Not many heads of government can fill a big arena. But Madison Square Garden, home of the New York Knicks, has already sold out in anticipation of Prime Minister Narendra Modi’s meeting with the Indian American community on 28 September, part of Modi’s US tour at the end of the month. In New York, he will address the United Nations (UN) General Assembly, meet leading business executives, and speak before a Council on Foreign Relations audience in addition to the Indian diaspora gathering—all before heading to Washington.
For the bilateral portion of his trip, pundits are speculating about the outcomes of the first meeting between President Barack Obama and Modi. The White House’s statement describing their agenda focuses on economic growth, security cooperation, Afghanistan, Syria and Iraq. But the real deliverables—especially for India—are more likely to be found in the business gatherings taking place in New York and Washington.
It’s been a rocky year for India-US relations. Between contentious economic policy disputes that drove both countries’ business communities to disappointment, and a diplomatic rupture over the arrest of India’s deputy consul general, Devyani Khobragade, in New York for visa fraud, much of 2014 elapsed without any progress in the bilateral relationship. The Modi-Obama meeting symbolizes a chance to recapture positive momentum.
Modi and Obama will surely discuss, as the White House previewed, strategic concerns in Afghanistan, Syria and Iraq. It’s critically important for New Delhi and Washington to have these consultations, more frequently and at more operational levels of government. But despite sharing a broadly similar sense of the challenges, both countries have yet to agree on a shared approach to these thorny problems. Tangible India-US deliverables are not likely to come through on these security questions immediately, though both countries should continue working to find ways to work together.
Instead, the more likely area to deliver near-term India-US cooperation lies in trade and economics. Modi’s election on a platform of economic growth offers hope to the business community seeking renewed dynamism and an improved business environment in India, and the new government in New Delhi gives both sides a chance to start from a clean slate, more or less.
As the Bharatiya Janata Party’s election manifesto had promised, the emerging Modi foreign policy doctrine places great emphasis on international economic engagement. But that emphasis takes two distinct forms: largesse from New Delhi for India’s smaller neighbours, and a search for deals for New Delhi from larger global economies. The markets have responded positively with the anticipation of a better trade and investment environment in India; indeed, on the news of Modi’s election alone, the Sensex hit an all-time high, continuing upwards since then.
But in the first four months of Modi’s government, he has not moved as quickly as many had imagined on the economic front. The new government’s first budget was widely seen as less than revolutionary. Long-awaited steps to raise foreign direct investment caps, while welcome, have been limited to railways, defence and the insurance sector. The more difficult, but necessary second generation of reforms such as labour and land acquisition laws have not been addressed. While the Modi government has assured investors it will not apply a retroactive tax provision passed by the previous government to create fresh liability, it has not moved to repeal it. And despite a seemingly pro-trade campaign manifesto, the Modi government balked at ratifying the World Trade Organization’s trade facilitation agreement at the end of July. So, all told, it is not fully clear whether—at least for foreign investors—achhe din (good days) are really here.
The private sector’s view of the investment environment matters greatly for the India-US economic relationship. This is because the US government does not direct private sector investment—and unlike Asian powers such as Japan and China, US foreign assistance funding is comparatively more limited, and not focused on building infrastructure. Nor does Washington manage state-owned enterprises, sovereign wealth funds, or parastatal firms.
While the US has some policy tools to encourage private foreign trade and overseas investment such as export credit, risk insurance and financing offered by the US Export-Import Bank (Exim Bank) or the Overseas Private Investment Corporation (Opic), the dollar amounts pale compared with the scale of recent offers to New Delhi from Japan ($35 billion over five years) or China ($20 billion over five years, lower than the $100 billion figure floated in advance of China’s President Xi Jinping’s visit to India). The US Exim Bank’s overall exposure to India, its second largest country portfolio, is around $8 billion cumulatively, and Opic’s cumulative exposure is around $2.6 billion.
So the Modi strategy to secure deals from larger economies won’t find the same configuration of economic policy directives in Washington as those in Tokyo or Beijing. This means that the real ability to attract the kind of investment to further India’s infrastructure and other capital-intensive development needs depends on how the new Indian economic climate converges with US private sector interests, and whether US companies and investors see a conducive investment environment once again.
While Modi and Obama have much to discuss about the world and what India and the US can do within it, the priorities that seem to top Modi’s international policy wish list have more to do with Wall Street than with 1600 Pennsylvania Avenue. Modi’s meetings with the US business community, more than with the US government, will be the ones to watch out this visit for big announcements.
Alyssa Ayres is senior fellow for India, Pakistan and South Asia at the Council on Foreign Relations. She served as US deputy assistant secretary of state for South Asia from 2010-13. Follow her on Twitter: @AyresAlyssa