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India’s unusual trade pattern with the United States

Richard Rossow (via Milan Vaishnav) shared the latest US-India trade in goods data updated by the US Census Bureau.

India has a running trade deficit in goods: where it imports more goods than its exports. It is wrong to simplistically judge whether a trade deficit is good or bad – however, India does do ‘better’ when it comes to its services.

However, today this blogger learnt that the trade relationship that India has with the United States of America is quite different from that with many other big trading partners. India’s large software and services exports to the US are well-known, but India exports more goods to the US as well. Little wonder that American businesses lobby hard in Washington to be able to trade more and operate more in India.

In 2014, for the first time since 2006, India’s exports to the US are more than double its imports. It is currently unclear as to what to attribute this towards and pass judgement on whether this is a good or a bad thing. The broad trends in the two economies in the last 4 years has been one of revival and renewed growth in the United States, and faltering growth and investment in India.

India-US Trade1The timeline of imports and exports from the 1980s onwards has a few points of interest from recent years. The most prominent of these is the dip in 2009 of both Indian exports and imports, with the former affected far more than the latter. This was preceded by a sharp rise in 2007 in Indian goods imports from the US.

While Indian exports to the US bounced back since 2010, Indian goods imports plateaued in 2011 and have dropped a little in real terms since then.

The USTR website on India-US trade relations says that India’s largest goods exports to the US are precious stones (diamonds), pharmaceuticals, mineral fuel, organic chemicals and others. India’s largest goods imports are again precious stones (diamonds and gold), aircraft, machinery and optical and medical instruments.

A closer examination of export and import trends in types of goods (using the US Census Bureau’s “end use” dataset) provides the following:

1. Since 2009, the largest growth in highly traded Indian goods exports to the US as of 2013 are:
– Petroleum products, other
– Tobacco, waxes, etc
– Fish and shellfish
– Fuel oil

2. Since 2009, the largest growth in highly traded Indian goods imports from the US as of 2013 are:
– Complete military aircraft
– Gem diamonds
– Nonmonetary gold
– Newsprint
– Parts for military-type goods

3. Since 2009, the largest fall in highly traded Indian goods imports from the US as of 2013 are:
– Civilian aircraft, engines, equipment, and parts
– Chemicals-fertilizers
– Steelmaking materials
– Computers
– Drilling and oilfield equipment

I encourage readers to comment on the significance of some of these observed changes.

There’s a lot more information waiting to be unearthed from these datasets, including information on when Indian defence imports of US equipment really increased and to what extents. The defence angle is particularly interesting as the Indian ministry of defence is quite opaque in defence spending and is known to defer capital payments while making large announcements.

Readers are welcome to use the full rich XLS spreadsheet that I have compiled on all the data from the US Census Bureau relevant to the last couple of decades of India-US trade.

Addendum: The US$-Indian Rupee exchange rate has been steadily rising, making imports from the US less competitive. This could perhaps explain a part of the slump in US goods imports by India.

PS. All years used in this post are calendar years and not financial years.

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The Unhistoric US-China Climate Deal

China and the United States of America inked a climate pact this month and this has been lauded by various corners as landmark and historic. Vasudevan Mukunth quoted me in his article for Scroll.

Here is the full text of my comments to Scroll.

The history of the global negotiations on climate change negotiations has so far shown two things:

One, big emitters have typically employed salami slicing tactics, where they inch up the emission levels they are willing to go down to. Changing the base years and letting the reduction targets slide are commonplace.

Two, any penalty measures used to enforce emission reduction targets have been repeatedly flouted – including by countries like Canada – with no direct consequences.

I remain skeptical of this deal because the size of the Chinese emissions ‘peak’ remains unknown. That gives a lot of wiggle room for China. Secondly, there is no tangible enforcement mechanism presented, nor does one seem feasible. At best, this is a gentlemen’s agreement between the United States and China, and there are no gentlemen in international relations.

