As thriving democracies, India and the United States have common interests and much in common. The leaders of the two countries have long strived to maintain strong bilateral relations.
In his leaving statement, Prime Minister Modi said his trip to the United States will provide an opportunity to strengthen the comprehensive comprehensive strategic partnership between the two countries.
America is India’s second largest trading partner.
However, despite the huge volume of trade, the two countries failed to seal the long-awaited trade deal.
As Modi and Biden renew and strengthen their age-old ties, we take a look at how the economies of both countries have formed, particularly after the Covid outbreak and where the two stand in terms of trade.
History of two economies
Even before the start of the Covid-19 pandemic, India’s gross domestic product (GDP) growth had declined at the slowest rate in more than 6 years.
The country experienced its first-ever technical recession in the first half of 2020 with two successive quarters of negative growth as the nationwide lockdown to curb the spread of the virus brought business to a halt altogether.
GDP began to gradually recover from the third quarter of FY21 when certain activities resumed with the gradual relaxation of the Covid brakes.
However, the recovery was not enough to completely erase the negative impact of the Covid and for the first time in 40 years, GDP recorded negative annual growth of 7.3%.
Exercise 22 has started on a positive note. India’s GDP is now growing at its fastest pace with a 20.1 percent increase in the first quarter supported by a weak base effect.
But it will take time before the economy returns to its pre-pandemic level.
Now, let’s analyze the US economy.
The US economy also contracted at a record average annualized rate of 19.2% from its peak in Q4 2019 through Q2 2020, the largest slowdown since 1947.
The mandatory nationwide shutdown of non-essential activities in March 2020 to curb the first wave of Covid infections has left the economy faltering, throwing a record 22.362 million people out of work.
However, with an increased pace of vaccination, the United States has been able to control the increase in the number of cases since the start of 2021. The economy rebounded to reach a GDP of 6.3% in the second quarter of FY22 .
The United States is one of the few economies to slowly return to its pre-pandemic growth.
India-United States trade statistics
The United States has long been one of India’s major trading partners. It has also been India’s largest export market.
In 2019, America was India’s largest trading partner with exports worth $ 53 billion, imports of $ 35.8 billion, and a trade surplus of $ 17.2 billion.
Exports to India accounted for 2% of overall US exports in 2019.
However, the United States slipped to 2nd place in 2020 and continues to stay there as China has overtaken the United States in terms of trade with India.
From April to July 2021, the United States traded a total of $ 36.48 billion with India and recorded a trade surplus of $ 10.19 billion.
Energy exports from the United States are an important area of growth in the trade relationship between the two countries.
India started importing crude and LNG from the United States from 2017 and 2018, respectively.
Bilateral hydrocarbon trade reached $ 9.2 billion in 2019-2020, a 93% jump since 2017-2018.
The United States is a major contributor of FDI. There was a 44% increase in FDI inflows from the United States in fiscal year 2020-21 compared to fiscal year 2019-2020.
Long-standing trade agreement
A trade deal between India and the United States has been on the cards for a long time, with the two countries negotiating the terms since 2018.
Then-US President Donald Trump cited India as the “tariff king” for imposing extremely high import duties.
There have been numerous instances over the past two years where a breakthrough was imminent and an announcement was expected.
However, that has not happened and nothing has materialized yet.
A deal was expected when Prime Minister Modi shared the stage with Trump at the ‘Howdy Modi’ event in Texas in 2019. It was later pushed back after the United Nations General Assembly (UNGA) later in the year. year.
Expectations for a mini trade deal were also high when Trump visited India in February 2020. But, he downplayed all expectations by saying, “We can have a trade deal with India, but I keep really big deal for later “.
Earlier this year, Trade and Industry Minister Piyush Goyal said he would engage with the new office of the US Trade Representative after Joe Biden takes office as chairman of the most great economy of the world.
The minister also noted that India had taken several steps to liberalize its economy and hoped for further investment from US companies.
Bilateral tensions between the two countries have increased due to the high tariff rates imposed by both sides.
The Trump administration had pointed out the high tariff rates levied by India on American cars and bicycles. Even though India cut import duties on high-end bikes like Harley Davidson from 100% to 50%, Trump said the rates were unacceptable.
India is a major importer of steel and aluminum from the United States.
In March 2018, the United States imposed import tariffs of 25 percent on steel and 10 percent on aluminum products.
The move had revenue implications of around $ 240 million on Indian steel and aluminum products and was strongly opposed by India.
In retaliation, India imposed higher import duties on 29 US products, including almonds, nuts and pulses.
Recently, US automaker Tesla wrote to the Indian government asking for a significant reduction in import duties on electric vehicles, as it aims to start sales in India later this year.
Currently, import duties of 60 percent are charged for cars priced below $ 40,000 and 100 percent for those priced above $ 40,000.
India’s GSP has ended
In June 2019, then-US President Trump pulled India out of the US Generalized System of Preferences (GSP) – a US trade and development program – for failing to provide fair and reasonable market access for its products.
India has been the largest recipient of the 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 dating back to the 1970s.
With the Biden administration in power, trade relations between the two nations are expected to strengthen.
No to RCEP, TPP
India and the United States are not part of two of the Indo-Pacific region’s main trade pacts: the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP).
India withdrew from the China-backed trade deal as negotiations failed to address its main concerns.
The United States also withdrew from the Trans-Pacific Partnership (TPP) in 2017. The other 11 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 also long sought to join the Asia-Pacific Economic Cooperation (APEC), made up of the United States, China and 19 other economies, but its willingness to make economic reforms sufficient to join it is uncertain, according to a report from the US Congress. Research services.