As thriving democracies, India and US have shared interests and a lot in common. Leaders of the two countries have long strived to maintain strong bilateral ties.
In his departure statement, PM Modi stated that his trip to the US will be an occasion to strengthen Comprehensive Global Strategic Partnership between the two countries.
America is India’s second biggest trade partner.
However, despite the huge volume of trade, the two countries have failed to seal the much-awaited trade deal.
As Modi and Biden renew and reinforce the age-old ties, we take a look at how the economies of both the countries have shaped, especially after the Covid outbreak and where the two stand in terms of trade.
Tale of two economies
Even before the onset of the Covid-19 pandemic, India’s gross domestic product (GDP) growth had declined to the slowest rate in over 6 years.
The country recorded its first-ever technical recession in the first half of 2020 with two successive quarters of negative growth as nationwide lockdown to curb the spread of the virus completely halted business activities.
The GDP started recovering gradually from the third quarter of FY21 when certain activities resumed with the gradual easing of Covid curbs.
However, the recovery was not enough to completely erase the adverse impact of Covid and for the first time in 40 years, the GDP recorded negative annual growth of 7.3 per cent.
The FY 22 has started on a positive note. India’s GDP is now growing at its fastest pace with a 20.1 per cent rise in the first quarter backed by a low base effect.
But it will take time before the economy is back to its pre-pandemic level.
Now, let’s analyze the US economy.
The US economy also contracted at a record average annualised rate of 19.2 per cent from its peak in the fourth quarter of 2019, through Q2 of 2020. It was the deepest slowdown registered since 1947.
Countrywide mandatory shutdown of non-essential business in March 2020 to curb the first wave of Covid infections left the economy reeling, throwing a record 22.362 million people out of work.
However, with an increased pace of vaccination, the US was able to control the surge in cases since the beginning of 2021. The economy bounced back to a GDP of 6.3 per cent in the Q2 of FY22.
The US is one of very few economies which is slowly moving back to its pre-pandemic growth.
India-US trade stats
The US has been one of India’s top trading partners for a long time. It has also been India’s biggest export market.
In 2019, America was India’s topmost trading partner with exports worth $53 billion, imports of $35.8 billion and trade surplus of $17.2 billion.
Exports to India accounted for 2 per cent of the overall US exports in 2019.
However, the US slipped to the 2nd spot in 2020 and continues to remain there still as China surpassed the US in terms of trade with India.
From April to July 2021, the US has done total trade worth $36.48 billion with India and incurred a trade surplus of $10.19 billion.
US energy exports are an important area of growth in the trade relationship between the two nations.
India started importing crude and LNG from the US from 2017 and 2018, respectively.
Bilateral hydrocarbon trade reached $9.2 billion during 2019-20, a 93 per cent jump since 2017-18.
The US is one of the top FDI contributors. There was a 44 per cent increase recorded in FDI equity inflow from the US during the FY 2020-21 compared to FY 2019-20.
Long pending trade deal
A trade deal between India and the US has long been on the cards for long with the two nations negotiating terms since 2018.
The then US President Donald Trump cited India as the “tariff king” for imposing tremendously high import duties.
There have been many instances in the past couple of years when a breakthrough was imminent and an announcement was expected.
However, that failed to happen and nothing has materialised yet.
A deal was expected when PM Modi shared the stage with Trump at the ‘Howdy Modi’ event in Texas in 2019. It was then pushed back till after the United Nations General Assembly (UNGA) later that year.
Expectations of a mini trade deal were also high when Trump visited India in February 2020. But, he downplayed all expectations saying, “we can have a trade deal with India, but I’m really saving the big deal for later on.”
Earlier this year, commerce and industry minister Piyush Goyal had said that he will engage with the new US Trade Representative’s office after Joe Biden took charge as the President of the world’s biggest economy.
The minister also noted that India had taken several measures to liberalise its economy and hoped for new investments from US firms.
Trade tariffs
Bilateral tensions between the two nations spiked over high tariff rates imposed by both sides.
The trump administration had highlighted the high tariff rates levied by India on American cars, bikes. Even though India slashed the import duty on high-end bikes like Harley Davidson from 100 per cent to 50 per cent, Trump said the rates were unacceptable.
India is a major importer of steel and aluminium from the US.
In March 2018, America imposed 25 per cent import duty on steel and 10 per cent on aluminium products.
The move had revenue implications of about $240 million on Indian steel and aluminium products and was highly opposed by India.
In retaliation, India imposed higher import duties on 29 US products, including almonds, walnut and pulses.
Recently, US carmaker Tesla had written to the Indian government seeking a big reduction in import duties on electric vehicles, as it aims to begin sales in India later this year.
Currently, import duty of 60 per cent is charged for cars priced below $40,000 and 100 per cent for those above $40,000.
India’s GSP terminated
In June 2019, the then US President Trump had removed India from the US generalised system of preferences (GSP) — a US trade and development programme — for failure to provide equitable and reasonable market access to its goods.
India was the largest beneficiary of the US GSP as it provided duty-free access to $5.6 billion worth products exported to the US.
However, the Trump administration suspended India’s special trade designation that dated back to the 1970s.
With the Biden administration in power, trade relations between the two nations are expected to strengthen.
No to RCEP, TPP
India and the US are not a part of two of the major trade pacts in the Indo-Pacific region — Regional Comprehensive Economic Partnership (RCEP) and Trans Pacific Partnership (TPP).
India pulled out of the China-backed trade agreement as negotiations failed to address its core concerns.
The US also withdrew from the Trans Pacific Partnership (TPP) in 2017. The 11 remaining TPP parties (including 7 RCEP members, but not India or China) signed the new Comprehensive and Progressive Agreement for TPP (CPTPP or TPP-11).
India also has long sought to join the Asia-Pacific Economic Cooperation (APEC), composed of the United States, China, and 19 other economies, but its willingness to make sufficient economic reforms to join is uncertain, according to a report by US Congressional Research Services.
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