System of Preferences.
• The reconstituted India-US Trade Policy Forum will enhance bilateral trade relations by addressing trade concerns and identifying areas of potential.
• The Business Dialogue will promote the role of MSMEs in bilateral trade by recognizing the role of Micro, Small and Medium Enterprises (MSMEs).

Conclusions:

• India-US economic and trade partnership will prove to be the engine of global growth. By 2023, bilateral trade will almost double from 2014. There are also differences between India and the US due to different levels of development and different priorities, mutual interests and expectations, but the broad interests outweigh the minor bottlenecks. America sees protectionist tendencies in the 'Self-reliant India' campaign.
• There is immense potential in the digital economy, services, health-related business and agribusiness. India has reduced FDI barriers to increase investment, there is scope for further cooperation in the defense sector. In the current era of global challenges, the Indo-US bilateral economic and trade partnership has to live up to the expectations of India and America as well as international.

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Mains Exam Question

At present, there has been an increase in trade relations between India and America, explain.