Media coverage in India this month focused on US Secretary of State, Mike Pompeo’s visit to India, the first high-level interaction between the two countries following the BJP’s election victory last month, as well as on the new government’s first union budget to be announced early next month, and on India’s retaliatory trade tariffs in response to the US terminating its preferential trade status under Generalized System of Preferences (GSP).
US Secretary of State Mike Pompeo Visits India to Strengthen India-US Ties, Meets Top Indian Leadership
US Secretary of State Mike Pompeo visited India following the Modi government’s return to power to focus on strategic ties between the world’s two biggest democracies. Key issues including trade, 5G telecommunications and India’s planned purchase of the Russian S-400 anti-missile systems were discussed during Mr. Pompeo’s meetings with various high-level India officials. Media publications weighed in on the implications of Mr. Pompeo’s visit and its impact on ties between both countries going forward.
A column in The Indian Express explained that Mr. Pompeo’s visit so early into Prime Minister Narendra Modi’s second term in office was a clear indication that the Trump administration prioritized building a strong relationship with India. “During his visit, Pompeo will meet Prime Minister Modi and his new Indian counterpart External Affairs Minister S Jaishankar, whom the official described as one of the visionaries behind the expansion of the US-India strategic partnership. “Modi’s historic win and sweeping mandate in recent elections, we believe, offer a unique opportunity for him to implement his vision for a strong and prosperous India, that plays a leading role on the global stage”… Observing that the Trump administration wants both the two countries to thrive, the official said Pompeo during his meetings in New Delhi will “convey” the “extraordinary potential to realise the collective strength of our economy” and would insist on “fair and reciprocal approach” to trade relationship. Referring to the recent speech of Pompeo to the US India Business Council, the official said the Secretary of State thinks that the relationship has great potential to advance the security and prosperity of the US and India in the Indo-Pacific region and the world.”
An article in The Hindu argued that visit would serve as a stimulus for engagement between the political leaderships of the U.S. and India. “Officials said that difficult issues on trade, 5G telecommunications and India’s planned purchase of the Russian S-400 anti-missile systems would take up a fair amount of time during the discussions… “There will be certain issues that will be on the table at all points of time,” said the official spokesperson of the MEA. “Overall direction of the relationship remains very positive,” he added, highlighting the fact that bilateral trade had grown over the years to about $150 billion… Mr. Pompeo and Mr. Jaishankar would also set the course for future engagements. Both governments are exploring the possibility of another meeting between Mr. Trump and Mr. Modi at the UN General Assembly in September this year, and Mr. Jaishankar and Defence Minister Rajnath Singh will head to Washington for the annual 2+2 summit around the same time.”
The Economic Times believed that Mr. Pompeo’s visit was likely to calm tensions between both countries with respect to issues like trade, data flows and arms from Russia and would lay the groundwork for the Trump-Modi talks during the G20 meeting in Japan. “India is embroiled in disputes with the United States over tariffs, Indian price caps on imported medical devices, most from the United States, and Indian rules on e-commerce that impose conditions on the operations of US giants such as Amazon and Walmart. Another issue that has alarmed India is the possibility of US restrictions on work visas for Indian professionals in retaliation for India’s insistence on local data storage by big foreign firm… The Indian government led by Modi, who was re-elected last month with a big majority, says it has been trying to negotiate solutions to the disputes with the United States but that, as a developing country, it has to protect the interests of its people… Trade would be addressed during Pompeo’s visit, but the two countries had a broader political and security relationship.”
Finance Minister Nirmala Sitharaman to Present the First Budget of Modi 2.0 Government on July 5th
The newly appointed Finance Minister, Nirmala Sitharaman will present the 2019-20 Union Budget in early July. The budget has an important role in determining the economic trajectory for India over the next five years and a number of media publications opined on the expected areas of focus for the budget.
A columnist for The Hindustan Times argued that the first budget of Mr. Modi’s second term would likely focus on fiscal consolidation, so as to ensure that the government could make available adequate funds to finance important policy initiatives. “The economic situation may not have changed dramatically in these five months, but priorities have shifted. Promises made on February 1 are now commitments, and the objective has changed, too, from wooing voters to putting the economy back on track… That would require a robust employment-oriented growth strategy that should be supplemented by a well-formulated countercyclical policy to address the problems posed by temporary slowdowns… The full budget that will be presented by Sitharaman next week is expected to be pragmatic rather than populist especially because of growth concerns, rising unemployment and a widening fiscal deficit, officials in the government said on condition of anonymity. The conclusion is based on a series of meetings that took place between Sitharaman and economists, including sectoral experts, bankers and businesspeople… Officials said that the budget is expected to set the stage for reforms over the next five years that could see structural policy changes in areas such as land, labour, capital markets and entrepreneurship to attract investment, offer incentives to boost consumption, and spend public money on social infrastructure for equitable growth. The focus would be on job-intensive sectors such as food processing and micro, small and medium enterprises (MSMEs).”
