Evan A. Feigenbaum | 31 Jul, 2014
John Kerry visits
India Wednesday as a raft of crises consume American diplomacy. By contrast,
US-India relations are at a moment of opportunity, but the US Secretary of
State faces challenges in New Delhi that are significant in their own way.
For one thing, after a decade of disengagement with Narendra Modi, Washington
is eager to make a fresh start. The US is sending three cabinet secretaries to
India in quick succession - Kerry (State), Penny Pritzker (Commerce), and Chuck
Hagel (Defence) - and Washington is preparing to host Modi himself in
September. From the US perspective, Modi's government offers a welcome respite
from years of perceived strategic and economic drift under UPA-2.
But Kerry's visit is also very well timed:
First, the NDA government has been in office for nearly two months. Modi has
met Xi Jinping and Vladimir Putin, among others, so it is high time for cabinet-level
US engagement.
Second, as Kerry himself argued in a speech this week, relations with
strategically important countries cannot be shunted to the sidelines by crises.
For over a decade, India has been among the small group of countries vital to
American strategy. And the US has a strong stake in continued Indian reform and
success-especially as they contribute to global growth, promote market-based
economic policies, help secure the global commons, and maintain a mutually
favourable balance of power in Asia.
Third, Kerry and others, including Treasury Secretary Jack Lew and Federal
Reserve Chair Janet Yellen, just attended the US-China strategic and economic
dialogue in Beijing. Continued absence from New Delhi at the cabinet level
would invite unflattering comparisons between US approaches to China and India.
The two sides' first challenge is to find new ways of working effectively.
Modi, unlike UPA-2, has designed an administration with a strengthened
executive and an activist Office of the Prime Minister. In such a set-up, there
are inherent limits to reliance on ritualized Strategic Dialogue between
foreign ministries.
The two sides should relook existing structures, reinvigorating trade, defence,
and CEO forums. But they also need new lines of coordination that reflect the
emerging institutional and political set-up in New Delhi.
Kerry is attending a Strategic Dialogue that has been
a calendar-driven exercise. What the two countries need is a "real" strategic
dialogue, built upon a less ritualized but more
powerful set of first principles: strengthened coordination, no surprises on
core security equities, sensitivity to each other’s domestic constraints, and
frequent not ritualized contact at the highest levels.
The most immediate need is to strengthen trust after a rough patch.
From India's perspective, the causes of these frictions include US trade cases,
the Khobragade debacle, and inadequate US attention to India's security
concerns, especially in India's neighborhood.
From the US perspective such concerns have centered on the scope and pace of
Indian economic reforms. These have badly tainted market sentiment and soured
US firms on India. Retroactive taxes and the nuclear liability bill have
compounded these negative sentiments.
Viewed through this prism, the current US-India standoff at the WTO is badly
timed.
The US side will listen closely to India’s economic priorities. Hopefully, it
will bring a few ideas-for example, technology releases, defence licenses, and
co-production. Washington needs to avoid hectoring about India’s investment
climate. Instead, it should inject something tangible into the mix, especially
since Beijing and Tokyo, among others, offer India project finance vehicles the
US lacks.
But the biggest challenges are structural, and long-term in nature.
First, economic constraints have hindered strategic coordination, especially in
East Asia.
The US and India share a powerful interest in assuring a favourable balance of
power. Much binds them, not least shared regional maritime and energy
interests. But lofty strategic ambitions require strengthened economic, not
just security, content in relations with regional states, and with one another
in the East Asian context.
So it is hardly ideal that Washington and New Delhi are pursuing separate, and
competitive, regional trade agreements: Trans-Pacific Partnership (TPP) and
Regional Comprehensive Economic Partnership (RCEP).
Meanwhile, US economic weight in Asia is increasing absolutely but declining in
relative terms. From 2000 to 2009, China’s share of ASEAN trade increased
threefold, surpassing the US share, which declined by a third in the same
period. The US wants to leverage TPP to restore its leadership but there is
zero prospect of a TPP this year and the Administration has no stomach to
pursue needed Trade Promotion Authority with Congress.
India's challenge is greater. Trade plays a growing role in its economy but
scale remains a handicap. In 2012, 11.7 percent of ASEAN trade was with China,
just 2.9 percent with India. And that is no coincidence: the backbone of East
Asian economies remains integrated supply and production chains from which
India is largely absent. With rising labour costs in China, the geography of
Asian manufacturing will shift, so India has an opportunity to align its
national manufacturing policies with strategic imperatives to the east.
At the same time, the US and India need new bilateral economic vehicles. Vice
President Biden has called for an increase in trade from $100 to $500 billion-a
number analogous to US-China trade. But that is hard to fathom: India lacks
China's manufacturing base, its integration into regional and global supply
chains, its comparative openness to foreign investment at a comparable stage of
development, and its hard infrastructure.
Instead of pithy slogans, the two sides need better aligned agendas, especially
on opportunities for cross-border investment, manufacturing, infrastructure,
and gasification and energy opportunities.
For Americans, the most pressing need is for growth-conducive reforms and
investor friendly tax and sectoral policies in India. The Arun Jaitley budget
offered hope but less than many in the US had wished for.
One step would be a bilateral investment treaty. Indian firms would benefit
from investor protections in the US. US firms would welcome relevant legal
changes and safeguards in India. Both countries would benefit from the treaty’s
independent arbitration process.
In fact, investment is, at this point, more important than trade. It is a vote
of confidence in the other country’s economy, and meshes well with current
needs on each side.
Above all, the two sides need to continue their difficult quest for strategic
consensus. Enhanced intelligence and counterterrorism cooperation offer one
opportunity. So do defence co-production and weapons sales because they
increase the potential for interoperability.
But a positive security agenda is needed, especially in Asia, through new
initiatives across a series of baskets: energy, seaborne trade, finance, the
global commons, and regional architecture.
The two sides will need to manage differences of tone and substance on
strategic issues of concern, including Afghanistan, Pakistan, and China.
Take China: The fact is, India views Beijing’s role in South Asia with far
greater alarm than does Washington, and this is unlikely to change soon. The US
will lean toward India, but seek to avoid becoming caught between New Delhi and
Beijing.
Many in India continue to fear a US-China condominium on issues of importance
to New Delhi. This fear has receded as US-China relations have deteriorated
since 2010, yet India remains sensitive about perceived inattention to its
equities. And this concern is even more pronounced in Afghanistan and Pakistan,
amid US withdrawal and policy turbulence.
The US and India can do (much) better. Kerry's visit is a start. Modi's
September visit will be pivotal.
(Evan A. Feigenbaum is vice chairman of the Paulson Institute at the University
of Chicago and Nonresident Senior Associate for Asia at the Carnegie Endowment
for International Peace. He served twice as deputy assistant secretary of state
in the George W. Bush Administration, including for South Asia, where he was
responsible for US-India relations.