Trump visiting India when Chinese economy is down. Modi govt must seize trade opportunities

US President Donald Trump is visiting India to meet Prime Minister Narendra Modi at a significant political moment. Trump has just emerged politically stronger after a ‘not guilty’ verdict in the impeachment proceedings. On the other hand, China is going through one of its worst economic phases in recent years after the Coronavirus, or COVID-19, outbreak.

New Delhi must work to get the best out of Trump’s visit on economic and strategic issues. India’s opportunity to emerge as the fulcrum of economic growth in Asia is now. Can New Delhi make Trump commit much more than mere photo shoots and optics?

Like Modi, like Trump

India is Trump’s first foreign destination after the long-drawn impeachment motion. In his new avatar, Trump has grown more powerful than his party, sets his own agenda, and seems unrivalled in his strides towards his second presidency.

According to US governance norms, the president is free to hire and fire the staff of his choice and have colleagues in whom he can have confidence and command loyalty. Trump has managed to exercise this prerogative in his archetypal style, without a touch of politeness.

Back home, it is not difficult to look for parallels between Trump and Indian Prime Minister Narendra Modi. Parallels in personal charisma, invincibility and popularity apart, both India and the US seem to recognise another parallel – that of the inevitability of working together in the best interest of mutual economic benefit and marking their footprints in global geopolitics indelibly.

But like all good stories, the parallels too have to end somewhere. The economic and power projection asymmetry between India and the US is too conspicuous to be dismissed as a secondary issue.

US recognition, with a catch

Days before the White House announced the decision of Trump’s visit to India, the United States Trade Representative (USTR) revised the list of countries eligible for special concessions under the countervailing duty (CVD) investigations methodology and removed more than half-a-dozen countries, including India, from that list. “The original 1998 guidelines are obsolete now,” was the official reason given.

According to the USTR, India is a member of G-20 with more than 0.5 per cent of the world’s trade share. Countries above this threshold are considered developed and classified as “high income” economies by the World Bank. The notion that we are a developed country, duly recognised even by the US, should make the heart of every Indian swell with pride. We can go to town with this tag and proclaim from rooftops that we have achieved what we always wanted to in 70 years of Independence but could not.

But there is catch here. Like any other commercial product, this recognition too comes with a disclaimer in fine print.

New trade deal yet to develop

High-income developed countries are not entitled to benefits under the Generalised System of Preferences (GSP). India’s share in global exports was 1.67 per cent and global imports stood at 2.57 per cent in 2018. India exported goods worth $6.3 billion to the US (about 12.1 per cent of our total exports) taking benefit of the GSP structure. This benefit accrued as much as $240 million of duty concession. Now, all future exports will happen without this duty concession under the new trade deal.

USTR chief Robert Lighthizer’s itinerary has not yet been announced. In such a scenario, the Prime Minister’s Office in New Delhi may have to put on hold all trade decisions and commercial pacts until we are able to read the fine print of the proposed Indo-US trade deal.

As per USTR norms, developing countries are permitted to avail up to 2 per cent of export subsidies. This clubbing of India and China as developing economies greatly restricts the trade negotiation flexibilities with the US. China has already concluded the first phase of the trade deal with the US. Besides, China is far above the comfort zone as far as developing economy features are concerned.

India, though an emerging economy, is still much lower in the list. India needs to engage seriously with the USTR and resolve the issue so as to derive maximum benefit from Trump’s visit and ink a trade deal with maximum advantage to Indian manufacturing, exports, trade, international commerce, and service industry. While the US has almonds, apples, and Harley-Davidson to offer, India’s list of export to the US runs into several hundred sheets.

Opportunities coming by way of China  

Trump’s visit to India with the aim to “further strengthen the US-India strategic partnership” comes when the Chinese economy is on a downward trajectory. The US-China trade deal is a non-starter. Many Chinese manufacturing facilities are shut, ports closed, goods withdrawn and every country on the world map has shut its doors for Chinese products, especially food and health products. Travel to and from China has dropped, hitting the tourism industry in the region and elsewhere very hard.

While New Delhi’s offer to extend all possible cooperation to Beijing to cope with the deadly virus is welcome, there is little or no sign of strategy so far in the sphere of benefitting from accrued advantages out of this economic fallout. New Delhi has a very wide window of opportunity in getting a big slice of the market share that is now getting vacated due to the coronavirus pandemic and shunning of Chinese products and services.

Opportunities such as this do not manifest very often.

We have skipped the Regional Comprehensive Economic Partnership (RCEP) meeting but have done very little on BIMSTEC, Indian-Ocean Rim Association, Indo-Pacific and other regional and multilateral institutions. We have created no alternative to RCEP so far.

Finance Minister Nirmala Sitharaman’s Budget 2020, though well-intended, unfortunately, seems to fall short of taking these issues into consideration. This is the time for New Delhi to unshackle the economy, unleash the potential of its industry, liberalise the tax administration, clear the bottlenecks in capital formation, and stimulate production at full speed.

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