US-bound Narendra Modi stares at tricky trade-offs
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Leaders are often prone to issuing exuberant statements on transient developments. “Today, the whole world is attracted to India, [and] is curious about India,” Prime Minister Narendra Modi told the Indian community in Doha, Qatar, on Sunday. “Global agencies are in agreement that if there is a fastest growing economy, it is India. Our growth rate is high.”
“Global purchasing power has gone down and adversely affected our exports... despite that, we have clocked this high growth rate. The quarterly figures, even as India has faced two consecutive droughts, reflect a praiseworthy 7.9% growth.”
India, he said, in an upbeat exercise of showcasing the country to investors in Doha, “is a land of opportunity. I have come to personally invite you to take advantage of this opportunity”.
But when was India not a preferred destination for traders and colonizers in the past 500 years? It was always “the jewel in the crown” for traders and colonizers.
The anatomy of India’s high economic growth and its attractiveness to international investors remains a puzzle. At a time when industrial growth is languishing and agriculture is in a state of decline, India still remains a bright spot thanks to the collapse in international oil and raw material prices.
“Few economists wholeheartedly believe India’s stellar growth rate,” The Economist magazine noted recently. In an article titled The elephant in the stats in its 9 April issue, the magazine said: “Even the government’s own chief economic advisor [Arvind Subramanian] has admitted he is sometimes flummoxed by the data.”India’s real growth rate varies between 5.4% and 6%, it suggested, on the basis of figures provided by a broker in Mumbai and economists at HSBC.
Regardless of the controversy over growth figures, one thing is certainly clear: among the BRICS (Brazil, Russia, India, China and South Africa) grouping, India’s growth trajectory seems positive, according to the global competitiveness index of the Lausanne-based International Institute for Management Development. However, the high growth figures do not indicate the dips in the social sectors of education and health, the institute suggested.
In his latest GPS show on CNN, journalist Fareed Zakaria says India is losing the toilet war with China. While China is racing ahead in constructing clean toilets, India’s toilet drive launched by Modi has been lagging behind, according to Zakaria.
Coming to Modi’s current visit to five countries, surely the high point is going to be Washington. Besides his address to a joint meeting of the US Congress on Wednesday, Modi is also expected to conclude major nuclear reactor deals worth more than $30 billion for American companies. Indian diplomats are busy giving final touches to the agreement with Westinghouse Electric Company for building six nuclear reactors in the country. The negotiations are “very detailed and [in] advanced stage”, said India’s ambassador to the US, Arun Singh. The cost and financing for the six reactors are yet to be sorted out, he has indicated.
In return for the bonanza showered on the American nuclear companies, US President Barack Obama might secure India’s entry into the club of nuclear suppliers without India having to sign the non-proliferation agreement. The exchange rate between these two developments—reactors on the one side for the American companies, and the membership of India to the Nuclear Suppliers Group on the other—is difficult to assess at this juncture.
Further, the Modi visit will also witness behind-the-scenes lobbying by the Obama administration for participating in bigger US-led trade and defence initiatives. The restart of bilateral investment treaty negotiations is very much on the cards. “Our people are talking to each other and we are trying to see when we can launch these negotiations,” the Indian envoy suggested.
Though he downplayed the idea of launching talks on a free trade agreement anytime soon, Singh indicated the opportunities of working together on many fronts—technology, defence and clean energy—to realize the goal of Obama and Modi of expanding bilateral trade to $500 billion annually.
Leaving behind the hype underlying these developments, it is worthwhile to ask whether India is going to secure concrete and tangible gains in areas of its core interests. Consider two areas in which Modi could easily pitch India’s demands—the solar dispute and the movement of short-term professionals and outsourcing.
In trade, as in other areas too, reciprocity ought to trump any “my way or the highway” demands. Union home minister Rajnath Singh was right to point out on Saturday that the US authorities must take a “rational” view on outsourcing. India is currently involved in a trade dispute with the US on the restrictions placed on the movement of short-term service providers. These restrictions cost Indian software companies millions of dollars annually.
But will the US take a constructive view on Mode 4 or movement of natural persons? The prospects are pretty bleak given the current political climate. In the just concluded 18th round of trade in services agreement (TISA) negotiations last week, a plurilateral initiative launched by the US in 2012, Washington chose not to table any offer on Mode 4. However, it demanded unhindered market access in financial services, electronic commerce and telecommunications from the 22 TISA-participating countries.
India is not part of the TISA negotiations. Had it joined the TISA group due to bilateral pressures, India would secure inconsequential access into the US and the European Union while paying a substantial price by undermining its industries. It remains to be seen whether this issue will figure prominently during the Obama-Modi meeting.
The solar dispute launched by the US is primarily aimed against local industries in India availing subsidies for their development. The US and the EU are also bringing “localization” provisions into TISA as well as broader investment negotiations. Effectively, these provisions will force governments not to insist on any use of local content requirements in the manufacturing of goods or in providing services. This is the road to further progress on deindustrialization.
Will Modi accept these iniquitous arrangements? Perhaps, it is easy to open the doors for the Indian economy without any price, like the locks on historical sites. But, the aftermath and the adverse consequences are difficult to contain.