At the same time, this thinking helped explain the Bush Administration’s enthusiasm for arranging an ‘Indian exemption’ on the nuclear deal, as well as its willingness to strengthen defence cooperation, agree to high-technology transfers and even to promote partnership in space exploration. The Obama Administration, in turn, built on these foundations, adding to it the largely symbolic declaration of support for India’s efforts to obtain a permanent seat on the UN Security Council, as well as welcoming and even promoting India’s membership in assorted non-proliferation arrangements.
This kind of relationship, accepted in these terms across influential policy-making circles in both Washington and New Delhi, falls well short of a traditional alliance, something to which India is generally presumed to be allergic. But it justifies strong American support for India as a player on the global stage, as a sound investment for Washington that advances both countries’ strategic aims.
This was broadly the approach of the Bush Administration, given its profound misgivings about the rise of Chinese power. A somewhat more benevolent view of China on the part of the Obama Administration might have diminished the intensity with which such an approach was advocated in Washington, leading some Indian analysts to write of a state of ‘drift’ in the relationship. But it was amply compensated for by the President’s own considerable regard for Indian Prime Minister Manmohan Singh, whom he even publicly described as the first of the three world leaders he most admired and had good relations with. In sum, each country could afford to take a benevolent view of the pursuit by the other of its own interests, secure in the belief that that pursuit would not fundamentally be incompatible with its own core national objectives on the world stage.
But in fact there is more to the India — US relationship than that. As far back as 2005, Prime Minister Manmohan Singh had declared: ‘I believe we are at a juncture where we can embark on a partnership that can draw both on principle as well as pragmatism.’ That practical benefits are available to both sides in the relationship is readily apparent: as the Canadian diplomat David Malone observed, ‘US demand for information technology and other services has been extremely helpful to India, and India’s capacity to absorb American exports has greatly strengthened American commerce (at a time when much militates against continued unfettered global US economic dominance).’ The question is how to build on those basic trade-offs in order to accomplish a more substantial partnership. The two nations are busily working on this.
So President Obama’s 2010 visit, with which we began this chapter, resulted in significant new agreements across a wide range of subjects, from civil nuclear cooperation to food security issues. The two governments have followed up by developing a collection of consultative mechanisms to improve and strengthen the trade and investment relationship. To take an illustrative list, there are meetings of the US— India Economic and Financial Partnership at finance minister level, the US Trade Representatives’ Trade Policy Forum, and the Department of Commerce’s Commercial Dialogue; perhaps most important to India, a High Technology Cooperation Group has been working to reduce barriers to trade in sensitive cutting-edge high technology.
But governments do not determine every aspect of an economic relationship. US — India business ties have emerged as particularly crucial drivers of the relationship; despite the bureaucratic and domestic political impediments to faster growth, delays in upgrading India’s shoddy infrastructure and the unavoidable transaction costs of doing business in India (including the prevalence of corruption), American firms rightly see the country’s long-term potential as one worth being invested in. According to the McKinsey Global Institute, 80 per cent of the Indian infrastructure of 2030 has yet to be created, and US businesses will have the opportunity to provide the goods and services needed to build or upgrade India’s railways, airports, power plants and IT infrastructure (laying fibre optic cables, for instance). India projects a need to invest some $143 billion in health care, $392 billion in transportation infrastructure and $1.25 trillion in energy production by 2030 to support its rapidly expanding population; many of these contracts could come America’s way.
India’s demographic advantages are particularly attractive: with 65 per cent of its population under thirty-five, India should have a dynamic, productive and youthful workforce when the rest of the world, including China, is ageing. This would give India, according to one study, 25 per cent of the world’s working population by 2025 (provided India does enough to educate and train its young people to take advantage of this demographic opportunity). India is also a market of 1.2 billion actual and potential consumers, with McKinsey estimating that its middle class could number 525 million by 2025 (though not all would have the purchasing power of the American middle class). Given that the United States is India’s principal export market for its services (and has only just been overtaken by China as a trading partner in goods), the scope for collaboration is huge.
The figures are impressive, and reveal a pattern of increasing economic interdependence. Between 2002 and 2009, US goods exports to India quadrupled, growing from $4.1 billion in 2002 to over $16.4 billion in 2009, while US services exports to India more than tripled, increasing from $3.2 billion in 2002 to over $9.9 billion in 2009. More striking than absolute numbers is the fact that US exports to India grew faster than exports to almost all other countries in the world. In 2010, US exports of goods to India shot up 17 per cent and US goods imports from India went up 40 per cent, making India, at $48.8 billion in goods trade, the United States’ twelfth largest goods trading partner. Preliminary figures for 2011 confirmed the positive trend. Nor is the traffic all one-way. The overall trade relationship is a balanced one, and there are some departures from the norm: while overall FDI into India declined over 2009–11, Indian companies continued to invest in the United States, growing at a compound annual growth rate of 35 per cent between 2004 and 2009. In addition to India’s role in providing services to US businesses and consumers, from medical transcriptions to call centres, India has also become a significant source of tourist revenue for the United States, with some 650,000 Indian visitors in 2010, making India the tenth largest source of tourism to America.
India’s biggest asset in its economic relationship with America lies in its national penchant for innovation. Already, multinational giants like GE and Philips are employing more researchers in India than in the United States or Europe, and Indians are doing cutting-edge work designing aircraft parts for Boeing and doing biotech research for US and Indian pharmaceutical companies. The Indian IT revolution, its huge base of trained scientific manpower, entrepreneurial skill honed in adversity, and Indians’ special talent, amid scarcity, for improvising on a shoestring have helped create new, cheaper and more imaginative versions of products Americans first devised, from cardiograms to automobiles. A Google search for ‘frugal innovation’ returns mainly Indian results; the University of Toronto has established an India Innovation Centre to study the phenomenon; and ‘Indovation’ is becoming the new buzzword. As the high costs of manufacturing make the United States more and more a knowledge economy, India seems a natural partner, one that can complement America’s economy and help meet its needs.