India and the United States What Lies Ahead?

Spotlight By Teresita C. Schaffer

Economic growth and globalisation are two of India’s biggest successes in the past quarter century. India’s surging economy and rising trade and investment were the starting point for transforming its ties with the United States

Indian PM Narendra Modi made his second official visit to Washington – and had his seventh meeting with US President Barack Obama – on June 7-8, amid an outpouring of mutual good will and media excitement. The remarkable transformation in US-India relations since the end of the Cold War has become a cliché, but it’s also true. Also true – it’s still a high maintenance relationship, in which the two countries still periodically have to work hard to get past their miscommunications and frustrations. Reflecting on events since Narendra Modi became prime minister of India, US and India continue to make their relationship deeper and more significant. They have not yet arrived at an agreed-upon template for what it ought to look like, but they are noticeably closer to that point.

Narendra Modi’s first official visit, in September 2014, was important because it took place early in his (PM Modi’s) tenure, at President Obama’s invitation. The choreography celebrated PM Modi, the showman. Besides the usual pomp and meetings, it featured a larger-than-life event at Madison Square Garden attended by thousands of fans from the Indian-American community, an unusual and intimate evening meal with President Obama, and an impromptu visit with the president to the Martin Luther King Memorial. It was a visit about beginnings; no major agreements were brought to conclusion.

Obama’s presence as the Chief Guest at India’s Republic Day and the two leaders’ meetings at other international events helped turn India-US summits into a regular and expected part of the emerging partnership, rather than a once-in-a-decade extravaganza. They also concluded more specific agreements, notably the resolution of a dispute within the World Trade Organization.

The June 2016 visit showcased warm relations all around. It marked significant forward movement on some important issues, notably defence relations, nuclear trade, and movement toward ratification of last December’s Paris climate change agreement. The visit did not have the high-powered buzz of the first visit, but it put on display the breadth of India-US relations. PM Modi’s address to a joint session of the US Congress highlighted the theme of our common democracy in ways that used to be more comfortable for US than for Indian leaders. His speech to the US-India Business Council riffed on the strategic importance of the Indian economy as well as on his government’s record of and plans for further reforms.

What is the Scorecard?

As President Obama approaches his final seven months in office, the overall record is quite positive – but not necessarily in the ways that one might have expected.

The Most Positive Arena: Defence and Security

US-India defence relations are a product of the post-Cold War period. India’s defence trade with the United States reached $9 billion between 2008 and 2013, dramatically larger than ever before with cooperation in exercises and technology development adding depth to the relationship. During Narendra Modi’s second visit, the US government formally declared India a “major defence partner.” The precise impact of this designation will be worked out in practice, but it is clearly intended to facilitate further increases in defence trade and cooperation. In fact, the legislation was primarily an attempt to put Congressional fingerprints on the expressions of good will for India, and its failure was entirely unrelated to India; and due instead to the polarisation between Republicans and Democrats that has beset the US Congress for some years now.

Other indications of forward movement on security relations include a logistics agreement, which was put in final form during PM Modi’s last visit. The US frequently describes this agreement as ‘routine’ but that is a misleading description. These negotiations had been given up for dead three years ago, but were restarted some months back, assisted by a decision to slightly reshape the standard logistics agreement for India’s particular purposes and to give it a new name (the somewhat awkward acronym is LEMOA). Plans to work together on aircraft carrier technology – which are certainly not ‘routine’ – are moving forward. The path toward implementing the breakthrough nuclear agreement signed eight years ago has been long and rocky, but the announcement of progress toward construction of a nuclear power plant by a US supplier was welcome indeed.

India and the United States also enjoy an increasingly close convergence in their approach to the Indian Ocean and East Asia. President Obama and Prime Minister Modi released a Joint Strategic Vision statement on this region, which gives the idea of strategic convergence a more concrete form. It sketches out their common hopes for a peaceful and prosperous Asia. Neither country wants China to be the sole dominant power; both see the region as strategically critical.

Nuclear Relations: One Step Forward, One Step Back

The most promising development on the nuclear front was movement toward the hoped-for construction of a nuclear plant by Westinghouse in Andhra Pradesh. Identification of a new site for the plant was an important step. There remain complicated issues including the mechanics of financing the deal. The long-awaited consummation of actual US-India nuclear trade is moving ahead, however.

The setback for India came at the meeting of the Nuclear Suppliers’ Group (NSG) in late June. The United States announced in 2010 its support for having India join four multinational export control groups. The NSG was the one India most wanted, but was also politically the most complicated. China had opposed the NSG’s 2008 waiver of its normal export control rules to allow nuclear trade with safeguarded Indian facilities, but decided not to block the required consensus on the measure when it was the only country still in opposition.

This time, India once again had energetic support from the US and several other countries, and Modi put his personal prestige on the line in a direct approach to China. However, China was less squeamish about blocking consensus on its own. It also decided to use this opportunity to push for Pakistani membership in the group as a package deal with India, a much more controversial proposal because of Pakistan’s record in proliferating nuclear materials and plans to North Korea and others. In the end, China succeeded in blocking India’s entrance, with the tacit support of a few other countries. India’s membership is likely to come up again, possibly in the context of defining what should be the criteria for admitting countries that are not parties to the Non-proliferation Treaty. And cushioning what was undoubtedly a bitter blow, three days after the NSG meeting, India was admitted to the Missile Technology Control Regime (MTCR), another of the four export control groups – and one that China does not yet belong to.

