The US Trade Representative’s annual reports highlight several challenges in the bilateral trade relationship between India and the USA. One such challenge is India’s recent emphasis on import substitution through the ‘Make in India’ campaign.
Bilateral Trade between India and USA
In recent years, India and the USA have seen a significant increase in their bilateral trade. In 2019-20, it stood at USD 88.75 billion. The USA is one of the few countries with which India has maintained a trade surplus. It was noted that India’s trade surplus with the USA increased to USD 17.42 billion in 2019-20 from USD 16.86 billion in 2018-19. For the USA, India was the sixth largest provider of services imports. Due to India’s substantial market, economic growth, and developmental progress, it serves as a crucial market for US exporters.
Challenges in the Trade Relationship
There are multiple issues that pose challenges to this bilateral trade relationship. These include tariff and non-tariff barriers, unfavorable practices and regulations, and more importantly, the Generalised System of Preferences (GSP) programme. The GSP programme was a significant tool that offered duty-free benefits to Indian exporters. However, the USA decided to withdraw these benefits in June 2019.
Services and Visa Policies
Another crucial issue that affects the trade relationship is the USA’s temporary visa policies. These policies impact Indian nationals working in the United States. India is also seeking a “totalization agreement” to coordinate social security protections for workers who split their careers between the two countries.
Agricultural and Intellectual Property Barriers
Sanitary and phytosanitary (SPS) barriers in India limit USA agricultural exports. There are also concerns over the other’s agricultural support programs, considered market-distorting. The two sides have a conflict in balancing IP protection to incentivize innovation and supporting other policy goals, such as access to medicines.
The Issue of “Forced” Localization
India’s “forced” localization practices have also been a point of contention. These initiatives, aimed at growing India’s manufacturing base and supporting jobs, include requirements for in-country data storage, domestic content (such as laws protecting India’s solar sector), and domestic testing in some sectors. This includes new data localization requirements for electronic payment service suppliers such as MasterCard, Visa, etc.
Investment Concerns and Defense Trade
US concerns about investment barriers remain, exacerbated by India’s new restrictions on how e-commerce platforms like Amazon and Walmart-owned Flipkart operate. The United States also encourages reforms in India’s defense offsets policy and hopes for higher Foreign Direct Investment (FDI) caps in its defense sector.
About Generalized System of Preferences (GSP)
The GSP is a USA trade program that promotes economic growth in the developing world by providing preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories. This program was instituted on January 1st, 1976, by the Trade Act of 1974.
The Way Forward
Despite the challenges, there is significant potential to boost bilateral trade between the two countries, especially due to increasing anti-China sentiment. Thus, negotiations should focus on resolving various non-tariff barriers and improving market access.