As the Narendra Modi government picks up the threads on India-United States (US) ties, it will find itself confronting the most dire of the challenges the two countries face: trade tensions, with real prospects of rapid deterioration this time around.

India and the US put ties on pause some months ago as India went through seven phases of elections stretching over nearly 45 days. And the Trump administration held off on its threat to end India’s eligibility for a zero-tariff import programme of which India has been the largest beneficiary, the Generalized System of Preferences (GSP).

A notification to formalise the threat has been due since May 4. But the administration has not issued it with the expectation that the new government will take another shot at the underlying differences — as sought by Modi government 1.0 — that have defied resolution for a protracted period of time: chiefly, American demand for greater market access to India’s dairy and medical devices sector.

Talks could resume whenever Modi government 2.0 is ready, but it does not apparently have much time. US Commerce Secretary, Wilbur Ross, on a recent visit to India, signalled it could be June.

India wants to save its place on the programme because it is its largest beneficiary, exporting to the US more than $6 billion worth of goods under this programme in 2018. This was 12% of all Indian exports to the US that year and 25% of all the GSP imports from 121 beneficiary countries. Indian beneficiaries of the programme are small and medium businesses who are crucial to Modi’s Make in India initiative. But they run the risk of losing their American buyers if their products were subjected to regular import duties.

The Indian government estimates that the US import duty on Indian GSP products without the zero-tariff cover could add up to more than $190 million. But because the additional cost will be passed on to consumers, these goods might fail the competition test. There is no estimate available of the consequences for affected Indian companies, in terms of lost earnings and, most importantly, manpower.

While Washington was prepared to continue these talks with whichever party won the elections, many analysts argued that the BJP and Modi were “more open to aligning with US regional strategy” of balancing China and “more energetic in pursuing economic reforms”, as noted in a primer prepared for lawmakers by the non-partisan US Congressional Research Service in March.

So Prime Minister Modi it is, 2.0. He received a congratulatory tweet from President Donald Trump on Thursday and the two leaders could meet at the G-20 summit in Osaka, Japan, in the end of June, although no announcements have yet been made of the prime minister’s travels. Engagements between the two countries will continue on the more than 50 areas of ongoing cooperation, such as military exercises and purchases, Indo-Pacific strategic co-operation, counterterrorism, high-level meetings such as the next round of 2+2, education, space, science and so on. Trade will be the most challenging as before.

The GSP negotiations will take place amid a growing feeling in the administration that India, a major emerging economy, doesn’t really need to be in the programme, which is meant for developing countries and should be graduated out as was just done with Turkey, by a presidential action on May 16.

The administration is also said to be considering a China like trade-action under a US law — Section 301 of Trade Act 1974 — that was used to determine Chinese trade practices were unreasonable and discriminatory, which led to the unilateral tariffs on $250 billion worth of goods imported into the US from China.

Trade has been one of the most intractable differences dogging relations between the two countries, defying the growing convergence that generally defines the relationship. And knowing how focused President Trump is on trade — and he has signalled his irritation by repeatedly raising the issue of Harley-Davidson — Prime Minister Modi might use his new and massive mandate to resolve these issues.

yashwant.raj@hindustantimes.com

First Published: May 27, 2019 08:03 IST