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10/29/2024 | Press release | Distributed by Public on 10/29/2024 09:14

India’s Ascending Role for U.S. Economic Security

India's Ascending Role for U.S. Economic Security

Photo: Leonardo Munoz/Getty Images

Commentary by Richard M. Rossow

Published October 29, 2024

This commentary is part of a report from the CSIS Economic Security and Technology Department, titled Staying Ahead in the Global Technology Race. The report features a set of essays outlining key issues on economic security for the next administration, including global technology competition, industrialization policies, economic partnerships, and global governance.

While U.S. elections are primarily driven by domestic issues, the policy positions taken by the winner are relevant for a wide array of global partners. In the case of India, for example, the United States and India share concerns about overreliance on China as a dominant supplier of manufactured goods. Consequently, Indian firms have been ramping up investments in the United States, actions significant for both countries moving forward. The next U.S. administration should take the time to meet with international partners such as India before staking out policy positions related to domestic industrial and trade policy. Ignoring U.S. partners in the early days could have repercussions when U.S. officials engage on vital global issues later.

A deeper economic relationship with India is in the United States' interests for several reasons. First, India is expected to continue growing faster than any other large nation in the foreseeable future, with growth expected to top 7 percent in 2024. BlackRock recently predicted that India will leap over Japan and Germany to become the world's third-largest economy in just three years. In 2023, Goldman Sachs predicted that the Indian economy will be the world's second-largest by 2075, at an estimated $52.5 trillion. For U.S. companies looking to grow, India's topline numbers draw attention-even if the practicalities of doing business in India remain challenging at times.

Second, Indian companies compose a growing source of investment into the United States. As the Confederation of Indian Industry highlighted in their Indian Roots, American Soil report in 2023, India has invested $80 billion into the United States, employing over 400,000 people. In 2023 alone, India added $4.7 billion in fresh foreign direct investment (FDI) into the United States, about 3 percent of inward FDI from all sources that year. In the coming years, as the Indian economy continues to grow, this number will also likely grow substantially as well. Indian firms are even taking advantage of U.S. industrial programs like the Inflation Reduction Act. India's Vikram Solar, for example, last year announced plans for a $1.5 billion solar-manufacturing footprint in the United States. Policy stability is key to ensuring that investment plans can be executed, and continue to be made.

Securing a strong commercial relationship with India is vital for another critical reason. Akin to how the U.S. defense industrial base has looked at ways to improve India's domestic defense production to help India wean itself off Russian equipment, the United States can support India's interests in weaning its technology sector off of Chinese imports. China (plus Hong Kong) is India's largest goods trade partner, with $148 billion in bilateral trade in FY 2023, resulting in a trade deficit for India of nearly $100 billion. Paired with India's expected growth rates outlined above, helping India reduce imports from China will impair China's industrial expansion significantly. To Chinese officials, India must be considered a vital economic engine to maintain export-led growth in the future. The United States can be a strong partner to "Make in India" and avoid this fate.

Finally, U.S. policymakers should seek new platforms to share practical experiences, and possibly some level of policy equivalence, in screening Chinese investments in advanced technologies. While India may be years away from becoming a significant producer of advanced technologies-such as quantum computers, robotics, leading-edge semiconductors, and 6G communications equipment-India is already at the forefront of the research and engineering that fuels these sectors. For example, India's information technology services exports are expected to reach $199 billion this year. The U.S. government continues to build new programs with India that will further enhance a shared research and development agenda in key technologies such as the 2023 collaboration between the U.S. National Science Foundation and India's Department of Biotechnology. While such steps expand bilateral cooperation, they may also introduce new vulnerabilities without appropriate oversight measures.

Successive U.S. administrations have built a unique architecture of high-level dialogues that provide a vital platform for discussing trade and technology issues, including the U.S.-India initiative on Critical and Emerging Technologies and the many workstreams under the Quad framework. These forums have resulted in important agreements such as the 2023 U.S.-India Semiconductor Supply Chain and Innovation Partnership memorandum of understanding.

India is not the only fast-growing, nontraditional U.S. partner that will require the attention of policymakers as U.S. industrial strategy and trade policy is reviewed. For example, Vietnam, Indonesia, and the Philippines-large and fast-growing countries-together have nearly 500 million people and a combined GDP that is over 60 percent of India's.

The next U.S. administration will likely enjoy a full four-year term with its counterpart government in India, which has its next national election in 2029. According to the Pew Research Center, the economy continues to be the primary concern for supporters of both presidential candidates. Initial policy pushes would understandably seek to further improve domestic economic prospects, particularly in manufacturing. Yet foreign policy also ranks relatively high for supporters of both candidates. With key partners across the Indo-Pacific, policy stability, particularly in ways that encourage two-way economic integration with key partners, is important. The last four years have seen a range of important new agreements and robust commercial announcements that both widen and deepen the United States' economic partnership, ranging from microchips to vaccines. While the days of free trade agreements may not be returning any time soon, the United States can forge meaningful linkages with like-minded nations by avoiding protectionism and encouraging bilateral investment.

Richard M. Rossow is senior adviser and holds the Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2024 by the Center for Strategic and International Studies. All rights reserved.

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Senior Adviser and Chair on India and Emerging Asia Economics