The Hindu expected the budget to tackle some of the immediate challenges facing the economy, including slowing growth, rising inflation, low consumption and questions over job creation. “The first and the foremost challenge for the new Finance Minister Nirmala Sitharaman, as she gets ready to present her first Budget on July 5, will be to bring the economy back on track… It is widely expected that the Finance Minister will continue with the provisions of the Interim Budget with a few changes. Some expenditure on account of expansion of the PM Kisan and pension schemes (for farmers and traders) will increase as these have been approved by the Cabinet and allocation has to be made in this Budget. Also, allocation for these will fulfil the key poll promises made in the BJP… The full Budget might set a new target for direct taxes comprising personal income tax and corporate tax… If the Government sticks to the Budget Estimate for 2019-20, it will require a growth rate of about 20 per cent (exclusive of STT). It may not be realistic which means the estimate needs to be revised and there could be new number for direct tax collections in the full Budget… There is also pressure on the Finance Minister to lower the corporate tax for remaining one per cent of the assessees i.e. big companies. Such a move will definitely encourage investment.”
A column in Livemint took a longer term view that the narrative and provisions of the budget are expected to echo Prime Minister Narendra Modi’s target of a US$5 trillion Indian economy by 2022. “Modi reiterated the government’s resolve to make India a member of the prestigious “$5 trillion club”. While it will be silly to believe that this can be achieved in the next nine months, the resolve and the blueprint for medium term action are likely to find mention in the budget… a key to achieving the above is to address the perceptible slowdown in growth. The obvious options are revving it up either through consumption—read enhanced government spending—or stoking a revival in the investment cycle… the optics of the budget will reflect the political messaging that won over the poor as a constituency and facilitated the landslide win for the BJP-led coalition in the 17th general election… It is clear then that the stage is set for the presentation of the Union budget. The first hints will be forthcoming in the Economic Survey or the economic report card of the country to be presented a day earlier to Parliament.”
India Imposes Retaliatory Tariffs on Products Imported From the US
India imposed long-pending retaliatory tariffs on 28 US products in response to the US withdrawing duty-free benefits for Indian exports under its Generalized System of Preferences (GSP). Media houses weighed in on the implications of these tariffs and their likely impact on India-US trade relations going forward.
An article in The Economic Times argued that the retaliatory tariffs were unlikely to lead to a trade war but could lead to the US pushing for a bilateral trade agreement with India, in line with the Trump administration’s policy on global trade. “The plan faces an uphill task mainly because of the bitterly divided Congress on partisan lines, especially on the issue of immigration reform. Even if Trump succeeds in convincing his Republican lawmakers on this, the opposition Democrats, led by Congresswoman Nancy Pelosi, House Speaker, and Senate Minority Leader Chuck Schumer, are dead against any such legislative success to the president. The Trump Administration is well aware of the issue. It is planning to make it an election issue in 2020 if the opposition Democrats are unwilling to be engaged on this, a senior administration official told reporters during an interaction on the eve of the rollout of the merit-based immigration policy.”
The Indian Express stated that India’s actions signal that India is well equipped to respond to threats to its trading rights. “India has decided to impose its long-promised retaliatory tariffs on more than 28 products imported from the US, including almonds, fresh apples and phosphoric acid, amidst rising trade tensions between the two countries… India is one of the largest importers of almonds from the US, with imports worth $615.12 million of fresh or dried shelled almonds in 2018-19. The move comes around two weeks after the Trump administration notified its decision to withdraw India’s duty-free benefits under the US’ select trade programme… “India, like the US and other nations, shall always uphold its national interest in these matters. We have significant development imperatives and concerns and our people also aspire for better standards of living,” the ministry had stated earlier… The US is one of India’s largest trading partners, exporting $33.1 billion worth of goods to India in 2018. However, India still had a goods trade surplus of $21.3 billion with the country.”
A column in The Hindu explained that the India-U.S. discord over trade stems from a deep-seated desire of U.S. businesses to have a bigger footprint in the Indian economy. “Economic relations between India and the United States are on a knife-edge after the U.S. took a series of unilateral actions against India’s exports, that began in 2018, followed by India’s recently announced retaliatory move of increasing tariffs on 28 products imported from its largest trade partner… American businesses strong disapproved several of India’s key policies on trade and investment and that these policies had to be amended. Although in 2014, the USITC seemed to support the direction of the Modi government’s economic policies in its first few months, in the second report, which covered the government’s first year in office, the familiar tone of disagreement over India’s trade and investment policies appeared once again… The fact that the U.S. is not approaching the WTO to challenge India’s trade and investment policies that American businesses find detrimental to their interests implies the following: India’s largest trade partner is acting in defiance of agreed rules to target India’s WTO-consistent policies.”