The flap in India over the US trade fact sheet detailing various “commitments” required from Delhi including on items like lentils, is expected to die down as appropriate changes have been made. But it underscores the point that bureaucracies on either side are at work, seeking to fine tune and win concessions here or there.
This could conceivably carry on until March when the framework on the interim agreement is expected to be signed in the White House.
It underscores another point, says strategic affairs writer and thinker Dr Raja Mohan that “Delhi has to come to terms with a reality staring at it in the face — the significant complementarity with the Western economies.”
India’s goods trade with the US in 2024 was nearly $130 billion with the surplus in favour of Delhi. Comparatively, trade with Russia is in deficit. India-Russia trade in 2024 was $69 billion driven largely by purchases of discounted crude oil. Prior to the Ukraine war, Russia-India trade was around $11 billion!
The US is a $31 trillion economy compared to $2.5 trillion for Russia. There is a market and appetite in the US for Indian goods while Russia is only now waking up to the possibility of buying goods from India given Western sanctions.
There’s little to be had from China either. A $20 trillion economy, it keeps Indian goods out. Result: India’s trade deficit with China is over $100 billion and growing.
In a sense, India is left with few choices at a time when Donald Trump is driving a restructuring of the global technological and economic order among the major centres of power, whether adversaries or allies.
Case in point, Raja Mohan cites Moscow offering Washington a $12-trillion economic partnership that would clearly dilute its dependence on China. So to those bridling over US pressure on India over its purchases of Russian oil, Moscow will do whatever is in its interest. Trump too may dial down his objections to Russian oil if a deal with Moscow is in place.
That the Modi government understands the broader issues at play is reflected in the slew of trade deals it has signed with a number of countries or blocs (EU, UK, EFTA, Oman, UAE). This while also recognising that the US deal with India does not mean it will not look for similar deals with other countries:
Witness the US-Bangladesh agreement that is expected to hit Indian exports of textiles and apparel to the US. There is much breast-beating in the media about how Indian exports to the US will suffer because of competition from Bangladesh, a tiny country dwarfed by India in every respect.
Clearly, there is something Bangladesh is doing that enables it to out compete India in textiles. Maybe some homework is required here.
It raises the larger question, with so many doors opening, can Indian industry compete?Economic affairs writer Anil Padmanabhan quotes from a study by the Centre for Social & Economic Progress (CSEP) about the lack of competitiveness of the Indian economy. An six-point index developed by CSEP to determine competitiveness put India at the bottom.
“Lack of competitiveness impacts in various ways: there is an inability to achieve economies of scale which is needed to ensure cost-efficiency. Indian labour laws—only recently re-tuned—provided perverse incentives for firms to remain small (under 100 workers) to avoid regulatory cholesterol,” wrote Padmanabhan.
The concentration at the top of the industrial spectrum results in a few large companies possessing disproportionate pricing power. Because they control upstream production and are shielded by high import tariffs—something that will be dialled down once the FTAs kick-in—they can charge higher prices for inputs. In turn, this makes it difficult for downstream manufacturers to remain competitive.
Due to a lack of scale and resources, Indian firms struggle to invest in R&D and innovation. Consequently, India remains largely stuck in the assembly stage of production. The assurance of a large domestic market, combined with the lack of mid-sized firms capable of pivoting to international trends, leads to a disconnect with global demand. India’s textile industry remains focused on cotton-based products for domestic use, causing it to lose market share to Bangladesh and Vietnam.
There is a lack of competitive, mid-sized firms that can act as funnels for the absorption of advanced technologies often transferred through FTAs. These need to be fixed. By pushing hard for FTAs, Modi is in fact telling Indian industry, shape up or shut down.
