Prime Minister Narendra Modi is scheduled to meet US President Donald Trump on 26 June. A White House statement has said that “promoting economic growth and reforms” is a common priority for both countries.
How have India-US economies ties evolved overtime? The US is definitely an important economic partner for India. But it is not the most important one in fields such as trade and FDI.
Data from Centre for Monitoring Indian Economy shows that total India-US trade (exports and imports) stood at $64.4 billion in 2016-17. This value was $12 billion in 2000-01. Between 1992-93 and 2016-17, share of India-US trade in India’s total trade has fallen from 14% to 9.7%. The importance of US as a trading partner of India has fallen drastically in comparison to China. From 2008-09 onwards, value of India-China trade has always been greater than India-US trade.
A fall in US’s trade share has also reflected itself in a fall in share of US FDI into India. Data from ministry of external affairs’s think-tank Research and Information System for Developing Countries, and Department of Industrial Policy and Promotion (DIPP) shows that US’s share in total FDI into India has fallen from over 20% during August 1991 and December 2000 to 5.8% between 2009-10 and 2016-17.
The US ranks fourth after Singapore, Japan and UK in share of total FDI inflow to India between April 2000 and December 2016 excluding Mauritius, which alone accounts for over one-third of total FDI inflows due to possible round-tripping.
Falling share in total trade and FDI should not make one discount the importance of US in India’s balance of payments. In their book The Other One Percent: Indians in America, authors Devesh Kapur, Sanjoy Chakravorty and Nirvikar Singh state that India was the largest recipient country of financial remittances in 2014, and US had the second highest share in this. Data from Pew Research Center shows that India had the third highest remittance outflow from the US in 2015 at nearly $11 billion.
With Trump administration restricting the availability of H1B visas, remittance flows from the US might come down. An earlier Plainfacts column had highlighted that Indian IT companies have exploited the H1B visa regime to practice labour arbitrage by getting cheap Indian workforce. Latest data suggests that ability of major Indian IT companies to garner H1B visas had started coming down even before Trump took over as the US president.
All this does not mean that only India is dependent on the US for employment generation. According to a CII-Grant Thornton report in 2015 which surveyed 100 Indian companies in the US, Indian firms have generated employment for over 91,000 people in the US with investments of over $15.3 billion across 35 states. Bulk deals between Indian and American companies such as sale of Boeing planes and Lockheed Martin fighter jets can have a big positive effect on economic activity and jobs. Clearly, the US too has self-interest in developing economic ties with India.
India’s self-interest lies in exploiting these mutual ties in a pragmatic manner. For the US, the bigger question is whether Trump would be willing to honour US’s earlier commitments to emerging market economies such as India. His comments against India and China after scrapping the Paris Climate Agreement were an example of such a slippage. The Modi-Trump meeting would give important signals about future trajectory of India-US economic ties.