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U.S.-India Economic Relationship Summary

Core Content

This document provides an overview of the U.S.-India economic relationship, highlighting both progress and challenges, while emphasizing the importance of a business-oriented approach to deepen bilateral engagement. It is authored by Richard M. Rossow, who assumes the role of the Wadhwani Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies (CSIS). The report outlines key economic indicators and strategic priorities for India's new government.

Main Views

Richard M. Rossow underscores the following main views:

• Economic Progress: The U.S.-India economic relationship has seen significant growth over the past 15 years, with bilateral trade in goods reaching a record $63 billion in 2013.
• U.S. Role: U.S. investment, both direct and institutional, has played a vital role in India's development, supporting job creation, expanding the formal economy, and boosting equity prices.
• IT Services Boom: The IT services sector, initially driven by India's assistance in mitigating the Y2K crisis, has become a transformative industry, enhancing India's global competitiveness.
• Challenges and Concerns: Despite progress, the U.S. business community has raised concerns over recent Indian economic policy decisions, particularly regarding patents, taxation, and local manufacturing, which have affected trade and investment dynamics.
• Strategic Imperatives for India: The report identifies three major economic challenges that India must address to ensure sustainable growth:
  • Trade Deficit: India's trade deficit in fiscal 2013 was $195 billion, which is over 10% of its GDP.
  • Urbanization: The urban population grew by 90 million between 2001 and 2011, creating economic and political pressures in cities.
  • Youth Employment: Approximately 1 million youths join the working-age population each month, requiring innovative strategies to integrate them into the economy.

Key Information

• Trade in Goods: Increased by 1.7% in 2013 to $63 billion.
• Foreign Direct Investment (FDI): Amounted to $22.7 billion in 2013, showing a 3% decrease in USD but a 6% increase in INR.
• Foreign Institutional Investment (FII): Declined to $10 billion in 2013 from $26 billion the previous year, though it remained close to the average of $11.2 billion since 2004.
• Policy Reforms: India responded to U.S. concerns by relaxing FDI caps in certain sectors, freezing the Preferential Market Access policy, and introducing a "Safe Harbor" for transfer pricing.
• Perception and Reality: Despite these reforms, the economic relationship faced real damage in both perception and actual outcomes.

Economic Challenges in India

India's new government is expected to confront several critical economic challenges:

• Trade Deficit: A major concern, accounting for over 10% of GDP, which is significantly higher than the U.S. trade deficit of less than 3% of GDP.
• Urbanization Pressures: The rapid urbanization of 90 million people between 2001 and 2011 has created demand for infrastructure and employment.
• Youth Employment: The continuous influx of 1 million new workers into the labor market necessitates effective economic integration strategies.

U.S. Engagement and Support

Rossow advocates for U.S. engagement that focuses on supporting India's efforts to:

• Build infrastructure.
• Unlock new economic sectors.
• Improve job-related education.
• Foster entrepreneurship.

He believes that a stronger U.S.-India partnership is essential, with business remaining the cornerstone of this collaboration.

Additional Resources

The document also references recent CSIS reports on South Asia, including:

• "India's Solar Energy Future: Policy and Institutions" by Vineeth Murthy
• "India's Solar Energy Future & U.S. Engagement" by Vineeth Murthy
• "Avoiding Armageddon: A Review" by Donald Camp
• "The Leaderboard" by Nisha Desai Biswal
• "India Looks to Afghanistan's 'Year of Transition'" by Karl F. Inderfurth
• "Enhancing the India-Indonesia Strategic Partnership" by Prashanth Parameswaran

Job Listings

For those interested in working on U.S.-India policy issues, the following job listings are available:

• India Director, Campaign for a Tobacco-Free India – Based in Delhi, 15 years of experience required.
• Director of Policy & Civic Engagement, National CAPACD – Based in DC, 10 years of experience required.
• Country Representative, The Asia Foundation – Based in Delhi, 10 years of experience required.
• Urdu International Broadcaster, Broadcasting Board of Governors – Based in DC, 1 year of experience required.
• Manager of Public Policy and Government Affairs, Google – Based in Gurgaon.
• South Asia Intern, Stimson Center – Based in DC.

Conclusion

The report emphasizes the importance of continued U.S.-India economic engagement, focusing on addressing India's strategic challenges and fostering a more robust and inclusive partnership. It also highlights the need for mutual understanding and cooperation between the two nations to achieve shared economic goals.