A U.S.-India Prosperity Agenda for Singh’s Visit With Obama

Indian Prime Minister Manmohan Singh’s meeting with U.S. President Barack Obama on Friday comes at an awkward time. Both India and the United States suffer from unsteady leadership. Ambitions for a wide-ranging strategic partnership were easier to ascribe to when the United States, during George W. Bush’s administration, pursued a coherent grand strategy of primacy and a dynamic India was growing at near-double-digit rates. Now that American foreign policy is less assured and India sinks into an economic morass of its own making, neither country is as attractive a partner to the other. The good news is that these trends in each country are temporary and reversible. The bad news is that it may take new political leadership in both to move the relationship to the next level.

In Washington, Obama has pivoted away from his own pivot to Asia, which should have ascribed a central role to India. His administration’s 180-degree swings of policy in the Middle East — supporting Egyptian President Hosni Mubarak until it didn’t, engaging the Muslim Brotherhood government in Cairo but not opposing the coup against it, preparing to bomb Syria only to make Bashar al-Assad a partner in disarmament — inspire little confidence among friendly Asian countries, like India, looking for consistent projections of American power and purpose. Beyond U.S. foreign-policy zigs and zags, American domestic economic mismanagement, for which both political parties are culpable, plays into the hands of Indian skeptics on the left and right who believe their country should go it alone — and see the United States as a power of the past rather than the future.

Meanwhile, Indian economic growth has plummeted below 5 percent, even as the government implements yet another expensive new welfare scheme that will do little to boost the country’s competitiveness. Economic reforms are on hold until national elections next spring. Urban India is transfixed by the phenomenon of Narendra Modi, chief minister of Gujarat, who hopes to replace Singh in the prime minister’s office. Superhuman hopes are vested in India’s new central bank governor, Raghuram Rajan, given that India’s elected leaders seem incapable of implementing even basic economic reforms. In foreign policy, India has taken a pass on Libya, Syria, and the Arab uprisings writ large. It executed a middling performance during a recent stint on the U.N. Security Council, leading many to ascribe a mismatch between India’s aspirations to sit at the "high table" of world politics and its leaders’ lack of clarity about what to do when it gets there.

To provide ballast to a bilateral relationship that remains important to both countries’ strategic futures in a changing world, Obama and Singh should focus on a prosperity agenda. Indo-U.S. relations have been driven by cooperation in defense and strategic issues; today’s terrorist attack in Kashmir demonstrates why intelligence and security coordination should remain at the center of the relationship. At the same time, economic malaise in both countries offers an opportunity to put in place a mutually reinforcing set of initiatives to boost growth.

These could include conclusion of a bilateral investment treaty, which remains the subject of continuing bureaucratic feuding in the absence of a political mandate at the top to reach an agreement. The treaty itself is less an end than a means to an eventual free trade agreement (India is not part of ongoing Trans-Pacific Partnership negotiations) that would maximize the synergies associated with both countries’ rich human capital and technological complementarities. A way station to a bilateral trade pact could be a deal to export U.S. liquefied natural gas to India, alongside allies in Europe and Japan, at competitive rates, with an eye on boosting India’s long-term growth trajectory and weaning the country off its energy trade with Iran. This would build on the 2008 civilian-nuclear deal between Washington and New Delhi, which is finally progressing after years of delays with enactment of the first deal by an American company to supply civil nuclear power in India.

The United States has a compelling interest in helping India get its mojo back. Domestic market restrictions will keep India poor and erode, not enhance, its strategic autonomy — even as the Asian balance of power tilts further against it. Former Goldman Sachs economist Jim O’Neill points out that China’s economic output creates "a new India" every two years; the Chinese economy is now more than four times the size of India’s and pulling further ahead. There is no way India can adequately defend itself against its primary strategic competitor, one with predatory designs on Indian territory, in the absence of either intensified economic growth to underwrite adequate defense budgets or external alliances with countries like the United States. Yet a weaker, poorer India is a less appealing partner to America than one that is thriving.

Meanwhile, as Rod Hunter, former senior director for international economics at the National Security Council, argues, Indian efforts to ape China’s mercantilist practices through policies of "indigenous innovation" and lack of patent protection alienate India’s natural allies and play to the country’s weaknesses rather than its strengths. India is more likely to thrive by creating a level playing field for foreign and domestic companies and liberalizing its economy from the heavy hand of a state that for too long has kept India poor by repressing free markets and its people’s natural economic vigor. As economic actors, Indians seem to thrive everywhere — in the Persian Gulf, Africa, Southeast Asia, Europe, and the United States — except in India. This is an indictment of a state that does not produce the governance requirements for growth.

If the United States, Europe, Japan, and other key economic partners of India can boost its reformers through trade and investment agreements to facilitate flows of capital, technology, goods, and services, all sides will benefit. Poor Indians are likely to benefit disproportionately given how far they have to catch up to average global per capita incomes. A return to sustained economic growth will also give India the confidence to broaden its foreign-policy horizons and cooperate more proactively with like-minded countries in the pursuit of Indian interests. A defensive strategy of nonalignment and autarky may have suited India when it was weak and poor. Today, a "do-nothing" foreign policy does not befit an aspiring global power. As India rises, its people, and the world, will expect more of it.