Implications for India and other developing countries:

India has routinely done a poor job of defending its record in global climate change negotiations, though it has done far better in substance than the likes of China. There is a risk that India will be painted into a corner, in spite of being a low carbon emitter on a per capita basis, and in spite of significant efforts at home to promote renewables.

Further, India’s more immediate focus must be on climate adaptation, but international financing and promotion of mitigation efforts serve to distract domestic policy. For India to get back to high economic growth, India must be willing and able to use all forms of energy — from coal to natural gas to nuclear power and renewables, and use the growth to provide better public goods and build resilient infrastructure.

This deal and its seeming historicity makes it a harder challenge for India to make its case convincing for a global audience.

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In Pragati: The Strategic Import of India-US migration

I write in Pragati–The Indian National Interest Review on why the movement of people is the most important component of India-US relations:

There are two challenges facing Indian migration to the US today. The first is that while the rich contribution of Indian Americans to the US economy has been widely noted, this has not translated into thought on policies that make it easier for talented Indians to work in the United States. The second is that migration finds little purchase in government-to-government relations that policymakers in India and the US have been trying to boot up over the past decade.

While visa policies can be dismissed as pedestrian concerns beneath the notice of strategic thinkers, immigration is a tie binds the two nations and the two states with greater strength than anything else today. More dinnertime conversations in India revolve around US visas every month than the sum total of all discussions on India’s nuclear cooperation with the US. It is immigration that is the main reason why Indians have had a uniformly high positive attitude towards the United States, across years and presidential regimes. A sound strategic partnership has to start by strengthening this.

The two governments, and analysts on both sides have rarely looked at immigration as a matter of strategic import. From before the introduction of Senate Immigration Bill in April 2013, legislators in the United States mostly considered the US-Mexico bilateral relationship in relation to immigration. The India-US bilateral relationship has had a weak influence, if any, on the drafting of immigration policy.
[Full Article: The strategic import of India-US migration, April 18, 2014]

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Education and bilateral relations

A significant number of Indian students in the United States add great value to both countries, while flying under the radar of bilateral policymaking.

Migration is the foundation stone of India-US relations, if not the bedrock itself. Indian immigration into the United States of America has come a long way since Bhagat Singh Thind fought for citizenship in US courts about 90 years ago.

While the China-US economic relationship leans heavily on trade via the movement of goods, the India-US economic relationship is based more on the movement of people and services. Apart from a sizeable population of Indian origin in the US of about 2-3 million, Indian citizens also form the highest number of H-1B and L-1 visas, both dominated by technology and software professionals.

At Takshashila, we recently had an excellent talk on US immigration policy by Edward Alden, Senior Fellow at the Council for Foreign Relations. This blog post is limited to a few observations on immigrant Indians studying in the US on student visas.

A little over 23,000 Indians availed a US student visa in FY2012, less than 5 percent of the overall student visas issued in the country. This is down from FY2007 as the chart below shows, when Indian students availed more than 10 percent of all student visas issued. In contrast, Chinese students are being issued with visas at a rapidly increasing rate since 2007, and now hover close to 200,000 student visas a year.

US F1 Visas Total

This rapid increase in Chinese students studying in the US has received some policy response from the Americans, with the US government expressing a desire to bridge the gap between the number of Chinese studying in the US and the number of Americans studying in China. While there appears to be state support promoting Chinese students to study in the US, some reports have questioned whether they are getting sufficient returns on a US education. The increase in numbers likely stems from two factors: one, from rising incomes in China and two, from state support for foreign study. These numbers started going up before the global financial crisis and stayed high through out it.

Indian students in the US, while much smaller in number, arguably add greater value to the US economy per person. For one, Indians in the US are more likely to be studying at the masters or PhD level instead of an undergraduate education. This implies a higher threshold for selection, more number of years spent in the country, and a higher productivity and skill of the labour that comes after education.

