India doesn’t need bear hugs, it needs Modi to negotiate hard with Trump

Beyond bear hugs.
Beyond bear hugs.
Image: Reuters/Carlos Barria
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Time was when bear hugs were associated exclusively with Russians. Today it has become Indian prime minister Narendra Modi’s signature greeting. Amidst speculation over whether he’d display his customary warmth when meeting US president Donald Trump or settle for just a handshake, especially after Trump had publicly (and erroneously) roasted India over climate change, Modi did not disappoint.

So, what’s to read in this public show of affection? Some analysts see this as some kind of a rebuff to Chinese prime minister Xi Jinping, whose lukewarm meeting with Trump was conducted in the backdrop of North Korea’s missile tests. But, that may not be a correct evaluation, given the magnitude and nature of US-China ties. Some other takeaways emerge from the Modi-Trump bonhomie.

Numerous analysts will be poring over documents, statements and speeches over the next few days to figure out who got what from the meeting. Or, in pure transactional terms, who came away with what deal. That will be a mistake. Yes, there was some understanding over Sea Guardian drones and some other assurances, but this meeting was more than that. This was both leaders measuring each other up, gauging body language, and trying to understand where to draw red lines. And, going by the language of the joint communique, it is quite likely that red lines might emerge soon, with varying degrees of thickness.

The tough-talk is only beginning

The tight clinch in the White House’s Rose Garden cannot mask the likelihood of hard positions in trade and business links. In a joint press statement by both leaders, Trump did not mince his words: “I look forward to working with you…to create jobs in our countries, to grow our economies, and to create a trading relationship that is fair and reciprocal. It is important that barriers be removed to the export of US goods into your markets, and that we reduce our trade deficit with your country.”

This is clearly a veiled admonition, putting India-US trade and business relations on notice. India-US two-way trade in goods and services during calendar year 2016 totalled $114.8 billion, with India enjoying a trade surplus of $30.8 billion. Although India’s trade surplus is insignificant when compared with China’s (10 times India’s), Trump probably wants to be seen as acting tough and living up to promises made on the campaign trail.

It is, therefore, quite likely that Trump will push India to provide greater market access for a host of goods and services, including agricultural products, renewable energy resources, and technology. The US pharma industry’s rising crescendo of demands, particularly against India’s recent regulations against exploitative pricing of medical products, has seen aggressive lobbying return to Washington DC, contrary to Trump’s promise of “draining the swamp.” Predictably, senior Republican members of Congress are also influential members of this chorus.

India will now have to build up suitable fortifications against Trump’s likely pressure tactics. It seems Modi did go to Washington armed. Two transactions were highlighted that gives India some leverage. One is SpiceJet promising to purchase 205 passenger jets from Boeing. This, whenever it materialises, is likely to be a big deal, but there are numerous unknown-unknowns: this is a long-term deal and, though SpiceJet has reported net profits for two consecutive financial years, the aviation sector is notoriously unpredictable.

The second pressure point could be Trump’s perception that India will buy more natural gas from the US. India already has long-term liquefied natural gas purchase agreements with three US-based shale producers. Public sector company Gas Authority of India Ltd already has a purchase agreement with Cheniere Energy’s Sabine Pass terminal in Louisiana and with the upcoming Cove Point LNG plant in Maryland. Indian Oil Corporation also has an agreement to buy from another Louisiana-based project: Cameron LNG.

Despite this reality, Trump waxed confident about fresh agreements: “We’re also looking forward to exporting more American energy to India…including major long-term contracts to purchase American natural gas, which are right now being negotiated, and we will sign them. Trying to get the price up a little bit.” If the US is indeed trying to sell more gas to India, it’s clearly Advantage Modi. Gas deals might just be what he needs as an additional negotiating chip.

Things left unsaid

But, what is more interesting is all the stuff that’s been left unsaid. For example, there was no push this time to relax retail investment rules. The US’s current administration has a different set of priorities and it will be interesting to see which sectors get the White House push.

There was no mention of H-1B visas, a vexed issue between both the nations. There is only one line about it in the joint communique: “…India and USA plan to undertake a comprehensive review of trade relations with the goal of…increasing market access in the areas of agriculture, information technology, manufactured goods and services.” Interestingly, it has been juxtaposed with areas in which the US is seeking greater market access.

There is also no reference to climate change or plans for future coordination and cooperation.

Clearly, the new administration under Trump wants to rewrite many rules and repurpose most old relationships. While Modi’s meeting with Trump was better than expected, it seemed to lack the spontaneity and warmth that Modi-Obama exuded. In their first bilateral summit in September 2014, both leaders even promised to take India-US trade to $500 billion.

While that target has now been quietly buried, the communique’s tenor seems to suggest that India-US ties might now move from one deal to another, and Modi might have to pivot from being a global statesman to being a tenacious trade negotiator.

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