The India-US Leadership Agenda: Forging a New World Order

Last week, President Trump concluded his first state visit to India, with the aim of marking a new phase for the US-India relationship. The bilateral relationship between what will soon be two of the three largest economies globally has grown rapidly over the last two decades under a succession of US presidential administrations and Indian governments. During this period, US-India relations have moved on from a largely single-issue lens of managing the India-Pakistan rivalry to much broader cooperation across a range of areas including trade, investment, regional security and geo-politics. There has been a growing recognition over time that India is the strategic ally that America needs in what is set to be the fastest growing region in the world in the first half of this century and host to two major powers. Not coincidentally, this deepening of ties has also overlapped with the period where India’s economy has rapidly opened up and scaled, crossing US$1tn in 2007, US$2tn in 2014 and set to pass US$3tn this year.

Today, India stands at the inflection point of a new phase of growth and development which will see its rise in global significance as its economy scales to US$7-10tn in the next decade. This transformation is occurring against an increasingly volatile geo-economic and geo-strategic backdrop, in which an increasingly confident China, despite its own economic slowdown, will likely overtake the US to become the world’s largest economy, and in which the Western-led liberal order that has defined the past 75 years finds itself under increasing attack from both external and internal threats. Against this backdrop, the US has identified India as a key partner in the Greater Pacific region (the Pacific region, including India) and as a counter-weight to balance China, and has therefore adopted a policy of strengthening it economically and militarily, while India, particularly under the Modi government, has actively cultivated America as a trade and investment partner. However, to date, actual bilateral ties between the two countries that recognise each other as natural allies have fallen short of their potential. Mr. Modi’s visit to the US in September last year and President Trump’s state visit last week have created the appetite for a deeper and more strategic partnership and set the stage for the US and India to take their relationship to the next level.

This month’s Sign examines how the US and India can significantly expand their cooperation across multiple dimensions to create the “defining partnership of the 21st century”, balancing (and ideally, ultimately including) an increasingly geo-strategically assertive China, and jointly underwriting a new global order based on shared interests and values.

The Potential US-India Opportunity

Over the last two decades, the US-India relationship has rapidly grown as successive governments in both countries and from both sides of the respective political aisles have sought to cultivate a stronger partnership to build India as an effective counterweight to China in Asia, and increasingly, in world affairs. During this period, the US has helped bring India into the club of nuclear powers and supported strengthening India’s role in the UN and other multi-lateral institutions; it has sought to strengthen India’s military capabilities by becoming a major arms supplier and providing sophisticated weapons systems usually reserved for its closest allies; and from an economic perspective, it has become one of India’s most important trade and investment partners.

Progress has been sustained and systematic despite multiple transitions of power in these countries during this period, albeit gradual and incremental as both sides determine how to move forward. India and the US have the benefit of deep ties between their people: as President Trump noted in his speech during his recent trip, there are c.4m Indian-Americans in the US, representing one of the most affluent and well-assimilated immigrant communities in the US, and includes doctors, engineers, entrepreneurs, and leaders of companies like Google, Microsoft, Adobe, Mastercard and IBM, amongst others. Americans have a highly favourable view of India in terms of perceptions, it ranks along with America’s closest allies including Canada, the UK, France, Germany and Japan, and well ahead of rivals China, Russia and Pakistan (see chart), and slightly ahead of Israel.

Americans’ Views of Foreign Countries

The Trump administration has worked actively with the Modi government to strengthen the bilateral partnership and increase the popular and political goodwill between the two countries. The US under Trump has moved towards more actively and explicitly building up India as an economic and geo-political counterbalance in the ‘Indo-Pacific region’ , a term put in place by the Trump administration which itself reflects its active elevation of India in Asian affairs (vs. the earlier use of “Asia-Pacific”). This is at a time when an increasingly confident China has sought to expand its own sphere of influence in Asia and beyond through its Belt and Road Initiative (BRI). While Mr. Modi has to date resisted the typical obligations that come with a formal alliance – and cultivated strong independent relationships even with countries that are US rivals including China, Russia and Iran – he has also recognised the need for India to accord primacy to its strategic partnership with the US given China’s growing regional influence, the increasing risk of encirclement through China ‘String-of-Pearls’ strategy in the Indian Ocean, the on-going Sino-Indian border disputes, and China’s proximity to Pakistan. Mr. Modi has therefore focused on deepening economic and defence cooperation with the US wherever it aligns with Indian objectives.

