Recalibrating Indo-US Ties: High Politics not at the Expense of Low Politics

Today, India has a business-friendly government that has made headway on key structural reforms--making India even more attractive to US investors. India should take advantage of this opportune moment by liberalizing trade restrictions.
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The United States and India share common security challenges in the Asia Pacific region, but a shared threat perception cannot be the sole pillar of a strategic relationship. China's increasingly aggressive behavior in the Asia Pacific has prompted the United States to look to other Asian nations as partners. India, because of its size, geographic location, and similar democratic structure, is a standout candidate. However, increased bilateral engagement in defense, exemplified by US Defense Secretary Ashton Carter's April 2016 visit to India, is not enough to sustain a lasting strategic relationship.

To fulfill the potential in the US-India relationship, the alliance must cultivate roots in both high and low politics. "High politics" largely pertains to issues of national security, while "low politics" focuses on economic issues, people-to-people exchanges, and cultural ties. Thus far, both US and Indian policy elites have segmented this relationship, prioritizing India's value as a defense partner over its economic and trading potential. But if their shared security perception erodes, the US-India partnership is unlikely to endure without other connections.

The strategic partnership between the United States and India currently consists of a meager trade relationship of $100 billion annually. In contrast, the US-China trade relationship is valued at a staggering $600 billion annually, and the India-China trade relationship is worth approximately $90 billion annually. US-India engagement in low politics remains stalled because of the persistence of an outdated cold war paradigm that effectively prioritized high politics. In India, this prism translated into a policy of post-independence non-alignment that, to a certain extent, still precludes unconstrained relations with the United States. In Washington, this prism casts India as a "balancing power" whose interests happen to align with the United States in the face of China's rise. The historic 2005 nuclear deal between the United States and India further entrenched the relationship along the same high politics trajectory.

In recent years, Washington has surpassed Moscow as India's leading arms supplier. Meanwhile, US financial, medical, and insurance companies clamor to enter the booming Indian market. While the Indian government has raised foreign investment ownership limits for insurance companies from 26 to 49 percent, a gridlocked Parliament has stalled land acquisition bills and failed to reform an antiquated tax structure, such as the Goods and Services Tax bill or the land acquisition bill, raising questions about India's ability to implement critical reforms that would facilitate doing business in India. While anti-free trade voices in the United States are becoming louder, these voices resound in India. The finalization of a Trade and Investment Agreement Framework (TIFA), much less a Bilateral Trade Treaty (BITT), is improbable in the current political context prevailing in India. Without these reforms, many analysts believe that India will remain near the bottom of the World Bank Ease of Doing Business index--currently ranked 130 of 189 countries--thereby discouraging investment.

In contrast to India, China enjoys a $600 billion trade relationship with the United States. This booming trade level tempers the tensions in the US-China security relationship. The relationship, despite its controversies, has been largely cooperative. Relative stability in the US-China relationship is predicated on the intertwined futures of these respective economies--a hallmark of their successful engagement in low politics. Business growth continues despite persistent political and military distrust, accusations of human rights abuses, digital freedom infringement, and cybersecurity concerns.

Realizing the potential of US-India trade requires a diversified economic portfolio and an Indian financial infrastructure that emboldens private sector engagement. But unless it is anchored in commercial enterprise, the US-India relationship will be doomed to frustration at best--or disenchantment at worst.

Today, India has a business-friendly government that has made headway on key structural reforms--making India even more attractive to US investors. India should take advantage of this opportune moment by liberalizing trade restrictions. The United States, for its part, must become an eager trading partner in both high and low politics. The "defining partnership of the 21st century" may be relegated to history as a series of missed opportunities if the United States and India do not re-prioritize greater economic engagement. The forthcoming visit by Prime Minister Modi to the US provides both leaders that opportunity that will be too costly to miss.

Jon Huntsman Jr. is the Chairman of the Atlantic Council. Bharath Gopalaswamy directs the South Asia Center at the Atlantic Council

To help unlock the full potential of US-India trade relations, the Atlantic Council has launched the US-India Trade Initiative, led by its Chairman, Governor Jon Huntsman, Jr,. and President and CEO, Frederick Kempe. The initiative aims to create a platform for engagement, to build consensus, and to advocate increasing US-India trade to $500 billion by addressing the most crucial areas of the US-India trade relationship, including smart cities, infrastructure, defense, financial institutions, insurance, trade agreements, and intellectual property rights.

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