Two, the number of F-1 student visas to Indians dipped slightly in FY2009, along with the overall number of F-1 visas issued. This was around the time of the financial crisis, a period when scholarships and university funding of masters and doctoral programmes started reducing in number, as well as the availability of jobs in the US started becoming uncertain. This implies a sensitivity of Indian students in the US to the American job market. This is in contrast to the increasing Chinese students who are likely to head back home immediately after education, at their rapid rate of increase.

Three, it is also likely that a higher proportion of Indian students are funded by US universities for their study, with the rupee-dollar exchange rate being unaffordable for most Indians. This could explain much of the drop in student visas between FY2008 and now.

US F1 Visas India China

The last decade in the US has seen a sharp rise in the number of Chinese students, a plateauing of South Korean and Indian students and a fall in the number Japanese students. The reasons for these changes can be multiple. Certain student cohorts are seen as revenue sources for US universities, certain others as high-skilled labour in research, tech and other sectors. The Indian student cohort, though small, punches above its weight. Binning luddite notions of ‘brain drains’, both US and India need to think about how they can enable the student cohort to do even better.

Immigration does not feature high on the agenda for strategic dialogue between India and the US, and student immigration even less so. It’s about time that people in Washington DC and New Delhi paid a little more attention to this as a policy issue much as it remains a social and cultural one.

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In Pragati: Spending for a Modern Armed Force

I write in Pragati–The Indian National Interest Review along with Rohan Joshi on the sorry state of defence modernisation in India:

As Ajai Shukla highlighted in February, only 4 percent of the 2013-14 capital budget is allocated for new acquisitions, down from 38 percent in 2010-11. The interim defence budget announced in February 2014 appears to do little to alleviate this systemic decline. Although a 10 percent increase in the defence budget was announced, there was only a paltry 3 percent increase in capital outlay, with revenue expenses garnering a large part of the increase. What little money will go towards defence modernisation from the overall capital outlay is as of yet unknown.

In the context of the budget, Mr Antony’s admission that there was no money left for the MMRCA deal in FY 2012-13 is surprising. Capital allocation for the IAF was increased in FY 2012-13 by 22 percent, conceivably in order to account for the first installment of Rs. 10,000 crore due to be paid to Dassault after the deal was to be signed in FY 2013.  If we are told that the IAF has spent all but 3 percent of its allocated capital acquisitions budget for FY 2013, where has the rest of the money gone?  The interim budget for FY 2014 has decreased the IAF’s capital allocation budget by about 15 percent (over FY 2013 beginning estimates) to Rs. 31,818 crore.  Worse, if the worrying trend of committed liabilities accounting for 95 percent of the capital acquisition budget lingers, this effectively means that the MMRCA deal cannot be concluded in FY 2014-15 either.
[Full Article: Spending for a modern armed force, March 14, 2014]

India-Defence-modernisation-spending2-e1394799543540

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In Pragati: infographic on foreign aid out of India

My second infographic in Pragati this week was on foreign aid going out of India:

4 foreign aid

What makes aid from India different from western aid is that India prefers not to include conditionality clauses such as democracy and good governance, respecting the partner country’s sovereignty. Staying consistent with the Gujral doctrine, the government of India likes to avoid terms like foreign aid or development assistance, both of which are common in the Organisation of Economic Co-operation and Development’s parlance. India prefers to refer to aid as development cooperation or development partnership, and this flows down to the ethos with which grants are given.

Few are asking questions of the effectiveness of Indian aid – both in achieving development goals in partner countries and in generating benefits for India. It remains largely unknown, beyond anecdotal evidence. As the Indian taxpayer starts paying more, the DPA like USAID in the United States and DfID in the United Kingdom will be expected to provide greater accountability. The creation of DPA also provides an opportunity for the MEA to work with India’s private for-profit and not-for-profit sectors that have amassed expertise in a range of developmental issues.

