Tag: FDI

In November 2010, President Obama visited India for three days. In addition to meeting with top Indian business leaders and announcing deals between the two countries worth more than $10 billion, the president declared on several occasions that the US and India’s would be the “defining partnership of the twenty-first century.” Afterward, Obama flew straight to Jakarta without any plans to visit Pakistan, officially the US’s major non-NATO ally in the region.

No president, except Jimmy Carter, had done such a thing before. The US has traditionally seen its India and Pakistan policies as being deeply linked, and except for Richard Nixon’s brief “tilt” in 1971, the US has been cautious of elevating one neighbor over the other. Despite India’s non-aligned status and pro-Soviet posture during the Cold War, Washington has tried to ensure that its relationship with Pakistan would not disadvantage India.

Obama’s visit, however, illustrated that this era of evenhandedness was now over. With India’s economic rise, fears of Chinese hegemony, and the unraveling relationship with Pakistan, the US is now pursuing what previously would have been regarded as an asymmetrical foreign policy agenda in South Asia. As part of its new Asia-Pacific strategy, the US is committed to strengthening India in all major sectors of national development, with the hope of making it a global power and a bulwark against Chinese influence in Asia. Meanwhile, Washington is looking for a minimalist relationship with Pakistan, focused almost exclusively on security concerns.

The US and India are natural allies, but Obama has let China and Pakistan get in the way of New Delhi’s importance. Early signals of this gradual tilt toward India can be found in the final years of the Clinton administration. During his 1999 visit to South Asia, President Clinton spent five days in India, praising the nation’s accomplishments, and mingling with everyday Indians. During his speech to the Indian Parliament, Clinton referred to the US and India as “natural allies” and offered a program for a close partnership in the twenty-first century. In sharp contrast, his stop in Pakistan lasted only five hours and was blemished with security concerns, a refusal to be photographed shaking hands with the country’s military dictator, General Pervez Musharraf (who would become the country’s president in two years), and a blunt warning that Pakistan was increasingly becoming an international pariah.

The Bush administration took office wanting to take this policy even further by actually de-linking the US’s India and Pakistan policies, and enhancing its relationship with India. As former Deputy Secretary of State Richard Armitage explained to me, “The Bush administration came in with our stated desire to obviously improve relations with India, but also to remove the hyphen from ‘India-Pakistan.’” And the administration did just that. While relations with Pakistan improved dramatically in the aftermath of the 9/11 attacks, they were based almost exclusively on combating terrorism. On the other hand, relations with India, which deepened more slowly but also more surely, were focused on broad economic, security, and energy sectors. The most significant achievement in this regard was the US-India civilnuclear deal that was announced during President Bush’s 2006 visit to New Delhi. The fact that this agreement was extremely controversial because India, like Pakistan, has not signed on to the Nuclear Non- Proliferation Treaty, was evidence of the US’s commitment to transforming relations with India and facilitating its rise as a global power.

This redefinition of regional priorities has continued during the current administration. While the strategic partnership with India continued to be strengthened, Pakistan was declared the source of America’s Afghanistan troubles in the first few months of the Obama presidency. Since then, as mutual mistrust has grown because of policies such as US drone strikes in Pakistan’s tribal areas and Pakistan’s eight-month blockade of NATO supply lines, the US-Pakistan engagement has reached one of its all-time lows. The difference between Washington’s relationship with India and its relationship with Pakistan is best illustrated by the actual words used by members of the administration. While Secretary of State Hillary Clinton describes US-India ties as “an affair of the heart,” Secretary of Defense Leon Panetta characterized relations with Pakistan as “complicated, but necessary.”

This affair of the heart is hardheaded and unemotional. The defining feature of evolving US-India relations is that, unlike the US and Pakistan, the two countries actually share a number of common interests, and have also managed to create a broad-based partnership centered along deepening trade ties and energy and security cooperation. Bilateral trade and investment are the most significant components of the two countries’ engagement. The US-India trade relationship has become increasingly strong over the past decade-especially after the lifting of US sanctions in 2001-with the result that today the US is India’s thirdlargest trading partner (see Figure 1). India’s industrial and service sectors have now become increasingly linked to the American market. In the first half of 2012 alone, the US imported almost $20 billion worth of goods and $16 billion worth of services from India, while in 2011 US-India bilateral trade in goods and services peaked at almost $86.3 billion. Standing at $18.9 billion in 2001, bilateral trade in goods and services has doubled twice within a decade. This steady rise has made the US one of the largest investors in the Indian economy. According to the Office of the US Trade Representative, US foreign direct investment in India was $27.1 billion in 2010 (latest available data), a thirty-percent increase from 2009. Even Indian FDI in the US increased by forty percent between 2009 and 2010, reaching $3.3 billion.

