As thriving democracies, India and the US share common interests and much in common. The leaders of the two countries have long strived to maintain strong bilateral ties.
In his departure statement, PM Modi said his visit to the US would be an opportunity to strengthen the comprehensive global strategic partnership between the two countries.
America is India’s second largest trading partner.
However, despite the huge trade volume, both the countries have failed to seal the much-awaited trade deal.
As Modi and Biden renew and strengthen the age-old relationship, we take a look at how the two countries’ economies have shaped up, especially after the Covid outbreak and where the two stand in terms of trade.
tale of two economies
Even before the onset of the Covid-19 pandemic, India’s Gross Domestic Product (GDP) growth had fallen at the slowest rate in 6 years.
The country recorded its first technical slowdown in the first half of 2020, recording negative growth for two consecutive quarters, as a nationwide lockdown to contain the spread of the virus completely halted business activities.
GDP started to recover gradually from the third quarter of FY21, when some activities resumed with a gradual easing of Covid restrictions.
However, the recovery was not enough to completely eradicate the adverse impact of COVID and for the first time in 40 years the GDP registered a negative annual growth of 7.3 per cent.
FY 22 has started on a positive note. India’s GDP is now growing at its fastest pace with a growth of 20.1 per cent in the first quarter, supported by a lower base effect.
But it will take time for the economy to return to its pre-pandemic levels.
Now, let’s analyze the US economy.
The US economy also contracted at a record average annual rate of 19.2 percent in the fourth quarter of 2019 from its peak in the fourth quarter of 2019. It was the deepest recession recorded since 1947.
A nationwide mandatory shutdown of non-essential businesses in March 2020 to curb the first wave of Covid infections crippled the economy and left a record 22.362 million people out of work.
However, with the increased pace of vaccination, the US was able to control the increase in cases from early 2021. The economy returned to GDP of 6.3 per cent in the second quarter of FY12.
The US is one of very few economies that are slowly moving towards their pre-pandemic growth.
India-US trade statistics
The US has long been one of India’s top trading partners. It has also been the largest export market of India.
In 2019, the US was India’s largest trading partner with exports of $53 billion, imports of $35.8 billion and a trade surplus of $17.2 billion.
Exports to India accounted for 2 percent of total US exports in 2019.
However, the US slipped to the second position in 2020 and remains there as China has overtaken the US in terms of trade with India.
From April to July 2021, the US has a total trade of $36.48 billion with India and a trade surplus of $10.19 billion.
US energy exports are an important area of growth in the trade relationship between the two countries.
India started importing crude oil and LNG from the US from 2017 and 2018 respectively.
Bilateral hydrocarbon trade reached $9.2 billion during 2019-20, an increase of 93 percent over 2017-18.
The US is one of the top FDI contributors. FDI equity inflows from the US registered a growth of 44 per cent during FY 2020-21 as compared to FY 2019-20.
long pending business deal
A trade deal between India and the US has long been negotiated between the two countries on terms since 2018.
The then US President Donald Trump cited India as the “tariff king” for imposing extremely high import duties.
There have been instances over the years when a breakthrough was imminent and an announcement was expected.
However, this could not happen and nothing has happened so far.
A deal was expected when PM Modi shared the stage with Trump at the ‘Howdy Modi’ event in Texas in 2019. It was then pushed back until after the United Nations General Assembly (UNGA) later that year.
Expectations of a mini trade deal were also high when Trump visited India in February 2020. But, he shrugged off all expectations, saying, “We can have a trade deal with India, but I’m actually saving the big deal for later.”
Earlier this year, Commerce and Industry Minister Piyush Goyal said he would join the office of the new US Trade Representative after Joe Biden takes over as the chairman of the world’s largest economy.
The minister also said that India has taken several measures to liberalize its economy and expects fresh investments from US firms.
trade fee
Bilateral tensions between the two countries escalated over the high tariff rates imposed by both sides.
The Trump administration had highlighted the high tariff rates imposed by India on American cars, bikes. Even though India reduced import duty on high-end bikes like Harley Davidson from 100 per cent to 50 per cent, Trump said the rates were unacceptable.
India is a major importer of steel and aluminum from the US.
In March 2018, the US imposed a 25 per cent import duty on steel and 10 per cent on aluminum products.
The move had a revenue impact of about $240 million on Indian steel and aluminum products and was strongly opposed by India.
In retaliation, India imposed higher import duties on 29 American products including almonds, walnuts and pulses.
Recently, US carmaker Tesla wrote to the Indian government seeking a major reduction in import duty on electric vehicles as it aims to start sales in India later this year.
Currently, there is an import duty of 60 per cent on cars priced below $40,000 and 100 per cent on cars above $40,000.
India’s GSP ends
In June 2019, the then US President Trump had removed India from the US Generalized System of Preferences (GSP) – a US trade and development program – for its failure to provide equitable and fair market access to its goods.
India was the biggest beneficiary of US GSP as it provided duty-free access to $5.6 billion worth of products exported to the US.
However, the Trump administration suspended India’s special trade designation, which dates back to the 1970s.
Trade ties between the two countries are expected to strengthen with the Biden administration coming to power.
RCEP, not TPP
India and the US are not part of two major trade agreements in the Indo-Pacific region – the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP).
India withdrew from the China-backed trade deal as talks failed to address its main concerns.
The US also withdrew from the Trans Pacific Partnership (TPP) in 2017. The 11 remaining TPP parties (including 7 RCEP members, but not India or China) signed the new Comprehensive and Progressive Agreement for the TPP (CPTPP or TPP-11).
India has long sought to join the Asia-Pacific Economic Cooperation (APEC), which is made up of the United States, China and 19 other economies, but its willingness to undertake substantial economic reforms to join is uncertain. , as reported in a US Congressional report. Research Services.
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