How Modi Can Boost India-U.S. Ties
JUL 30, 2014 4:35 PM EDT
By Richard A. Boucher
Narendra Modi is two months into his tenure as prime minister of India. This week, U.S. Secretary of State John Kerry and Secretary of Commerce Penny Pritzker will travel to India for the U.S.-India Strategic Dialogue — a trip that coincides with the deadline for approving the World Trade Organization’s Trade Facilitation Agreement, a measure strongly supported by the U.S. that India is now threatening to derail. Just what does the future hold for U.S.-India relations under Modi?
Modi’s priorities are growth and governance: improving government efficiency, speeding up government approvals and keeping corruption down. For that, India feels a well-deserved bump of investor interest, foreign and domestic. If he has a strategic outlook, it is to pick up manufacturing jobs as China grows more expensive.
So what’s he doing to get there?
On foreign policy, Modi’s first priorities are regional: He invited leaders from all his neighbors, including Pakistan, to his inauguration. China is very much on his mind. He traveled there with business delegations several times as chief minister of Gujarat state. As prime minister, his first visit was to Bhutan, which showed neighborliness but also put China on notice not to push on the Himalayas. His administration has already had talks with Chinese leaders, and he met President Xi Jinping at the BRICS summit in Brazil. However, the accounts of these meetings all show cooperation with a note of discord — over borders or Indian oil companies in the South China Sea, for example. Modi wants to convey the idea of a strong and confident India in the region and with China.
What about the U.S.? Well, to begin with, the visa question — the U.S. pulled his visa after the 2002 anti-Muslim riots in Gujarat — is moot. He can and will travel to the U.S. anytime on a diplomatic visa. Similarly, the flare-up over the Indian diplomat in New York, Devyani Khobragade, has died down. President Barack Obama has invited Modi for a state visit after United Nations meetings in September. So, it’s all on the up-and-up, right?
More or less. Frankly, Modi doesn’t appear to have any vision for the relationship; two years from the end of his term, Obama doesn’t appear to have one, either. However, there is much both nations can do to lay a strategic foundation for future cooperation.
First, India needs to push through its half-finished reforms and earn a reputation as a country that can get things done, as well as spur investment, not through some protracted negotiation of a complicated agreement, but through reforms that make a difference for U.S. and other investors. Ultimately, raising India’s position on the World Bank’s Doing Business index, where India now stands at No. 134, between Yemen and Ecuador, would make India more important to U.S. firms and raise its standing in the modern world of value chains, open markets and cross-border investment.
Modi began by changing hiring and firing policies, but more reforms could bring more jobs and job market flexibility. The last government pushed through a law for foreign universities to set up in India — and U.S. schools are more than eager to do so — but didn’t finish the job with regulations. The substitution of a goods and services tax (like a value-added tax) for a myriad of corporate levies has been promised. Modi’s government announced that foreigners could invest up to 49 percent in defense firms, enough to get some joint participation but not the majority share that would make India a hub for defense manufacturing. Completing these reforms would boost business investment and fix India on the growth map again, as would not doing dumb things like getting crosswise with the global effort to open up trade and investment through the Trade Facilitation Agreement.
Second, some new reforms are needed. The great leap forward to nuclear cooperation and a cleaner energy future for India fell flat because of India’s nuclear liability law. The foreign community has united to make it clear that amendments are needed. Japan will press during Modi’s visit to Japan in August, so watch for announcements. In addition, will Modi truly reform state enterprises (public-sector undertakings, in Indian parlance)? Will he finally open up retail and finance to foreign investment? What about e-commerce? More reform means more business, more prosperity and more respect for India in the U.S. and elsewhere.
Of course, the U.S. can take some meaningful steps without a grand vision. As it withdraws from Afghanistan, the U.S. can recommit to honest counterterrorism cooperation, building on the dialogue the countries have had since the Mumbai attacks. With China on both countries’ minds, we can expand naval cooperation to protect sea lanes from the Persian Gulf to the Strait of Malacca. At Beijing’s Asia-Pacific Economic Cooperation summit in November, the U.S. can push for India to join. (Was India part of the Asia pivot, or does the U.S. have a myopic view of what constitutes Asia?)
Other U.S. reforms, of immigration law and in particular an expansion of H-1B visas, would benefit innovation in both countries.
So there is an agenda for U.S.-India relations, but it is centered on reforms and investment with a strategic underpinning. Grand announcements with no follow-through won’t help either side. In this regard, Pritzker’s presence this week is more important than Kerry’s. If Obama wants to make a difference, he could follow up during Modi’s September visit by introducing him to U.S. business leaders who want to invest and strengthen the foundation for the nations’ relations in the years to come.
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