It was, of course, cooperation over energy that symbolized the coming-of-age of Indo-American relations. The landmark civil-nuclear deal signed in 2008 was intended to help India meet its growing energy demand through the use of nuclear technology. The US agreed to supply nuclear fuel to India and convince members of the Nuclear Suppliers Group to follow suit. In addition to this, the US has also been helping India access oil from suppliers other than Iran, with the aim of reducing Indo-Iranian cooperation.

Along with deepening economic and energy ties, the two countries’ defense cooperation has also strengthened over the past decade. In addition to closely cooperating with India over counterterrorism and conducting joint military exercises with it since 2007, the US has included India in the “Quad” forum, along with Japan, Australia, and Singapore, thereby making it an integral part of its emerging Asian security architecture. Moreover, during his visit President Obama also announced more than $5 billion worth of military sales to India, adding to the $8 billion of military hardware India had already purchased from US companies between 2007 and 2011. As reported by the Times of India, India will spend almost $100 billion over the next decade to acquire weapons systems and platforms. This push for sales comes partly from the US Defense Department’s strong desire to equip India with modern weaponry, to collaborate with it on high-end defense technology such as unmanned aerial vehicles (“drones”), and to become India’s largest weapons supplier.

Beyond defense technology, the US and India have also cooperated successfully in space. The joint venture between NASA and the Indian Space Research Organization during India’s Chandrayaan-1 lunar mission, which detected water on the lunar surface for the first time, is a significant example. Moreover, members of the US and Indian public and private sectors have also promoted the idea of cooperation to harness space-based solar power. Finally, the US has offered New Delhi increasingly strong political support as exemplified in Obama’s unequivocal backing of India’s bid to become a permanent member of the UN Security Council. Furthermore, despite Pakistan’s request for American assistance in negotiating the Kashmir dispute, the US has yielded to Indian demands that it not get involved. When Richard Holbrooke was appointed the US special envoy to Afghanistan and Pakistan in 2009, India and Kashmir, as revealed by US officials to the Washington Post, were covered within Holbrooke’s mandate under “related matters.” The Indian government, however, lobbied the Obama administration swiftly and strongly with the result that Kashmir was eliminated from Holbrooke’s portfolio altogether.

Although the evolving Indo-American partnership is rooted in multiple areas of common interest, from Washington’s perspective one priority looms larger than others in its partnership with India, and that is China. Simply put, India has become a central component in America’s grand strategy to balance Chinese power in Asia. China’s strengthening military capabilities and several moves in Asia, such as its claim of territorial sovereignty in the South China Sea, assertiveness in the Pacific Ocean, and growing naval and commercial presence in the Indian Ocean, have increasingly worried the US. For example, China’s aggressive posture and territorial claims inundated Secretary Clinton’s agenda when she visited the region in September. Further, according to one report, in 2007 a senior Chinese naval officer even suggested to the former US Pacific Fleet commander, Admiral Timothy Keating, a plan to limit US naval influence at Hawaii. Moreover, through its “string of pearls” policy China has acquired rights to base or resupply its navy at several ports from Africa though the Middle East and South Asia to the South China Sea.

Over the last decade Washington has considered several strategies to check Chinese power, with India essential to all of them. The National Security Strategy 2002 made it clear that India could aid the US in creating a “strategically stable Asia.” George Bush’s secretary of state, Condoleezza Rice, had also voiced this view in a Foreign Affairs article written during the 2000 presidential campaign. Moreover, a 2011 report by the Council on Foreign Relations and Aspen Institute India argued that “a militarily strong India is a uniquely stabilizing factor in a dynamic twenty-firstcentury Asia.” India’s role in balancing China was most vividly described later on in the Obama administration. The 2012 Defense Strategic Review recognized that China’s rise would affect the US economy and security, and declared that the US “will of necessity rebalance [its military] toward the Asia- Pacific region.” Secretary of State Clinton had previously outlined this policy in greater detail in an article titled “America’s Pacific Century,” explaining that to sustain its global leadership the US would invest militarily, diplomatically, and economically in the Asia-Pacific region. The US security agenda, she highlighted,

would include countering North Korea’s proliferation efforts, defending “freedom of navigation through the South China Sea,” and ensuring “transparency in the military activities of the region’s key players.” Two of the three objectives, in other words, were targeted directly at China. While in the past the US had projected power into the Asia-Pacific through colonization and occupation-notable examples being Guam and the Philippines in 1898 and Japan after 1945-its new presence is based on creating strong bilateral economic and military alliances with regional countries, and efforts to organize the region into multilateral economic and security institutions to balance China’s economic and military influence. Thus, in addition to strongly supporting the Association of Southeast Asian Nations (ASEAN) and the Asia- Pacific Economic Cooperation (APEC), America also backs other organizations like the Trans- Pacific Partnership and Pacific Islands Forum, and formal security dialogue groups such as the “Quad” and the US-India-Japan trilateral forum.

