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Trump's policies are hurting India's economy. Modi must rethink US strategy

Neeraj Thakur | Updated on: 29 June 2018, 18:10 IST
(Arya Sharma)

Prime Minister Narendra Modi's supporters claim that the United States has begun taking India more seriously since he came to power in 2014. PM Modi has paid special attention to the US - he has visited the country five times in the last four years. Everytime he lands in the US, his PR machinery goes overboard to project his tour as unprecedented by focusing on his popularity among the American NRIs.

While the support of the NRIs is important, has Modi boosted India's relationship with the US, especially its President, Donald Trump?

Does Trump take India seriously?

The US has asked India to stop oil imports from Iran by 4 November or face sanctions for carrying out any transaction with Tehran as part of their "zero" waivers policy.

The price of crude oil has increased in the international markets due to rising demand, putting India, which imports 80% of its oil requirement from other countries, in a vulnerable position. The falling value of the Indian currency against the US dollar is adding to its woes. The rupee touched an all-time low of Rs 69 against the US dollar. Due to this, India is staring at a high current account deficit in this financial year.

Despite knowing India’s vulnerability, the Trump administration has outrightly refused to consider any waiver for India. For them, either India is with them or against them.

India imports around 18 MT of light crude oil from Iran, and certain Indian refineries will be have to be shut down if India stops importing from Iran. Moreover, Iran takes 45% of payments in Indian rupees, reducing the pressure on Indian currency against the US dollar.

Jayant Dasgupta, former Indian ambassador at the World Trade Organization, is of the view that India has too much at stake with the US. “Stopping oil imports from Iran will hurt our economy but US is still India's largest trade partner and we hold a surplus with them. Besides, US is the world leader in technology. To grow as a nation we would need US support. Therefore the trick would be to initiate back-channel talks with the US and seek a middle ground that benefits US as well as India.”

Former chairman of ONGC, RS Sharma seconds Dasgupta’s views, “India does not have any option but to listen to what US says. They are our largest trading partner and the cost of not listening to the US would be too much.”

But will adhering to the US diktat on Iran help India gain on other fronts? Looks unlikely.

Just two days ago, US unilaterally postponed the high-level '2+2' talks with India scheduled for next week in Washington.

The decision to postpone the 2+2 talks, experts believe is to give a stern message for siding with European countries that decided to raise tariffs on 29 US imports in retaliation against the US decision to include India in its list of countries covered by higher steel and aluminum duties.

Over the last two years, India, helplessly saw Trump forcing US based IT companies to reduce hiring of Indian engineers by threatening to make the process of issuing H1-B visas difficult.

The US also tried to sabotage two of India's most important government programmes- Solar Mission and Make in India - by challenging the country's domestic requirement for equipment under the National Solar Mission at the World Trade Organisation.

The list of US' aggressive attitude towards India also includes targeting India's export subsidy programmes under the Export Oriented Units scheme and sector-specific schemes including the Export Promotion Capital Goods Scheme, Duty Free Imports for Exporters Programme, Electronics Hardware Technology Parks Scheme and Special Economic Zones.

Advantage US

By threatening India on several fronts, the US managed to reduce its trade deficit with India by almost six per cent in 2017 at $22.9 billion compared to the previous year. Given the aggression that US is displaying against India, it is likely that the terms of trade will further improve for the US in 2018.

Is there a way out?

Biswajit Dhar, foreign trade expert and professor of economics at the Jawaharlal Nehru University is of the view that India so far has been soft-pedalling with the US on economic issues. We have been seeking US support on the issue of Pakistan, terrorism and a seat in the UN security council.”

Dhar's argument reflects in the key deals that PM Modi signed in his US trip last year. On that trip, the US cleared the sale of 22 unmanned Guardian drones to India, terming the deal as a “game changer”.

The two countries had discussed other so called strategic issues like sharing data on maritime security and coming closer to deal with terrorism.

On the other hand, India under Modi ignored the issue of H1-B visas altogether giving a signal to Indian companies based out of the US that they will have to deal with Trump administration's stance of not allowing easy access to the Indian talent pool of engineers.

“Trump is a hard negotiator. He deals like a businessman. By going soft in negotiations with him, India is harming its own interests,” Dhar argues.

Dhar cites the example of North Korea. “We need not antagonise the US the way Korea did, but a little bit of muscle-flexing is required,” adds Dhar.

Mohan Guruswamy, Chairman, Centre for Policy Alternatives, believes that India has unnecessarily been allowing too much interference from the US. “Why do we need to be afraid of the US? If they stop trading with us. We can find other markets, but if we stop buying from them, they will not find another market for their arms,” asserts Guruswamy.

Given the current circumstances, there are no easy answers to India's woes in international trade. But a sharp foreign policy that strikes a balance between economic and geo-political interests is the need of the hour. For that to happen, Modi and his benefactors need to grow beyond Madison Square diplomacy. Can Indian PM do it?

First published: 29 June 2018, 18:10 IST
Neeraj Thakur @neerajthakur2

As a financial journalist, his interface with the two dominant 'isms'- Marxism and Capitalism- has made him realise that an ideal economic order of the world would lie somewhere between the two. Associate Editor at Catch, Neeraj writes on everything related to business and the economy. He has been associated with Businessworld, DNA and Business Standard in the past. When not thinking about stories, he is busy playing with his pet dog, watching old Hindi movies or searching through the Vividh Bharti station on his Philips radio transistor.