Indian Prime Minister Narendra Modi just arrived in Washington. He has been in the US for several days before coming to DC, a good tactic to promote a comprehensive friendship between the two countries and one American officials should adopt.
With Modi here, President Obama could spend their meeting time taking up the cudgel for US business. This would be a mistake. American companies have reason to complain about India but it would be far more valuable for President Obama to ask Modi about basic economic reforms, and offer American help where possible.
Taken in isolation, complaints made by the Alliance for Fair Trade with India and others are understandable. India has inhibited free trade globally and bilaterally and treats intellectual property (IP) protection as optional. It has been particularly prickly about agriculture – combined with the IP infringement, these actions target the heart of American comparative advantage.
Where American business slips is in skipping past the enormous internal challenges India faces. The poorest of Indians do not have secure rights to their land, yet IP protection for multinational giants should be a priority? It is true that India should support global free trade. First, though, it must permit free trade among its own states. Fewer regulations would be a boon to foreign firms but the Indian Supreme Court’s recent invalidation of coal licenses is far more pressing.
Faced with stark challenges on multiple fronts, Modi has started slowly. His July budget, a widely anticipated Independence Day speech in August, and last week’s “Make in India” speech to advertise the country as a manufacturing center were all loud about how great things are going to be, and quiet about how these great things are going to come about.
For India to become a global manufacturing powerhouse, it needs to utilize its huge labor force much more fully. Highly restrictive labor laws prevent this – indeed, labor force participation has actually been dropping since 2005. Yet the Modi government considers this a matter in which states should take the lead, not New Delhi.
It will do no good for President Obama to pile on American demands when Modi has not yet shown the willingness and capability to meet far more important Indian demands. Rather, the president should ask if and how the US can contribute to true breakthrough reform in India.
Can American technical aid help in mapping out and assigning Indian land boundaries? Would making it easier for Indians to work in the US strengthen Modi’s hand at all for labor reform at home? It seems likely that American agriculture assistance of various kinds could loosen, at least a bit, India’s death grip on agriculture subsidies and thus make it a better trade partner.
All this requires the president to take the long view. The long view is the correct view. There are different ways to measure cross-national prosperity but median personal income in India could be as low as 1/25th of the US. In economic terms, this is not a meeting between two big countries, it’s a meeting between a rich one and a poor one. The silver lining: if the US can help India, it will eventually help the US, including those American firms upset with New Delhi’s policies.
An India that rises to be a genuinely middle-income country, with median income say at one-sixth the American level, is an enticing partner. A successful India has every reason to become more cooperative in global trade, as it will be increasingly able to produce for the world and increasingly need foreign energy and food. And an India that liberalizes labor laws does far more for multinationals than any bilateral concessions the President might win.
To best serve the US, President Obama must look past the unhappiness of American business and even the end of his time in office. He should see if the US can help, if only a little, Prime Minister Modi lead India down the long road of reform.
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