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Business News/ Opinion / Columns/  Opinion | With pacts on defence, oil and LNG, new chapter begins in India-US relations

India and the United States have opened a new chapter in their bilateral relations by entering into a mega defence deal. The two countries signed the agreements for India to purchase advanced American military equipment, including Apache and MH-60 Romeo helicopters valued at over $3 billion. This was the most significant development during the much-anticipated two-day visit of President Donald Trump to India. The defence deal takes the Defense and Counterterrorism Partnership that was agreed to in the second India-US ‘2+2’ ministerial dialogue in December 2019 to a distinctly higher level. The deal should also be seen as assuaging the American side, which was unhappy with India working its defence procurement plans with the Russians over the past year.

The official statement of foreign secretary Harsh Vardhan Shringla seems to suggest that the US could meet India’s long-term interest in strengthening its domestic defence production capacities. In 2016, India had announced the defence offset policy, which was intended to leverage capital acquisitions to develop the defence industry in the country by fostering development of internationally competitive enterprises and augmenting capacity for research, design and development related to defence products and services, among others. Shringla has informed that Trump has assured of the highest consideration to India for procurement, technology and joint collaboration in the defence sector. If this does happen, this will be a first for the US with a country that was not part of any of its security treaties during the Cold War era.

What could be the deal of the visit is the memorandum of understanding (MoU) between Indian Oil Corp. Ltd and ExxonMobil India LNG Ltd with the cryogenic equipment manufacturer Chart Industries to supply liquified natural gas (LNG) by road, rail and waterways to areas not connected by physical pipelines. The MoU includes fuelling stations and alternative LNG mobile transportation, including railcars and International Organization for Standardization (ISO) containers. India has been rapidly increasing its imports of oil from the US after it slashed its imports from Iran and Venezuela. It is expected that in the near future, oil would replace armaments as India’s main imports from the world’s largest economy.

When Trump’s visit was first announced, there was heightened expectations that the two countries would enter into a trade deal. However, the outstanding differences between the two countries, especially the US denial of market access to Indian products by withdrawing the benefits under the Generalized System of Preferences, and Trump’s angst that India was consistently denying market access to products from his country by imposing high tariffs (the President called India “tariff king"), effectively meant that a deal was not on the horizon. At the end of their two-day interaction, Prime Minister Narendra Modi announced that India and the US have agreed to begin negotiations on a trade deal, and that the commerce ministers of the two countries have been asked to give this intent a legal shape.

This announcement is a major step forward for India from its current engagements with the processes of global integration. Less than four months back, India took a major step back on these processes by withdrawing from the mega regional free trade agreement, the Regional Comprehensive Economic Partnership (RCEP). The primary reason for India’s withdrawal was a consistent position taken by major sections of agriculture and manufacturing sectors that any further dose of import liberalization would seriously impair their businesses. In recent years, the government seems to have responded to these sentiments by raising tariffs in a wide range of products, including in the recent budget proposals. While raising tariffs, the government has also been arguing that its intention was to encourage the “Make in India" programme. As the government takes the next steps to open its market to the business interests from the US, its ability to protect domestic interests while increasing its integration with its strategic partner, will be watched with interest.

Biswajit Dhar is an economics professor at Jawaharlal Nehru University.

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Updated: 25 Feb 2020, 11:49 PM IST
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