The US-India relationship mode over the last two decades has been one of incremental, but sustained progress across multiple dimensions with the occasional diplomatic breakthrough (for example the US-India Nuclear Deal in 2008 which brought India into the club of responsible nuclear powers, and the granting of “Strategic Trade Authorization - Level 1” status in 2018 which enables the export of high-technology products in space and defence to India), and progress appears to have accelerated under the current leadership.

However, despite all of these positive drivers, the depth and breadth of relationship between the world’s largest and the world’s oldest (continuous) democracy has fallen short of its true potential. The US has invested three times the amount of FDI in China as it has in India . Despite being the world’s fourth largest arms importer, India to date has not been even a top ten customer of the US defence industry, the world’s largest arms exporter. And while the US is India’s largest trading partner (displacing China’s number one position, in 2019), India is only the 8th largest trading partner to the US (below South Korea, a country whose economy is a little more than half the size of India’s). Further, despite ostensibly increasingly speaking of India as a counterweight to China, the US has not to date fully leveraged India’s regional relationships (e.g. with Iran or Afghanistan) as part of its own engagement strategy for the region. The scope for growth across all dimensions of the US-India relationship therefore remains significant.

Given the rise of China, the US-India relationship is clearly of greater importance to both America and India than at any previous point in time and looking forward, it is likely that it will need to deepen for reasons critical to both. However, personalities do matter, and the growing engagement between Mr. Modi and President Trump provides an important opportunity to create the blueprint for a more comprehensive bilateral engagement. During the past year the two leaders have significantly strengthened people-to-people ties, holding large, public, campaign-style events – first a “Howdy Modi” event in front of 50,000 people in Houston, Texas in September followed by a “Namaste Trump” event last week in Ahmedabad, in Mr. Modi’s home state of Gujarat, in front of crowd of over 100,000 – where both leaders have emphasised the ‘strategic’ and ‘natural’ basis of the partnership between the world’s most powerful country and a democracy and the world’s largest and oldest democracies (see inset below), setting the stage for the two countries to move the partnership to the next level and significantly deepen cooperation.

Further, the recent back-to-back state visits have resulted in a series of tangible actions from which further momentum can be built. In the near term the immediate focus is likely to be around large defence purchases (including a large US$3bn deal for the purchase of Apache helicopters which was announced during the visit) and negotiating a Phase 1 Trade Deal. However, a comprehensive strategic relationship will need to encompass multiple further dimensions, with the US and India working together to increase India’s role in global affairs, accelerate India’s domestic development and position India as a value-added geostrategic partner with skin in the game. And this has now become the task of policy makers on both sides. This paper examines the dimensions of what that agenda needs to be.

The US-India Agenda: Creating the Defining Partnership for the 21st Century

The question of what is a big enough ask from the relationship sides has vexed both sides for decades. Given the historic shifts in the world ranging from National Populism shaking the West to China being seen as a threat to US hegemony, ambition is called for in framing the relationship and in the actions that both agree to. The benchmark for such an audacious agenda is the series of moves that President Trump has made in and for Israel since he took office. If the survey above is accurate, Americans view India even more favourably than Israel, and fewer Americans find negatives about India than they do about Israel. With 1.3 billion people rising to 1.6 billion by 2050, India represents the next wave of customers to underpin America’s prosperity and if combined with its own population, it places the two democracies at nearly 2 billion by 2050 vs. China’s 1.4 billion.

An expanded agenda for the two countries would therefore focus on simultaneously expanding bilateral cooperation across three interrelated scales: the domestic transformation India’s economy, its emergence as a stand-alone regional hard power, and its rise in global significance as a political power. For the US-India relationship to flourish, India will need to become an effective counterbalance to China, which it clearly is not yet. This will require comprehensive engagement and specific actions across all three of these areas.

The scope of the US-India strategic partnership agenda across these three dimensions is explored in detail below, including the key issues to be addressed, potential actions to be taken and a perspective on the outcomes that could be achieved by a level of engagement that represents business as usual on the one hand and one that represents a truly strategic partnership between the two countries on the other hand.