India can leverage economic partnership with US if it addresses domestic bottlenecks

The US is India’s most important economic partner today. In 2019-2020, it was India’s single largest trade partner, accounting for almost US$ 89 billion (11 percent of India’s total) in two-way goods trade. It is the fifth-largest source of incoming foreign direct investment (FDI). However, these figures arguably understate the importance of the economic partnership. Services trade is a major component of bilateral commerce, accounting for over one-third of total trade (37 percent). Over 2,000 US companies currently have a presence in India, some — including such major corporations as GE, Cisco, Microsoft, and Amazon — being significant employers. In 2018-2019, over 200,000 Indian students studied in the US, a number that has reduced somewhat due to the COVID-19 pandemic. India provides a massive user base for US technology companies; it is already home to the largest number of Facebook users and other technology giants — many prevented from entering China’s market — see immense potential in India. About one in seven Silicon Valley startups were founded by Indians, with the impact of Indian-born entrepreneurs in the US felt equally in areas such as the biological sciences. While India’s other economic relationships — with Europe, China, Japan, Southeast Asia, and the Gulf — are also intensifying, the US for now holds particular importance for India’s economic diplomacy.

But there are also areas where the US and India do not hold much value for each other — yet. Both are consumer-driven economies and net importers (they rank first and third, respectively, in terms of current account deficits). Regardless of the political party in power in both countries, ensuring employment for the middle class will be essential, making it difficult to offer concessions on trade or manufacturing.