Climate Change: Moving Toward Ratification

Ever since the December 2015 Paris climate conference, the US-India dialogue on this subject had become markedly closer and more productive, and had become a subject of common interest between PM Modi and President Obama. On the vexed issue of regulating hydro fluorocarbons (HFCs), India is now prepared to move forward, and Narendra Modi’s team suggested that movement toward ratification could happen on a faster timetable than they had earlier indicated.

Economic Ties: Challenges and Opportunities

Economic growth and globalisation are two of India’s biggest successes in the past quarter century. India’s surging economy and rising trade and investment were the starting point for transforming its ties with the United States. Nonetheless, economic issues are the biggest frustration from the US perspective. In one sense, this is inevitable. More trade almost always brings more trade problems. More fundamentally, India remains cautious about further opening of its market to trade and investment, in spite of its economic success and widespread conviction that India’s economy is a critical source of power. Negotiations on a Bilateral Investment Treaty with the United States have inched forward at a snail’s pace for nearly a decade. The new US and Indian templates for what they want are even more dramatically different than the models they replaced. The United States continues to pursue long-standing disagreements on intellectual property protection and the relative opacity of India’s regulatory setup; India has launched an impressive number of complaints against the U.S. in the World Trade Organization (WTO). At the multilateral level, India’s decision to block a proposed WTO agreement linking agricultural stockpiles and trade facilitation measures caused substantial heartburn in Washington. The dispute, as noted above, was eventually resolved, but bad feelings linger, with the U.S. unhappy about what it sees as Indian obstructionism in the multilateral trade setting.

India’s economy will remain an important driver of India-US relations. At this writing, the prevailing projections for India’s economic growth are good. One important cloud on the horizon is a domestic political backlash against further market opening, coming in significant part from the political base among urban traders that Narendra Modi’s Bharatiya Janata Party (BJP) has traditionally relied on. India’s cautious approach to trade opening extends to its other trading partners as well. Negotiations toward a free trade area with the EU and Canada have moved slowly – and recent events in Europe are likely to further stall talks with Brussels. There is sentiment in New Delhi that India’s exports have not benefited as much as they should have from the existing free trade areas. Meanwhile, other Asian countries are moving toward freer trade and more closely aligned economic regulations. India’s reluctance to move more vigorously on market opening debate risks leaving it out of the integrated global supply chains that are taking shape.

India’s Biggest Headache: The Pakistan Factor

Ever since the U.S. and Pakistan first established security relations over half a century ago, India has seen US-Pakistan ties as a major problem with Washington. For the United States, Pakistan in 2016 is a very troublesome relationship for the U.S. – but still a strategic important one. For India, Pakistan is above all a source of terrorism. China is now looked on as India’s biggest strategic challenge, a danger much magnified by its close bond with Pakistan. These different perspectives are unlikely to go away in the near future, but need to be managed properly to avoid causing problems in the larger Indo-US relationship.

The Long View

India and the United States have come a long way since their new partnership was launched during President Bill Clinton’s epic visit to India in 2000. They have discovered strategic convergence and wrestled with economic opportunities and disconnects. The nuclear agreement they negotiated was truly path-breaking, and required unprecedented creativity and trust, but they are still struggling to implement it. Three sets of leaders – all of them somewhat unlikely pairs - have developed warm personal ties side by side with the national partnership. They represent both major parties in both countries. Together, they have made the India-US relationship much more substantial – but not easy.

India-U.S. relations are likely to remain a high-maintenance enterprise that needs a great deal of high level attention. They face two special challenges as the two partners navigate a changing global environment.

First, what should be the shape of their relationship? The US concept of its global role starts with ‘leadership’ and most of its partners are countries that are markedly less powerful but which share important global threat perceptions with the United States. For India, the touchstone is ‘strategic autonomy’ – the concept that India must march to its own drummer. This had been the animating spirit behind non-alignment, India’s signature global foreign policy innovation. In a globalised world, as former Foreign Secretary Shyam Saran recently pointed out, complete strategic autonomy is unattainable, so the challenge is to define what level of strategic cooperation is achievable. The US and Indian concepts are not incompatible, but they do not fit comfortably together. Those managing the relationship on both sides have come a bit closer to defining how this should work; they aren’t there yet.

Second, how will changes in global power relationships affect the US and India? The US position as the single most powerful global power makes it important for India – but also makes India nervous. China and India are both rising powers, but China started its rise earlier, and as we saw during the recently completed NSG meeting, has become markedly less shy about wielding its power in multilateral institutions than it was a decade ago. China is also more deeply engaged in South Asia and the Indian Ocean. Both India and the United States seek constructive relations with China, but both will be carefully assessing China’s moves in the region as well as in the multilateral world. Both need to be prepared for surprises.

Shared interests will continue to push the two countries together. The common perspective they have developed on East Asia will be an important source of strategic understanding. India’s growing economy will provide fresh opportunities for collaboration, especially if India decides to make another big bet on its success in a globalising world. The size of these two democracies, their internal diversity, and their complex histories virtually guarantee that they will need to work hard to maintain a good level of strategic understanding. But both have a lot riding on the effort, and stand to gain greatly if it is successful.

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The writer has served in India, Pakistan, Bangladesh and as ambassador to Sri Lanka during her 30-year career as a US diplomat. She is a non-resident senior fellow at the Brookings Institution and a Senior Advisor at McLarty Associates, a Washington strategic advising firm.

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