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How Modi can boost India-US ties

Mr Narendra Modi is two months into his tenure as Prime Minister of India. Last week, United States Secretary of State John Kerry and Secretary of Commerce Penny Pritzker travelled to New Delhi for the US-India Strategic Dialogue. Just what does the future hold for US-India relations under Mr Modi?

Mr Kerry meeting Mr Modi in New Delhi last Friday. There is much that the US and India can do to lay a strategic foundation for future cooperation. Photo: REUTERS

Mr Kerry meeting Mr Modi in New Delhi last Friday. There is much that the US and India can do to lay a strategic foundation for future cooperation. Photo: REUTERS

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Mr Narendra Modi is two months into his tenure as Prime Minister of India. Last week, United States Secretary of State John Kerry and Secretary of Commerce Penny Pritzker travelled to New Delhi for the US-India Strategic Dialogue. Just what does the future hold for US-India relations under Mr Modi?

The Prime Minister’s priorities are growth and governance: Improving government efficiency, speeding up government approvals and keeping corruption down. For that, India feels a well-deserved bump of investor interest, foreign and domestic. If he has a strategic outlook, it is to pick up manufacturing jobs while China grows more expensive.

So, what is he doing to get there?

On foreign policy, Mr Modi’s first priorities are regional: He invited leaders from all neighbouring countries, including Pakistan, to his inauguration. China is very much on his mind. He travelled there with business delegations several times as Chief Minister of Gujarat state. As Prime Minister, his first visit was to Bhutan, which showed neighbourliness but also put China on notice not to push on the Himalayas. His administration has already had talks with Chinese leaders, and he met President Xi Jinping at the BRICS (Brazil, Russia, India, China and South Africa) summit in Brazil. However, the accounts of these meetings all show cooperation with a note of discord — over borders or Indian oil companies in the South China Sea, for example. Mr Modi wants to convey the idea of a strong and confident India in the region and with China.

What about the US? Well, to begin with, the visa question — the US pulled Mr Modi’s visa after the 2002 anti-Muslim riots in Gujarat — is moot. He can and will travel to the US anytime on a diplomatic visa. Similarly, the flare-up in New York over Indian diplomat Devyani Khobragade has died down. US President Barack Obama has invited Mr Modi for a state visit after United Nations meetings next month.

So, it is all on the up-and-up, right?

More or less. Frankly, Mr Modi does not appear to have any vision for the relationship, and two years from the end of his term, Mr Obama does not appear to have one, either. However, there is much that both nations can do to lay a strategic foundation for future cooperation.

First, India needs to push through its half-finished reforms and earn a reputation as a country that can get things done, as well as spur investment, not through some protracted negotiation of a complicated agreement, but through reforms that make a difference for US and other investors. Ultimately, raising India’s position on the World Bank’s Doing Business index, on which it now stands at No 134 between Yemen and Ecuador, would make the country more important to US firms and raise its standing in the modern world of value chains, open markets and cross-border investment.

Mr Modi had begun by changing hiring and firing policies, but more reforms could bring more jobs and job market flexibility. The last government pushed through a law for foreign universities to set up in India — and US schools are more than eager to do so — but did not finish the job with regulations. The substitution of a goods and services tax (like a value-added tax) for a myriad of corporate levies has been promised. Mr Modi’s government announced that foreigners could invest up to 49 per cent in defence firms, enough to get some joint participation but not the majority share that would make India a hub for defence manufacturing. Completing these reforms would boost business investment and fix India on the growth map again.

Second, some new reforms are needed. The great leap forward to nuclear cooperation and a cleaner energy future for India fell flat because of its nuclear liability law. The foreign community has united to make it clear that amendments are needed. Japan will press the issue during Mr Modi’s visit this month, so watch for announcements.

In addition, will Mr Modi truly reform state enterprises (public-sector undertakings, in Indian parlance)? Will he finally open up retail and finance to foreign investment? What about e-commerce? More reform means more business, more prosperity and more respect for India in the US and elsewhere.

WHAT CAN THE U.S. DO?

Of course, the US can take some meaningful steps without a grand vision. As it withdraws from Afghanistan, it can recommit to honest counterterrorism cooperation, building on the dialogue the countries have had since the Mumbai attacks. With China on both countries’ minds, we can expand naval cooperation to protect sea lanes from the Persian Gulf to the Strait of Malacca. At Beijing’s Asia-Pacific Economic Cooperation summit in November, the US can push for India to join. (Was India part of the Asia pivot, or does the US have a myopic view of what constitutes Asia?)

Other US reforms, of immigration law and, in particular, an expansion of H-1B visas, would benefit innovation in both countries.

There is an agenda for US-India relations, but it is centred on reforms and investment with a strategic underpinning. Grand announcements with no follow-through will not help either side. In this regard, Ms Pritzker’s presence last week was more important than Mr Kerry’s. If Mr Obama wants to make a difference, he could follow up during Mr Modi’s visit next month by introducing him to US business leaders who want to invest and strengthen the foundation for the nations’ relations in the years to come. BLOOMBERG

ABOUT THE AUTHOR:

Richard Boucher, a former United States Assistant Secretary of State for South and Central Asian Affairs, will be teaching at Brown University’s Watson Institute for International Studies this fall.

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