The Indian government’s increased commitment to foreign aid over the past two years is a welcome change, but one that may be hostage to fiscal crises and change of leadership. How well foreign aid can be used to extend Indian interests abroad will depend entirely on how well we choose to administer and deploy it out of India. [Full article: Infographic: Foreign aid going out of India, December 20, 2013.]

The data story is a part of my ongoing research on aid flows out of India, some of which should be out in January 2014.

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In Business Standard: Cartel Breaking

I write in the Business Standard today about the demise of the Russian-Belarusian Potash cartel.

The world witnessed a shake-up of the global potash industry last month, with the Russian-Belarusian cartel Belarusian Potash Company(BPC) disintegrating. Russia‘s Uralkali decided to break away from BPC and sell potash independent of its counterpart Belaruskali at higher volumes for lower prices.

If the Eurasian cartel had remained stable, potash prices would have stayed up and all suppliers would have benefited. Cartels ensure that by fixing prices, by coming to an agreement over market shares and the total industrial output. With collusion trumping competition, cartels are considered illegal within most domestic economies but national or international cartels are quite commonplace globally. The most prominent of these is the Organisation of Petroleum Exporting Countries (OPEC), which has successfully controlled the global oil market for over 40 years.

Potash is but one commodity on the international market where supply has been cartelised. India is on the wrong side of international cartels most of the time, and it is in our strong economic interest to champion the cause of free global trade. In the meantime, we can do our best to reap the dividends of lower potash prices. To ensure India’s economic growth in the long run, the nation will have to do its best to destabilise global cartels, or at least secure favourable terms.
[Full Article: Potash – From Russia With Love, September 13, 2013]

Over the next few months I will be studying how cartels work, with a special emphasis on OPEC. Expect more posts on cartels on this blog in the coming weeks and months.

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Reaping what we sowed

On July 30, the lights went out all over North India, but that statement hides as much as it reveals. For many people in India, power supply (let alone uninterrupted power supply) is a distant dream. Many others prepare for outages in private, investing in diesel generators, inverters and more.

It is much harder, however, to build contingencies for something like the Delhi Metro. With Delhi crying out for power,

A Delhi Metro official said they received hydel power from Bhutan on a priority basis, and added that Delhi Metro was amongst the emergency services, including the Prime Minister’s residence and the All India Institute of Medical Sciences (AIIMS), that were provided power. [When the lights went out

Apart from re-allocating power from the eastern and western grids, power bought from Bhutan helped India’s ailing infrastructure in a time of great need.

Much as we need to thank Bhutan for this, Indian foreign policy efforts over the last decade have played a crucial role in enabling this to happen. India has helped Bhutan set up three hydroelectric projects that are currently operational: a 1020 MW project at Tala, a 336 MW project at Chukha and a 60 MW project at Kurichhu, adding up to a total of 1,416 MW. July 30 was a day when India’s foreign aid efforts abroad overtly showed its benefits.

Bhutan is one of India’s close strategic and economic partners, and has been the single largest recipient of foreign aid going out India in the last decade. Apart from funding (and helping construct) hydroelectric power projects, India has also helped Bhutan in setting up cement industries, electricity transmission and distribution networks, highways and more. Below is a graph of annual estimates of development assistance provided to Bhutan by India, at constant and current prices. In 2008, Dr. Manmohan Singh visited the country, a year after India and Bhutan’s ‘Treaty of Friendship’ was renegotiated and signed. Aid efforts appear to have been stepped up since then.

India’s energy needs are increasing rapidly, but domestic ability to match that need has been insufficient. While India has found it difficult to set up hydroelectric power projects in Arunachal Pradesh, in Bhutan it finds a willing partner. Together, they are targeting 10,000 MW of power generation by 2020, with Indian plans of buying about half of it, or 5,000 MW of power for domestic consumption.

The 5,000 MW will constitute a small but essential step towards India’s goal of energy sufficiency.

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