Prime Minister Narendra Modi will visit President Obama and address a joint session of Congress this week. The two leaders have developed a genuinely warm and positive relationship. While India and the United States have worked well together over the past eight years, we have achieved no landmark outcome which captures public attention and carries our two governments into a new American administration. Launching an economic partnership with India based on trade and investment could be a key element in that legacy.
The United States has a huge interest in a prosperous successful India. It will shortly be the most populous country on the planet. It is headed toward becoming the third largest economy and now enjoys the fastest growth of any major country at about 7 per cent per year. It is a good and growing destination for U.S. trade and investment. It has the only economy big enough to spur global growth as China did over the last decade. India is well positioned to help assure a balance of power in Asia which must be a key American security objective.
Prime Minister Modi took office two years ago with strong popular support and an ambitious reform agenda that sought the annual growth of 8-10 per cent needed to employ India’s rapidly expanding population, further reduce its large remaining pockets of poverty and propel it to a more prominent global role. But the country’s contentious politics have limited his achievements to date. The Prime Minister now needs to engage India much more extensively in the world economy because no country has ever achieved sustained growth at his target rates without deepening its interdependence and India’s international competitiveness has in fact been declining. In addition, external liberalization will give new life to his internal reforms as it has in China and so many other countries.
President Obama and the Prime Minister could take three steps together that would energize India’s reforms and its economy, promote U.S. political and economic interests, and create a new framework for ongoing cooperation between the two countries. One is to instruct their officials to complete a bilateral investment treaty, which has been under negotiation for several years, before the end of 2016. This would accelerate the flow of capital, technology and global supply-chain participation to India. It would also signal to the world that India was serious about engaging globally, an essential element of confidence-building since the country has for so long been a foot-dragger on international trade and investment issues.
Second, if India will commit to participate seriously, the United States should shepherd it into the major plurilateral negotiations on trade in services and environmental goods that are now proceeding around the World Trade Organization. India is highly competitive in these sectors but has inexplicably remained outside both initiatives. Engagement in them would spur Indian exports, leading to faster growth, and indicate a new global activism for the Modi government.
Third, based on these and hopefully other indicators of India’s intention to integrate with the world economy, President Obama should sponsor and actively promote its membership in the Asia Pacific Economic Cooperation (APEC) forum at the group’s annual summit in November. APEC has represented the chief institutional framework for trans-Pacific cooperation for over two decades and India is the only major regional power outside it. APEC carries no binding obligations but it would help India open its economy and strengthen its international competitiveness. APEC has also been the chief incubator of a series of significant trade initiatives, including the Trans-Pacific Partnership (TPP), and APEC membership has heretofore been a prerequisite for participation in that megaregional agreement.
The likely expansion of TPP to include most of Asia over the coming years would leave India totally isolated, with large economic and political costs, if it remains outside. On the positive side, Indian exports to an expanded TPP could rise by over $500 billion per year and jumpstart its growth into the needed 8-10 per cent range. The United States would also gain in economic terms, expanding its exports to India by more than 50 per cent, and has little to fear from Indian competition because the country’s manufacturing sector is relatively underdeveloped.
The TPP of course will come into existence and then expand only if the United States resolves its current political debate in favor of full participation. Prime Minister Modi’s visit is a timely reminder of how the agreement can provide a vital framework for US engagement in Asia and thus how important it is to do so. It is also a reminder of how devastating it would be for the United States to turn its back on the most dynamic part of the world economy and most critical region of world politics. The United States and India can launch an historic and crucial partnership of the world’s two largest democracies at their upcoming meetings, filling the missing economic link in their relationship, if the two leaders demonstrate the vision and courage to do so.
Fred Bergsten is Senior Fellow and Director Emeritus at the Peterson Institute for International Economics. His India’s Rise: A Strategy for Trade-Led Growth was published by the Institute in September 2015. Ambassador (ret.) Frank G. Wisner is the former ambassador to Zambia, Egypt, the Philippines and India, and served as Under Secretary of Defense for Policy and as Under Secretary of State for International Security Affairs.