The stakes for trade with India

In his Aug. 15, 2022, speech — 75 years to the day after India declared its independence from the British Empire — Indian Prime Minister Narendra Modi could hardly have been clearer: India intends to be a top global power well before the end of this century and already is emerging as a role model for other countries, big and small, around the world.

Investors and foreign economic powers must take notice of Modi’s ambition to ensure India will be a developed country by its 100-year anniversary in 2047, lest they find themselves playing catch-up with those who rightly gauge the opportunities to benefit from the centrifugal economic energy that India will surely generate in the next quarter century.

India has been busy on the trade front recently, announcing the start or conclusion of new free trade agreements (FTAs) in rapid succession. First, it completed an FTA in February 2022 with the United Arab Emirates (UAE), a relatively small player in global trade but a major Indian trade partner. India followed with an “interim” FTA with Australia, concluding negotiations that had sat moribund for many years. Now, India is lighting fires under FTA negotiations with the European Union (EU), the United Kingdom (UK), and Canada, exploring new negotiations with the Gulf Cooperation Council (GCC) and Bangladesh, and seeking upgrades to existing FTAs with Japan, Korea, and the Association of Southeast Asian Nations (ASEAN).

Conspicuous is the United States by its absence from this frenzy of negotiating action by India.

Indian trade officials have not been shy in conveying interest in an FTA with the United States. The benefits cannot be overstated. Factor in the size of the two economies, the significance of existing India-U.S. trade and investment, and the potential to expand bilateral economic activity considerably, and the U.S.-India FTA would be bigger than all the other Indian FTAs combined. However, the Biden administration has been equally clear that it is not ready to negotiate FTAs, even after pressure from Indo-Pacific allies to rejoin the Trans-Pacific Partnership (TPP), now the Comprehensive and Progressive TPP (CPTPP).

There are signs that the United States and India understand the importance of raising the bar for future accomplishments in their generally stagnant economic relationship, even as the strategic partnership blossomed. In November 2021, U.S. Trade Representative Katherine Tai and Indian Trade Minister Piyush Goyal spearheaded a successful reconvening of the bilateral Trade Policy Forum (TPF), the main venue for discussing trade between the two sides. They engaged again at the TPF ministerial on Jan. 11 in Washington to set the agenda for bilateral trade in the coming year.

The Biden administration also has courted India to participate in its Indo-Pacific Economic Framework (IPEF) initiative, although India declined to participate in the IPEF’s trade pillar. Hard-won experience suggests that multilateral negotiations are not the optimum approach for building confidence between the United States and India on trade, a pessimism again confirmed at the 12^th Ministerial Conference of the World Trade Organization (WTO) in June 2022 where the two were at loggerheads on a long list of issues.

The bottom line is that, while there has been plenty of engagement between the two on trade in recent years, there is very little to show for all the hard work. We worry that the disappointments will curdle into a new cycle of cynicism, with both sides concluding that any further investments in deepening and widening the U.S.-India trade relationship are unwarranted.

Ironically, given this admittedly gloomy assessment of the status quo, the current moment may be ideal for the Biden administration to plot a path forward for a future FTA negotiation with India.

Unlike other bilateral, regional, and multilateral venues for engagement, FTA negotiation would present unique dynamics for leverage on both sides. Indeed, the Biden administration might seize an historic opportunity to put trade with India atop its international economic agenda before it’s too late. While the United States sits on the sidelines, India develops advanced trade relationships with mutual partners and effectively trades with the enemy, Russia. Altering the trajectory of the U.S.-India trade relationship requires bold ideas now; else, we might look back on this wasted moment with deep regret for years to come.

Small, early victories will be important. To avoid the failures of the past, the vision of a future FTA must be central. That way bureaucratic or political resistance can be more readily overcome. The step-wise plan we advocate could increase levels of confidence and achievement along the way. It could start with the Biden administration emerging from its anti-FTA slumber and President Biden and Prime Minister Modi announcing a mutual desire to negotiate an FTA.

Indeed, 2023 could be a watershed for advancing a new U.S.-India trade agenda, particularly to focus on issues of critical importance for both sides, such as digital trade, environmental sustainability, and more equitable distribution of the economic benefits of trade. The TPF should undertake work in these areas in 2023 without delay to begin to set the groundwork for a more integrated and resilient trade relationship. There is no better path to facilitate friend-shoring with strategic allies than pursuing an FTA.

This vision for an FTA is compelling. All we lack is political will.

While the U.S.-India relationship is likely to continue to grow in coming years even without a commitment to an FTA, it will not meet its full potential if economic partnership lags strategic ambition. There is no better moment than now to create a bedrock partnership, when global instability threatens the strategic and economic interests of each country.

Mark Linscott is a nonresident senior fellow with the Atlantic Council’s South Asia Center. Prior to joining the Atlantic Council, he was the assistant US trade representative for South and Central Asian Affairs from December 2016 to December 2018. He also previously served as the assistant US trade representative for World Trade Organization (WTO) and the assistant US trade representative for Environment and Natural Resources. From 1996 to 2002, Mr. Linscott represented the United States at the US Mission to the WTO.

Gopal Nadadur is Vice President for South Asia at The Asia Group in New Delhi. He previously served as a researcher and policy expert with NITI Aayog, the premier policy think tank of the Government of India. Gopal also worked for over eight years with the Clinton Health Access Initiative’s markets teams. He earned his Ph.D. in mechanical engineering from Penn State University and a Master in Public Administration in International Development from Harvard University’s Kennedy School of Government.

Irfan Nooruddin is the senior director of the Atlantic Council’s South Asia Center and the Hamad bin Khalifa Al Thani Professor of Indian Politics in the School of Foreign Service at Georgetown University.