What Obama Can Offer in India
by C. Fred Bergsten, Peterson Institute for International Economics
and Arvind Subramanian, Peterson Institute for International Economics
Op-ed in the Washington Post
October 29, 2010
© Washington Post
President Obama travels to India next week for the longest visit to a foreign country of his presidency. His goal is to strengthen India-US cooperation, but standing between the recent heady past and a future full of promise is a highly problematic present.
Last year, the United States and India concluded a landmark nuclear agreement, setting a bar for cooperation that is proving difficult to match. George W. Bush and the neoconservatives, who initiated discussions on this agreement in 2005, felt a visceral affinity for India as a vibrant democracy and as a strategic counterweight to China. But this administration has other priorities and a different worldview. Moreover, it has no Indophiles (no Condoleezza Rice or Robert Blackwill) to emphasize India's importance.
The future of cooperation is bright, nevertheless, because both countries have strong and fundamental commitments to democracy and open societies. This is manifest in growing people-to-people links between the two countries. The Indian economy, which will soon overtake Japan's to become the world's third largest in purchasing power, only adds to the allure of cooperation. And dealing with a rising China will remain a shared concern.
But current realities are another matter. Shared long-term goals in battling terrorism and bringing stability to Afghanistan and Pakistan quickly give way to sharp differences on tactics and short-term actions.
On trade, India is increasingly alarmed by bipartisan congressional willingness to erect barriers to Indian skilled labor and outsourcing without even a whiff of protest from the Obama administration. It senses what Montek Ahluwalia, a leading Indian policymaker, calls an "intellectual climate change" in US attitudes toward globalization.
For its part, India is deterring US investors with a series of policy actions, impeding the closer ties that could come through US companies' participation in Indian economic dynamism. India has passed legislation creating what seems to be open-ended liability for potential suppliers of nuclear equipment (General Electric, for example). An old case stemming from the deadly 1984 accident at a Union Carbide plant in Bhopal (now owned by Dow) that was considered settled in 1989 may be reopened. American investors are reevaluating whether India, despite its rapid economic growth, is friendly to investors and property rights.
Some cooperation is possible in the short run: India, which is also affected by China's undervalued currency, could join with the United States to seek a multilateral solution. India could also find ways to ensure that US firms get a large share of its nuclear and defense equipment purchases. In return, the United States could push for India's inclusion in broader Asia-Pacific economic arrangements, beginning with the Asia-Pacific Economic Cooperation forum.
But the dilemma for the two governments is how to keep the embers of the relationship glowing so that its future promise can be realized, even if political constraints will not permit aggressive actions now. One possibility would be to announce objectives that are ambitious enough to differentiate this relationship from others even if they cannot be met soon. These goals could guide the preparatory work for subsequent discussions.
Two objectives in particular might be worthy of public embrace: a permanent seat for India on the UN Security Council and a US-India economic partnership agreement, possibly culminating in a "free-trade agreement of the democracies."
The case for security council membership is getting stronger. India's economy has more purchasing power than that of Britain, France, or Russia. It is a nuclear power, as certified by security council members, and unlike China and Russia, it is a robust democracy. It has stronger credentials for the security council than some current members. In establishing the Group of 20, the United States took the lead in modernizing antiquated structures of global economic governance. It is time to do the same for the counterpart security institutions.
The case for closer trade relations is also growing. From the US perspective, a series of free-trade agreements being negotiated between India and other major economies (Japan, Korea, the European Union, even Canada) will lead to discrimination against US businesses in the Indian market and greater access for suppliers from Europe and Asia. The faster India grows—and annual growth of 8 to 9 percent is within reach in the next decade—the more business opportunities will be beyond the grasp of American firms. A free-trade agreement would address this problem.
For India, the benefit would be assured access to US markets. Above all, Indian firms in the information technology sector—the key to India's growth—would want to prevent an outbreak of protectionism that could threaten India's economic prospects.
Bold actions to bring the United States and India closer together are perhaps impossible right now. But ambitious objectives, publicly professed and enthusiastically embraced, could be an acceptable substitute. They would be a major "deliverable" from the president's upcoming trip.