High-ranking officials from India and the US, led by Secretary of State Hillary Clinton and External Affairs Minister S.M. Krishna, have been meeting every summer since 2010.
Dubbed “strategic dialogues,” these meetings involve high-level discussions between key US agencies and Indian ministries and cover a broad range of political, economic, defence and security issues.
Officials in both countries point to these dialogues as evidence that the two democracies are closer than ever before. Yet, cracks seem to be appearing in that fabric of friendship — cracks in the form of economic differences between the two countries.
At the third dialogue, held in Washington earlier this month, the two sides discussed cooperation and partnership in a variety of areas, such as higher education, public health, women’s empowerment, counter terrorism, regional security and defense, science and technology, and agriculture.
But the issue that got the most attention was bilateral economic relations — more specifically, the differences between India and the US in that area, which seem to have grown by a lot recently.
Ever since India opened up its economy in the early 1990s, trade and commerce have been at the centerstage of Indo-US ties. Their bilateral trade in goods has increased sharply from $5.2 billion in 1991 to $58 billion last year.
Many of the breakthroughs in relations — such as a civil nuclear treaty the US and India signed in 2008, which ended New Delhi’s nuclear isolation — were made possible by the tireless efforts of the business communities from the two countries.
Yet, the economic friendship appears to be weakening in the face of political realities in both countries. So much so that in the past several months, US and Indian officials have given the impression that they are at two different philosophical poles when it comes to business and trade.
Consider just one example. Late last year, the Indian government backtracked on the opening up of the retail sector for foreign investment due to pressure from partners of the ruling United Progressive Alliance. This has caused much disappointment among American businesses like Wal-Mart, which had hoped to cater to the growing Indian middle class. The US also finds the sluggish pace of reforms in India a concern, especially in pension or insurance sectors.
The main reason reforms are stalled in India is domestic politics, as was evidenced by the government’s U-turn on retail sector reforms. With the general election less than two years away, the ruling coalition, which was tarnished by corruption allegations and huge scandals, has neither the political capital nor the political will to achieve reforms at this point, much to America’s chagrin.
The much-ballyhooed civilian nuclear deal of 2008 was expected to reap billions of dollars to US companies. But that has yet to happen. The Indians also have complaints galore. The country’s information technology companies are unhappy about some of the visa regulations put in place in recent years by the US Congress. The Indian IT sector is flourishing mainly due to the US market from where big companies such as Infosys, Tata Consultancy Services, Cognizant Technology Solutions and Wipro are generating more than 50 per cent of their revenues.
But Indian companies are affected by a recent US crackdown on visas, which has resulted in heightened scrutiny on visas issued in India. The emphasis on hiring more American workers in the aftermath of recession has also not gone down well with the Indians.
Clinton and Krishna seem to have acknowledged the bumps in the relationship.
During a recent press conference with his US counterpart, Krishna said, “I am conscious of the fact that there is a degree of skepticism regarding the prevailing sentiment of business and economic content for our relationship.”
Clinton acknowledged that the two sides must “advance negotiations on a bilateral investment treaty” and reduce barriers to trade and investment in addition to creating more “hospital environments for companies to do business.”
The good news is that the two sides have a solid economic foundation to build upon. Once the short-term setbacks are overcome, there’s little doubt that trade and commerce will continue to drive the relations in the long run, trumping politics.