Indian Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) was overwhelmingly given a mandate to form a government for a second term by Indian voters over multiple weeks of voting in April and May. As the second Modi term gets underway, the Indian relationship with the United States remains at the top of the agenda in New Delhi. While both Washington and New Delhi continue to profess that their relationship is of critical importance, areas of friction have presented themselves recently, including with the United States’ decision to remove India’s preferential trading partner status under the Generalized System of Preferences (GSP), Indian concerns over U.S. tensions with Iran, the looming threat of U.S. sanctions over New Delhi’s decision to purchase the Russian S-400 surface-to-air missile system, and other issues. To discuss the challenges and opportunities that lie ahead for the U.S.-India relationship, The Diplomat’s senior editor, Ankit Panda, spoke to Richard M. Rossow, a senior adviser and the Wadhwani Chair in U.S.-India Policy Studies at the Washington D.C.-based Center for Strategic and International Studies.
The Diplomat: As the second Modi administration begins, what are the most promising areas for U.S.-India economic cooperation?
Richard Rossow: Just about any area of U.S. economic cooperation with India holds great promise. India will soon become the world’s most-populous country, and the nation has a good track record of economic growth. In fact, India’s economic growth and trade intensity track well with China’s if you account for China’s 13-year head start in launching reforms.
India needs to build and modernize much of its infrastructure; Indian consumers are becoming increasingly affluent; Indian businesses will require capital goods to upgrade their production standards; the opportunities for American firms to invest in India or export to India are wide and increasingly deep. Beyond a general acceleration of trade across products, the sectors that are undergoing steeper increases in U.S. exports include defense materiel and hydrocarbons.
Similarly, Indian firms continue to expand their economic engagement with the United States. The U.S. is India’s top export market for both goods and services. And the U.S. is a key target for outbound Indian investment. This investment had historically been focused on firms in the information technology services sector, but now includes areas like pharmaceuticals, automobiles, tractors, and steel.
Modi and the BJP are more nationally dominant now than after the 2014 general elections. Do you see a serious push ahead on structural economic reform in India? If so, how?
Yes, I do believe more reforms are in the works. The Modi government had a pretty good track record of major reforms in its first term, though many took place quite early—and were consequently seen as “ancient history” by the end of his first term in office. I should suspect that economic reforms will feature prominently once more in the first-year agenda, mainly because big reforms either take time to gestate into economic activity or cause short-term pain like the Goods & Services Tax (GST). Best to launch big reforms early so voters feel the benefit and have forgotten the pain as elections get closer.
There remain real limitations to reform, however. The BJP still only controls 12 of India’s states, where most reforms are still required. Even the states held by the BJP do not always follow Mr. Modi’s mandates, as I highlighted in a recent article for Bloomberg Quint. The BJP holds only 75 of 236 seats in the Rajya Sabha, or upper house of Parliament. So, Mr. Modi must engage the opposition to enact legislative reforms, particularly on sensitive topics like land and labor.
It’s apparent that one of the few areas of major continuity in American foreign policy from the Obama administration to the Trump administration is in the relative maintenance of the upward trajectory of the U.S.-India convergence. As Modi’s second term gets underway, however, the cracks are more apparent — with Iran, a possible Section 301 inquiry, and the U.S. decision to withdraw India’s GSP status. How significant would you say these risks are to the broader U.S.-India relationship?
I do agree that U.S.-India ties were relatively stable in the first year of the Trump administration. And last year’s inaugural 2+2 Ministerial achieved multiple substantive outcomes. But by mid-2018, the inherent challenges in balancing the worldviews of these two leaders was apparent. Notably, “Make America Great Again” and “Make in India” create conflicts in promoting domestic manufacturing over imports. And America’s new hard line against Iran and Venezuela put India back under the whipsaw of pressure and potential sanctions from Washington, DC.
But all these issues may be relatively small potatoes compared to the threat posed by India’s continued defense ties with Russia. The acquisition of the S-400 missile defense system could trigger sanctions that may derail our overall relationship. So far neither side looks like they will blink.
The good news is that we also have plenty of positive markers to the relationship in the near past and the near future. Our two nations are regularly signing critical defense agreement that allow us to share logistics and advanced communications equipment. We have hit new records in bilateral goods trade. And we appear close to signing additional defense agreements regarding the sharing of sensitive geospatial information and sharing advanced military technologies with the Indian private sector.
This decade has marked major upticks in U.S.-India defense collaboration, including on defense technology. One major looming issue is New Delhi’s decision to purchase the Russian-made S-400 surface-to-air missile system, which stands to trigger U.S. sanctions once India takes delivery of the system. How do you assess the S-400 situation evolving over the next year?
Currently, the United States and India are headed towards a serious clash over India’s planned acquisition of the Russian-made S-400 Triumf missile defense system. The U.S. did somewhat widen the waiver authority under the “Countering America’s Adversaries Through Sanctions Act (CAATSA)” legislation last year, with India in mind. However, the U.S. is engaging India on this issue far too late. With the departure of former Secretary of Defense James Mattis last year, it’s unclear who would shepherd a potential waiver through the White House if India completes the purchase.
I suspect we will not see any finality on this issue — U.S. acceptance of India’s acquisition of the system, or American sanctions — anytime soon. We will continue to make progress in other areas of our defense relationship and hope that India’s notoriously-poor defense acquisition history lets this die a slow death, or the Trump Administration re-commits itself to protecting the growing U.S.-India security partnership irrespective of India’s decision to acquire the S-400 Triumf system. Some important U.S. defense sales to India in the coming year may help to assuage concerns about India’s reliance on Russian-made military equipment.
There are concerns in India about a sudden American withdrawal from Afghanistan, creating a regional security vacuum. How can India best ensure that its concerns are addressed as U.S. negotiations with the Taliban carry on?
India has been suffering from quick changes in U.S. policy towards Afghanistan for some time — starting well before the Trump Administration. Despite promises to engage India more deeply on policy decisions, this rarely happens to the extent India would like.
Three main issues come to mind in terms of how the U.S. and India can engage more fruitfully on Afghanistan. First, India must use its limited pull with the Trump Administration to support better long-term strategies in Afghanistan. This may seem at times like a fruitless task, but India’s voice does carry some weight. Second, the United States must engage India more proactively in our strategy. India has deep stakes in Afghanistan’s future, and has long been a key contributor to Afghanistan’s development goals. And third, we must continue to carve out India’s investment in Iran’s Chabahar Port from our overall approach to Iran. While this has been the often-stated policy of the Trump Administration until now, increased tensions between Iran and the United States could cause a review of this position.
This interview has been lightly edited.