CGD senior fellow Arvind Subramanian was quoted in a Financial Times piece on trade between the U.S. and India.
From the article:
When the US and India signed a landmark nuclear deal in 2008, it was heralded as a new era in post-Cold war ties between the world’s two biggest democracies.
But despite the fanfare, the relationship has not lived up to its billing. Washington was angry last year when US companies failed to win a deal to sell fighter jets to India. More recently, the Obama administration has become concerned about Indian tax measures that could affect US and other foreign companies.
Last week, Tim Geither, US treasury secretary, pressed India’s finance minister over Delhi’s plans to retroactively tax certain international deals, urging Pranab Mukherjee to reassure investors that India was open to “foreign capital”.
India has already launched a World Trade Organisation case against the US over steel duties and is about to file another on work visas. In March, the Obama administration filed its first case against India over its ban on US poultry products.
Arvind Subramanian, a fellow at the Peterson Institute for International Economics in Washington, says there has been a “fairly sharp” decline in the trajectory of US-India trade and economic relations, despite continued growth in two-way trade, which rose to almost $100bn in 2011, up from $72bn in 2008.
US hopes that the nuclear deal would open the gates of India’s fast expanding defence, retail and education sectors have been snagged by Manmohan Singh’s government.
“The whole reform process in India has been stalled for a considerable period of time,” said Mr Subramanian. “The bottom line is that investor sentiment in India is pretty close to rock-bottom.”
In December, India’s ruling Congress party botched a key reform that would have allowed foreign supermarkets such as Walmart to enter its $450bn retail market, a move that one Mumbai-based US businessman said had frustrated Washington.
“You can’t expect the Americans to be nice to Indian outsourcing companies if Walmart can’t set up shop here,” the businessman said.
One US government official played down the tensions, pointing to the “bigger narrative” of greater economic activity with India and greater co-operation on clean energy and education.
“We are doing more with India than certainly ever in the past,” the official said. “Do we have issues where we disagree? Of course, but that’s true of any bilateral relationship.”
While many in the US point to India’s poor record on reform as the main reason for the downward spiral in economic relations, others say the US is partly to blame.
Satish Narayanan, a former US official who worked on India trade issues in the current adminstration, said the Obama White House misread the state of the relationship in its early days.
“The Obama administration . . . failed to place enough effort in developing a comprehensive sustained India policy,” said Mr Narayanan. “With the backdrop of the civil nuclear deal and nearly a decade of strengthening ties, India expected a continued elevation of a bond they viewed on the fast track.”
India wanted the US to push reforms at the International Monetary Fund and World Bank that would give its voice greater resonance on international platforms – something that Delhi says did not happen. Reciprocal state visits by Mr Obama and Mr Singh had been of little political and economic effect, added Mr Narayanan.
“With a teetering domestic economy, President Obama’s visit [to India in2010] was mostly focused on touting export successes for American companies that could translate to jobs at home,” says Mr Narayanan.
Some analysts in India are confident that relations could improve once the US election is over and the recovery in the world’s largest economy picks up.
“We are still on track, the relationship may have not moved forward but there is no regression,” says Rajiv Kumar, director of the Federation of Indian Chambers of Commerce and Industry. “The relationship is still alive but not kicking as hard as expected.”