India-US trade deal: Transparency on constraints and commitments needed

As questions linger over Russian oil, tariffs and market access, clarity on India's constraints and commitments is key to managing perceptions of the US trade deal

Nearly two weeks since the announcement of a trade deal by the leaders of the United States and India, several key questions remain unanswered. The absence of clarity is beginning to shape perceptions. 

When I heard of the trade deal that would end the punitive tariff of 25 per cent for buying Russian oil and reduce the reciprocal tariff on Indian goods from 25 per cent to 18 per cent, I appreciated the government for its restraint and perseverance. No words or actions came from the government against the patently unfair imposition of high tariffs on Indian goods by the US in August. The government quietly fast-tracked the trade agreement with the European Union and the trade negotiations with the US while signaling closer ties with Russia and China. Silently, India conveyed its resilience and options. 

However, when the government put out the joint statement by the US and India and a fact sheet about the trade deal, some questions arose. Whether India has agreed to end purchase of Russian oil and if so, by when? Will monitoring of India’s imports of Russian oil lead to re-imposition of punitive tariffs? How can India increase its imports from the US in five years to $500 billion from about $45 billion now? How will the elimination of industrial tariffs on all imports from the US affect the Indian producers? Can our farmers cope with substantial reduction of tariffs on agricultural goods? What is meant by ‘both sides agreeing to strengthen economic security alignment to enhance supply chain resilience and innovation through complementary actions to address non-market policies of third parties as well as cooperation on inbound and outbound investment reviews and export controls?’ The replies so far have not fully addressed these questions. 

Last Monday, the government issued a press note claiming that India has achieved a landmark trade victory and unlocked $the US 30 trillion American market for exports across key sectors. That was a giveaway. Excessive triumphalism often reflects discomfort with underlying reality. 

My sympathies were with the government. It is not easy to negotiate with anyone from a weaker position. Our merchandise exports to the US account for about 20 per cent of our exports, whereas for the US, our imports represent only 2.5 per cent of its total imports. Almost 60 per cent of our services exports go to the US. Our gross domestic product (GDP) at slightly more than $4 trillion is about 3 per cent of global GDP, whereas the GDP of the US at about $30 trillion is about 25 per cent of the global GDP. The share of our merchandise exports has remained stagnant at about 1.8 per cent of global trade for the last 11 years. Our services exports are growing but at 4.3 per cent of the global trade in services, they are not too significant. The US can hurt or help us, but we cannot do so to the US. Such asymmetry of negotiating positions is bound to lead to asymmetry of outcomes. However, the government is not making this point. It is busy hailing the trade deal as a victory. 

Undoubtedly, the market access for both sides improves with reduction of import duties. However, a lot depends on what concessions the US gives to our competitors, as its deal with Bangladesh shows.  The government risks losing the battle of perceptions, unless it is candid about its constraints and commitments.

 

Email: tncrajagopalan@gmail.com