After Obama’s Visit, India-US Relations Must Not Be Allowed to Drift Again

As the world’s two largest democracies, India and the United States have little choice but to endure the minor frictions that test relations and draw fierce public response – for example, the arrest of an Indian diplomat in New York City. President Barack Obama is returning to India for his second visit to join the country’s Republic Day celebrations. “The significance of a sitting president making a second official visit to the country is a striking political symbol, just as the sight of American-made aircraft in Indian tri-colour flying over Rajpath symbolises deepening Indo-US military ties,” writes Nayan Chanda, YaleGlobal editor, in a column for the Times of India. “India’s restrictions on FDI in multi-brand retail, its obstruction of trade facilitation agreement at WTO, its obdurate position on intellectual property issue and myriad barriers to investment had the cumulative effect of stunting economic cooperation with the US and other prospective global investors.” Obama and India’s Prime Minister Modi make plans for economic liberalization and strategic cooperation, and Chanda concludes that conditions are right for improved relations. – YaleGlobal

After Obama’s Visit, India-US Relations Must Not Be Allowed to Drift Again

Obama heads to India for second visit, big Republic Day celebrations – and planning with Modi on economic liberalization and regional security cooperation
Nayan Chanda
Friday, January 23, 2015

India’s relations with the US, for too long reminiscent of a roller-coaster ride, will reach a high point later this month. President Barack Obama appearing as chief guest in the reviewing stand of the Republic Day parade will not only mark a rebound from the dark days of the Khobragade affair, but will send a message to the world – a message that will have particular resonance in Beijing.

The significance of a sitting president making a second official visit to the country is a striking political symbol, just as the sight of American-made aircraft in Indian tri-colour flying over Rajpath symbolises deepening Indo-US military ties. But after the celebrations, policymakers from both sides will have the hard task of ensuring that the roller-coaster does not plunge back downwards, as it has in the past. The relationship is too important for both countries’ security and prosperity to be allowed to drift yet again.

Fortunately, the conditions for moving the relationship forward are better today than at any time in the recent past. Prime Minister Modi’s decision to quickly move past unpleasant episodes and build a strong relationship is matched by the Obama administration’s interests, strongly backed by a Republican-dominated Congress, to expand strategic cooperation. India’s willingness to play hardball with China (demonstrated during the border confrontation that coincided with President Xi Jinping’s visit to India) and a common interest in a peaceful and rule-based order in East Asia provide a favourable atmosphere for strengthened collaboration.

The economic omens are good too. The renewal of the 10-year Framework for the US-India Defence Relationship agreement comes against a backdrop of an economic liberalisation policy that would allow foreigners to own up to 49% of Indian defence manufacturing companies. Facing higher labour costs at home, US manufacturers like Lockheed Martin (makers of IAF’s C-130J Super Hercules transport plane) are happy to offshore more production to India. Already, the C-130J’s wings are made in Hyderabad by Tata Advanced Systems. Aside from creating jobs for skilled Indian workers, the induction of more such versatile transport planes offers, among others, valuable logistical support to Indian troops stationed at high altitude.

The new framework agreement to be signed during Obama’s visit is expected to propose an increased number of joint military exercises and greater intelligence sharing. A planned Defence Trade and Technology Initiative (DTTI) will gradually open the door to greater technology transfer and co-development and co-production of a number of defence items.

While promising, defence cooperation alone will not guarantee lasting and steady relations. The hard reality is that India does not have enough cash to purchase all the military equipment it needs. Only steady economic growth can sustain its expanding defence budget. Policy failure, exploding corruption and tetchy disputes over issues ranging from trade to environment have contributed to economic slowdown. India’s 2010 nuclear liability legislation has frustrated US industry, which had high hopes of investment opportunities following the signing of the historic 2005 civil nuclear agreement. India’s restrictions on FDI in multi-brand retail, its obstruction of trade facilitation agreement at WTO, its obdurate position on intellectual property issue and myriad barriers to investment had the cumulative effect of stunting economic cooperation with the US and other prospective global investors.

Since taking over, Modi has resolved the difference over the WTO agreement and has taken the first steps towards reaching a deal on climate change – thus removing two major impediments in relations with Washington. A slew of Indian measures, including expanding FDI in defence, construction, railways and the insurance sector have been similarly helpful in improving the investment climate. The two countries signed a bilateral agreement this week to cooperate on facilitating capital market development conducive to financing investment in various sectors, and working to overcome any obstacles to such investment.

A key area where additional efforts will be needed to remove impediments to expanded investment is in the nuclear liability law. Formulated under the shadow of the 1984 Bhopal disaster which was invoked by the then opposition party BJP, the law will be difficult to roll back. Under consideration now are plans to set up an insurance pool that would enable foreign suppliers to discharge their liability in case of a nuclear accident. This and other creative efforts would be needed to provide a solid economic floor under what now appears to be a resurgent Indo-US partnership.

 

Nayan Chanda is a US-based journalist who writes columns for TOI. He is the founding editor of YaleGlobal Online, based at Yale University’s MacMillan Center.

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