India is the world’s fastest-growing large economy; in the next five years, it expects to be the world’s fourth-largest economy, after Japan, with a GDP of $5 trillion from $2.7 trillion today. This growth momentum has been increasing – from 3.6 percent between 1962 and 1971, the average GDP growth rose to 5.3 percent between 1981 and 1991,when the economy began opening up. It rose to 6.5 percent between 1992 and 1996, and further to 7.8 percent between 2003 and 2015. At a projected rate of 6.1 percent for 2019 and 7 percent for 2020, India is expected to maintain its position as the world’s fastest-growing economy. It has set its sights on a GDP of $5 trillion in the next five years and $10 trillion by 2032.
The US economy, meanwhile, at $20.9 trillion is more than eight times India’s size – is expected to grow by 2.4 percent, adding about $500 billion to its GDP in 2019; the addition is greater than the entire economies of Austria, Norway and the United Arab Emirates, combined. To put this number in perspective, what the US will add in 2019 will be more than 16 percent of India’s GDP, illustrating the country’s economic dynamism and technical innovation. This innovation, driven by a spirit of entrepreneurship, has unleashed the creative energies of American businesses and is the key to the US’ growth.
The economic partnership between these two economies – the world’s largest and the world’s fastest growing –is set to rise. For one, there has been a huge growth in India-US bilateral trade in goods and services over the past two decades: from $16.3 billion in 1999, it stood at $142.3 billion in 2018, representing an 8.7- fold jump or a compound annual growth rate of 12.1 percent. Three trends indicate that the economic partnership will strengthen in the coming years: India’s continuing GDP growth; an increased share of trade in this growth; and a rising share of US in India’s trade. Indeed, US-India trade is projected to reach $375 billion by 2024, and on to $750 billion by 2032.
Overall India-US ties have historically been supported by five key dynamics. These drivers will remain in the future.
First, this is an alliance of values between the world’s oldest democracy and the world’s largest democracy. As a result, policymakers and business executives in the two countries understand the compulsions and the opportunities of functioning in a democratic set up, with ease of communication through the English language and strong people-to people connections.
Second, this alliance is a cohesion of the essential elements of capitalism which encourages entrepreneurship and celebrates free enterprise. The currency of conversations, however, differ. While the US seeks urgency of speed, India is constrained by political and economic negotiations among its key constituencies.
Third, this is an alliance between two large markets – the world’s second-largest and the world’s third largest. Both economies display a high consumption as part of their GDPs (70.7 percent for India; and 82.4 percent for the US).8 They vary because of the size of consumption, which in turn maps itself around per capita GDP—India’s $2,016 versus the US’ $62,641 in nominal terms, and $7,762 and $62,641 in terms of PPP (purchasing power parity).
Fourth, this is an alliance between strategic partners, where the interests of the US and India merge to create an inclusive environment for the region and prevent any single state to acquire domination either militarily or through state-sponsored terrorism. Such an alliance, whether formal or informal, was inevitable. The Indo-US relationship is not a mere abstract engagement based solely on shared values; rather, it reflects a real convergence of strategic interests and can serve as the anchor for peace, prosperity and stability from Asia to Africa and from the Indian Ocean to the Pacific Ocean. The increasing convergence of US and Indian interests in the Indo-Pacific region can be a great opportunity to defend the rules-based international order.
Finally, these strategic and economic ties strengthen the two countries’ defence relationship. In June 2016, the US gave India the unique designation of a ‘Major Defence Partner’. The designation seeks to elevate the US defence partnership with India, which in turn builds industry-toindustry ties. Once fundamental trust-building infrastructure is in place, it allows agreements such as the Logistics Exchange Memorandum of Agreement (LEMOA) in 2016, and Communications, Compatibility and Security Agreement (COMCASA) in 2018 to ride it.
Standing on these five pillars, India-US relations are only set to grow stronger. Differences on trade and markets notwithstanding, the relationship is sustainable and will deepen further through significant and growing opportunities for commerce and a strong belief in finding solutions through dialogue and discussion. Collaboration in the areas of international negotiations such as nuclear priorities, defence, space and terrorism are also set to strengthen further.
This report looks ahead and envisions an India that is the world’s thirdlargest economy, after the US and China, in a decade. It examines both the opportunities and the constraints that line the path towards these goals. Two methods are utilised in this report:
- First, a survey was executed covering US companies that are members of the American Chamber of Commerce. This is a quantitative as well as a qualitative survey.
- Second, based on the survey, this report conducted interviews with CEOs of US-based companies doing business in India, and captures their insights and concerns.
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