Not only is the US looking to enhance India’s Pacific presence by integrating it into these organizations, but, as described in the Defense Strategic Review, through its long-term goal of helping it become an “economic anchor and provider of security in the broader Indian Ocean region.” The grand strategies are in play, but will the US and India be able to manage a strong alliance whose chief objective is enabling the US to effectively accomplish its goals vis-à-vis China? To put the question more simply, will India play the balancing game? And will India also support the US on other foreign policy objectives in Asia?

The strategic goals of at least a section of the Indian foreign policy elite can be gauged from the report Nonalignment 2.0, published in 2012 by the Center for Policy Research (CPR), an influential Indian think tank. The report’s study group included prominent retired officials such as Ambassador Shyam Saran, who helped negotiate the US-India civil nuclear deal, and Lieutenant General Prakash Menon. The deliberations were also attended by the sitting national security adviser, Shivshanker Menon, and his deputies, thus signaling some level of official endorsement. The report argued that “strategic autonomy” in the international sphere has and should continue to define Indian foreign policy so that India can benefit from a variety of partnerships and economic opportunities to spur internal development, which in turn will propel its rise to great-power status.

Even if India were to abandon strategic autonomy, as some of the report’s critics advocate, it is essential to note that the Sino-Indian relationship is a little too complex for the sort of balancing game the US played with the USSR during the Cold War. As highlighted by Mohan Malik, the relationship faces several tensions, including territorial disputes, China’s aggressive patrolling of borders, maritime competition, and the race for alliances with littoral states in the Indian and Pacific Oceans. But China also happens to be India’s second-largest trading partner. Sino- Indian bilateral trade in 2011 peaked at almost $74 billion. In short, the relationship is adversarial in certain areas, but symbiotic in others.

India is also engaged with China in international forums that are often perceived as emerging balancers against US power, such as the India-Russia-China forum and the Brazil-Russia-India-China- South Africa (BRICS) group, which has not only criticized US policies, but also called for replacing the US dollar as the international currency. Furthermore, the Indo-US relationship has troubles of its own, especially in dealing with Iran and Afghanistan, which signal the limits of Indian support for US policies in Asia. Because Iran is a key resource for energy supplies, India has not participated in efforts to pressure Iran economically to curtail its nuclear program. When US sanctions against Iran were heightened in early 2012, Iran and India proposed a plan to barter oil for wheat and other exports. India is also perturbed by the US’s planned departure from Afghanistan in 2014, which it fears may lead to chaos there. Moreover, it is wary of US-Taliban negotiations, afraid that the Taliban’s return to power will put Indian investments in Afghanistan at risk and also offer strategic space to anti-Indian militant groups.

For these and other reasons, while the US and India share a range of common interests now and have been cooperating in a variety of areas, they still have a long way to go before establishing a truly close partnership. While the growing strength of this relationship is obvious, so are its limitations, and the ultimate nature of this relationship is as yet an open question. India’s global rise and the position it can acquire within US grand strategy is also dependent on things beyond America’s control-its continued economic growth and ability to tackle domestic challenges such as poverty and underdevelopment, infrastructural weaknesses, and multiple insurgent conflicts. It also fundamentally depends on the US’s continued ability to financially and politically afford a strong military and diplomatic presence in Asia. The current strategic commitments of American and Indian policymakers have also placed limits on the relationship. In Washington’s game plan, India is only one country in a larger web of alliancesstretching from India to Japan and Mongolia to Australia-that the US is developing. For its part, New Delhi is not looking to commit to an exclusive alliance with the US, but rather enter into a series of partnerships with a number of countries to gain what it can in terms of resources, trade, and security cooperation.

Nevertheless, while this affair of the heart may remain unconsummated, both parties are growing more serious about each other and implementing policies to strengthen the strategic partnership. As for the US and Pakistan, they should limit their relationship to cooperation over issues that are truly of common interest. Moreover, though Islamabad will remain uneasy with increasing US-India coziness, this partnership does not necessarily forebode trouble for it. Such an outcome is especially avoidable with continued normalization of diplomatic relations and increased trade relations between India and Pakistan. That the Pakistani military and civilian leaderships are becoming committed to reducing tensions is a welcome sign.