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Getting Back on Track Economically with India

by Alyssa Ayres
June 25, 2014

A fisherman prepares to cast his fishing net in the waters of the Vembanad lake as a container ship is seen docked in the background at a port in Vallarpadam, in the southern Indian city of Kochi on February 11, 2014 (Sivaram V/Courtesy: Reuters). A fisherman prepares to cast his fishing net in the waters of the Vembanad lake as a container ship is seen docked in the background at a port in Vallarpadam in the southern Indian city of Kochi on February 11, 2014 (Sivaram V/Courtesy: Reuters).

India’s new government, led by business-oriented Prime Minister Narendra Modi, has emphasized the importance of restoring India’s economic growth to higher rates, along with restoring India’s place in the world as a great trading nation. It will be important for the United States to advance policies responsive to a more open Indian approach on trade and investment matters. I argue, in a new Policy Innovation Memorandum released today, that a good way to begin revitalizing the U.S.-India economic relationship, currently beset with animosities, will be for the United States to support India’s long-pending bid for membership in the Asia-Pacific Economic Cooperation Forum (APEC).

The Indian government will present its budget on July 10, at which point the world will have the first opportunity to see specifics on how New Delhi’s new leadership plans to implement its economic goals. The Modi government is likely to present a new budget which clarifies India’s confusing tax laws, and is further likely to raise foreign direct investment caps in several sectors. This would all be excellent news and would go some distance to signaling India’s renewed openness to international trade and investment.

As I’ve written elsewhere, a positive signal on trade couldn’t be more needed for U.S.-India economic ties, which have suffered over the past three years due to increasingly difficult market access complaints on both sides. I recommended in Foreign Policy last month that Washington could respond to an open trade door in New Delhi by “injecting a measure of cooperation” into the trade and economic conversation: first, by convening the Trade Policy Forum, in hiatus since 2010; second, by prioritizing negotiations on the bilateral investment treaty already underway; and finally, by championing Indian membership in APEC as a step towards Indian membership in the Trans-Pacific Partnership trade arrangement down the line.

My Policy Innovation Memorandum, Bringing India Inside the Asian Trade Tent, delves into the rationale for supporting Indian membership in APEC in much greater detail. Indian membership would have several merits: providing an initiative on which the United States and India can cooperate in an area that has more typically involved acrimony in recent years; but also providing a means through which India’s economic opening could be supported through technical consultation among the network of open Asia-Pacific trading economies. Further, APEC’s technical working groups focus on many of the precise issues troubling the U.S.-India economic relationship and would provide alternate forums for discussion.

From my perspective, this would be a helpful way to bring India further into a multilateral grouping with norms the United States shares, a positive development, and would be a good opening to resolve concerns and revitalize ties. India is the world’s third largest economy in terms of purchasing power parity, and one slated to continue growing in size and importance. But U.S.-India trade has not begun to realize its larger potential—just note Vice President Joe Biden’s call for both countries to increase two-way trade five-fold to $500 billion, rather than the present nearly $100 billion level. (For comparison, U.S. trade with India in goods and services was $96.7 billion in 2013, whereas with China the same measure was $616.5 billion). Bringing India inside the Asian trade tent through APEC membership would be a logical and helpful step. To that end, my memorandum provides a specific diplomatic strategy the Obama administration could follow.

Follow me on Twitter: @AyresAlyssa

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