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Mutula Benefits of India-U.S. cooperation on Trade

  • Published
    15th Nov, 2022
Context

Recently, the US treasury secretary has highlighted the prospects of strengthening its economic ties with India.

About
Key Point:
  • The U.S. wants to minimize its vulnerability to supply-chain disruptions.
  • Pursue a strategy of ‘friend shoring’, with India.
  • Plan to cut its reliance on countries with geopolitical and security risks.
  • To counter China’s dominance in the production of products, e.g., solar panels.
  • Mitigate over-concentration on select suppliers.
  • Keenness to nurture local partners in developing countries.
Previous Fallouts:
  • Withdrawal of duty-free access to Indian exporters:
  • In 2019 The US government withdrew its GSP (Generalised System of Preferences) benefits to India.
  • The Generalized System of Preferences or the GSP is a preferential tariff system that developed countries extend to developing countries.

GSP (Generalized System of Preferences): It is the largest and oldest US trade preference program, designed to promote economic development by allowing duty-free entry for thousands of products from designated beneficiary countries.

  • Putting India on U.S. Treasury’s ‘Monitoring List’ in 2020:
  • The list closely monitors the currency practices and policies of some of the US’ major trade partners.
  • India has been on the list for about two years over its currency practices.
  • But now India has been removed from the United States Currency Monitoring List.

Currency Manipulator Watch List:

  • The US Department of Treasury releases a semi-annual report where it has to track developments in international economies and inspect foreign exchange rates.
  • It reviews the currency practices of the US’ biggest trading partners.
India’s Relations with the US:
Economic Relations:
  • In 2021, overall U.S.-India bilateral trade in goods and services reached a record USD 157 billion.
  • The United States is India’s largest trading partner and most important export market.
  • America is one of the few countries with which India has a trade surplus. In 2021-22, India had a trade surplus of USD 32.8 billion with the US.
Bilateral Trade with the US:
  • Bilateral trade between the US and India stood at USD 119.42 billion (2021-2022) as against USD 80.51 billion in 2020-21.
  • Exports to the US increased to USD 76.11 billion in 2021-22 from USD 51.62 billion in the previous fiscal year, while imports rose to USD 43.31 billion as compared to about USD 29 billion in 2020-21.
Associated Challenges of India-US Ties?
  • Tariff Imposition: In 2018, the US imposed a 25% tariff on certain steel products and a 10% tariff on certain aluminum products from India.
  • India retaliated in June 2019, by increasing tariffs on 28 products worth about USD 1.2 billion on US imports.
  • However, after the imposition of the Section 232 tariffs, steel exports to the US declined by 46% year-on-year.
  • Misunderstanding Self-Reliance as Protectionism: The Atmanirbhar Bharat Campaign has exacerbated the view that India is increasingly becoming a protectionist closed market economy.
  • Strict enforcement and potential expansion of data localization measures.
  • Exemption from the US Generalised System of Preferences: Effective in June 2019, the USA decided to withdraw duty-free benefits to Indian exporters under the GSP program.
  • US’ Hostility towards Other Countries: Some of the differences between India and the US are not direct consequences of the India-US relationship but due to US’ hostility towards third countries like Iran and Russia – the traditional allies of India.
  • US policy in Afghanistan: India is also concerned over the US policy in Afghanistan as it is jeopardizing India’s security and interest in the region.

International Cooperations:

  • India and the United States cooperate closely with multilateral organizations, including the United Nations, G-20, Association of Southeast Asian Nations (ASEAN) Regional Forum, International Monetary Fund, World Bank, and World Trade Organization.
Way Forward
  • With India set to take up the reins of the G-20 presidency, New Delhi has a chance to steer the global economic and trade agenda towards greater equity, including on climate change.
  • Both sides stand much to gain by enhancing mutual trust and cooperation, particularly on trade.
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