The initial apprehensions about the meeting between Prime Minister Narendra Modi and US President Donald Trump are now finally settled with greater hope and pragmatism. In fact, the vociferously expressed opinions that the H1-B visa issue would derail the talks or that the talks would be a non-event have proved to be wide off the mark. If one takes a broader view of PM Modi's various engagements at Washington DC, it would emerge how pragmatism was the order of the day. Despite Trump’s clear commitment to protectionism, the idea of two-way trade and partnership has emerged well and clearly. 'Strong India is in America’s interest' was a clear message from President Trump. The emphasis on a fair and reciprocal trading arrangement was an important point that emerged in the joint statement.
It is important to remind ourselves that here are two leaders who look at themselves, as President Trump described, "world leaders on social media" and their policies on trade, economy, and other sectors are evident on this platform. Both are nationalists and committed to domestic economic growth although their approaches may vary. For this purpose, PM Modi’s efforts to enhance India’s global profile and expand its global linkages may go very far while President Trump may take major steps to shrink US exposure to the global economy and insulate its international linkages.
With these similarities and contradictions, the leaders first engaged in a one-on-one conversation, followed by delegation-level talks, and concluding with a 'working dinner'. The conversations covered themes like trade, commerce, and investment, along with focus areas like technology, innovation, and knowledge economy. They were able to explore common ground for action. The statement from PM Modi captures it well: I am sure that the convergence between my vision for a 'new India' and President Trump's vision for 'making America great again' will add new dimensions to our cooperation." It is in this backdrop that one would have to take a broader view of expected outcomes and draw policy inferences.
Import of energy from the United States, purchases of 10 aircraft by India, apart from defence equipment and cooperation in maritime trade, were some of the specifics. One extremely important area that has emerged is a clear emphasis on global value chains (GVCs), promoting intra-industry trade in sectors like agriculture, information technology, manufactured goods, and services. It is important to note here that the US' share in India’s exports of GVCs expanded from 18 per cent to 18.9 per cent in the period between 2007-2016, which in value terms mean an expansion from $1.5 billion in 2007 to $3.9 billion in 2016. In the same period, the European Union's share declined from 24 per cent to 21 per cent. China's share remained very low at 2.6 per cent during this period. Promoting GVCs would be an important component for enhancing productivity in the two economies. This would give a major push to 'Make in India' and at the same time would help the US in reducing its excessive dependence on China in several of these areas.
There is little doubt that the India-US partnership is essential if leapfrogging in the manufacturing sector is to be achieved. In fact, low-cost manufacturing is something China has mastered in the past two decades or so. Incidentally, the joint statement also emphasises on cooperation to deal with excess capacity, which is a challenge coming from China. China officially acknowledged the challenge in October 2013 when China’s State Council issued the strategy paper on eliminating severe excess capacities in traditional manufacturing industries like steel, aluminium, and flat glass, global glut for which has multiplied several times. This has affected both the Indian and the US economy. This particular part of the statement should be read in conjunction with the veiled attack on the imperatives of China's Belt and Road Initiative (BRI). Referring to projects such as the BRI without naming China's mammoth initiative, the statement calls for "respect for sovereignty and territorial integrity".
The niche for India would probably be in advance manufacturing where the role of technology would be very high. Getting in value chains and evolving production networks would prove to be a great strategy. It would be economically desirable and politically feasible — basically a win-win partnership.
The author is the director general at the Research and Information System for Developing Countries, New Delhi.
Disclaimer: Views expressed are personal. They do not reflect the view/s of Business Standard.