Why Modi govt does not have any easy options to please Trump on his visit

Trump's visit presents the sternest test for India's increasingly protectionist trade policy

The NDA government faces its sternest test of its increasingly protectionist trade policy from the visit of US President Donald Trump. India has to buy at least some more things from the USA and if those fall short it is likely that finally it will be even more quantities of gas and oil. Unless the deal seems pleasant enough to the US President he could even call off the visit.

This is the reason the India government is going the extra distance to please him with ceremonial pomp should the substance be lighter than what he would expect.

The President has already raised the pitch ahead of his planned visit to India from 24 February. US Trade Representative Robert Lighthizer has already cancelled his trip to meet commerce minister Piyush Goyal ahead of the visit which is the US government’s way of saying there has not been much progress between the two countries on reducing the trade surplus India runs with USA. The only way that surplus can be whittled down is if India agrees to buy more US products. New Delhi is hamstrung that there are not enough manufacturing sector products (final or intermediate) it can offer to buy from Washington DC. India’s manufacturing sector is too puny to need anything in copious quantities so the only alternative it can offer to buy are agricultural products.

According to the US government data, India had a goods trade surplus of $20.8 billion (2018). Total trade in services was an estimated $54.8 billion in the same year. India's services trade surplus was $4.4 billion in 2018.

President Trump’s constituencies are not spread across the American coasts offering services sector products. His voters work in factories in the rust bowl or in the fields. He needs to show them the concessions India will offer will have an impact on them. So even if India offered to expand the net in the services sector like raising insurance sector FDI limit to 74 per cent, it would not cut ice. The opening up of the insurance sector to more FDI was a strong pitch by Barack Obama, and anything that so closely hews with his predecessor is anathema to Trump.

In this context, any discussion on further opening up of e-commerce is anyway thwarted by New Delhi’s expressed antipathy towards their business practices. In any case the President will not be expected to make any noises in their favour—Jeff Bezos, the owner of Amazon also owns the Washington Post, which Trump sees as mostly vitriolic towards him. Also FDI is a capital flow and even though it can compensate for the deficit in current account, Trump does not play by such mathematical rules.

India also cannot point to the withdrawal of the GSP (Generalised System of Preferences) benefits by USA to demand should the latter offer a recompense. President Trump’ s administration is not in favour of continuing with GSP and is regularly finding out ways to whittle it. So India is out of GSP, forever. The duty cut by India on Harley Davidson bikes is more of an optics since the numbers sold here is peanuts. Agency reports note the USA is instead pushing India to buy more chicken and dairy products. These are agricultural products and India will justifiably wince at having to import them more.

Next month Prime Minister Narendra Modi travels to Brussels for talks on a free trade agreement with Europe. The RCEP negotiators in Asean and Japan hope to engage with India again to resume talks. In April, Prime Minister Shinzo Abe travels to India. Once India opens up her domestic market for agricultural products for larger imports from the USA, it will be difficult for her to say no to her other partners. Essentially India cannot stall larger imports in both manufacturing and in the agricultural sector. That India will want more openness in the services sector, especially exchange of trained human resources is not germane here. In fact if India plays hardball, it could raise more barriers for H1-B visa.

The challenge for India’s protectionist agenda is if Prime Minister Modi claims India is the winner in the trade joust with USA, Trump is likely to turn around and reveal details of why he believes USA has been the winner. The Chinese government has learnt this the hard way. The final option is for India to buy oil and gas from the USA which is more costly than that from the middle east. India has been selling those in the high seas but there is a limit to such trade in a world hit both by transition to renewables and a growth slowdown due to the impact of coronavirus. Hence the importance of optics for India to keep Trump pleased.

Twitter: @subhomoyb