The next few days hold the possibility that India and the US may roll back some measures which have strained trade ties. Those ties have worsened recently following a regression to protectionism in both countries. This is consequential to India in particular, as the US is its second largest export market after the European Union and also an important source of foreign direct investment. In addition to trade in goods and services, defence deals have increased exponentially over the last decade. Consequently, any positive step in trade ties is welcome.
India's complaints include tariffs imposed under a national security based legislation and the more recent decision of the Trump administration to strip India of concessions offered under the Generalized System of Preferences programme. The US has been vocal about its displeasure with the Modi government's policy of price control on medical devices and market access for agricultural goods. A limited trade agreement therefore will at least iron out some of the new complications in a fraught trade relationship.
The US-India trade negotiations have been taking place alongside talks to conclude the Regional Comprehensive Economic Partnership (RCEP). This potentially includes Asean and six other countries, including India and China. RCEP has triggered a palpable sense of unease among sections of Indian industry, primarily on account of China's inflexible positioning. Even though there is strong push by some countries to conclude a deal in November, the China factor makes it tricky. The US-India trade negotiations need to be viewed in the backdrop of current challenges confronting cross-border trade. WTO recently forecast that world trade in both 2019 and 2020 will find it tough on account of trade tensions and economic uncertainty.
India needs to limit the negative fallout of this trade environment. Exports are an essential engine of an economic revival. India's slowdown can partially be attributed to the decline in exports as a percentage of GDP over the last few years. One solution is to reverse the slide in trade ties with US, India's most important economic partner. Given the level of differences and the beginning of a US election cycle, a limited deal may be the only possible outcome now. But it should serve as a stepping stone to a far more comprehensive trade relationship in future.
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