India-US relationship is expected to reach an unprecedentedly high orbit during the upcoming State Visit of PM Modi to the world’s largest economy. The expectation is that this time around, the immense range of opportunities created by shifts in geopolitical tectonic plates will not go unutilised by India

Within twelve days, Narendra Modi will become the first Prime Minister of India to twice address a Joint Session of the US Congress, the first such event having taken place in Modi assumed charge as the Prime Minister of India at a time when the geopolitical centre point had visibly shifted from the Atlantic to the Indo-Pacific, and from Europe to Asia.

Since then, his has been a complex task navigating the cross-currents of Great Power and Major Power rivalries. It was regarded by experts as impossible that flourishing diplomatic ties with Washington would be possible at the same time as trade and overall relations between Delhi and Moscow have majorly grown, yet this is what has been achieved. Consider the safe return of not just Indian but South Asian students from Ukraine during the start of the Russia-Ukraine war last year through Prime Ministerial intervention with Presidents Zelenskyy and Putin, or an Air India Boeing 777 taking off from Magadan city in Russia on 7 June and travelling onwards to San Francisco. The tectonic shift in global geopolitics in the era of Cold War 2.0 has given an opportunity to India as substantial as what was presented to Jawaharlal Nehru in 1947, which was nothing less than the chance for effecting a transformation that would propel India into a much higher orbit where national income was concerned. From the 1950s until the 1990s, this opportunity was less than fully utilised out of the conviction within the top leadership that the “commanding heights” of the economy should be kept out of the private sector. Among the consequences was the much lower per capita income performance of India as compared to countries to its east that did not treat the private sector in a step motherly fashion. The meaning of “Minimum Government”, the mantra of PM Modi, is minimum interference by the government where productive activities are concerned. The forthcoming State Visit of PM Modi to the United States is expected to have as major an effect on the future trajectory of relations between the two biggest democracies as Deng Xiaoping’s US visit in 1979 subsequently had in US-China relations.

Digital Economy Is The Keystone

Since 2014, even in the once walled off sphere of defence production, the private sector has been given a level playing field, while in that of banking and financial inclusion, hundreds of millions have seen their lives change as a consequence of the innovations being made. All this is taking place in a context where powerful countries are actively seeking to scuttle the prospects of India, much the same way as some other countries did in earlier decades. The interplay between the strategic interests of India, China and the US will define the contours of the future. What is powering the economy of the US is the strength of its digital economy, which looks set to overtake the physical economy by the next decade. It cannot be forgotten that several of the billionaires in the US have seen their wealth increase from modest to substantial proportions during 2002-2012 as a consequence of the digital revolution that took shape during that period. Of course, casualties were many, but those who survived witnessed substantial growth. This burgeoning industry had been foreseen by Rajiv Gandhi and Sam Pitroda in the 1980s, and became mainstreamed during Modi 1.0.

Both India and the US understand the importance of the digital economy and its ocean of date. Given their hold over the Crypto exchange mechanism, it was no coincidence that Binance and Coinbase were mortally wounded by the US Securities and Exchange Commission, for such a move would undercut China’s power in world crypto markets to the likely benefit of US entities such as NYSE and CME. There would also be other exchanges set up in friendly countries.

While successful national champions in the field, including those that had established a strong presence in Singapore and Dubai, were brought down under the UPA, it is expected that new market leaders will emerge in India during the coming years as a consequence of the focus on the digital economy by the Modi government. Work on creating a policy framework for a multi-trillion dollar digital economy in India within the decade is proceeding at a swift pace, which means that the digital segment could account for half the GDP of the country and finally overtake it within the next decade (2030-39).

Security Linked Incentive Needed

Jairam Ramesh coined the term “Chindia” over a decade ago. This stood for a meshing of the capabilities of the two Asian countries that have populations in excess of a billion. Had such a pairing come through, and been joined by Russia to form a Russia-India-China triangle, by now there would already have been an international order separate from that established through the Bretton Woods framework and US military alliances across the globe. Somewhere along the way, the CCP leadership miscalculated the willingness of India to forgive and sacrifice, and believed that the overall relationship with India could be kept within limits safe for the Chinese side even while Beijing ceaselessly damaged Indian interests domestically and externally. The domestic interest was hit not just by territorial land grabs but by adopting a pricing strategy by the PRC that resulted in the loss of millions of jobs in the world’s biggest democracy, India.

There is now a Production Linked Incentive (PLI) scheme, which is proving to be effective. There also needs to be a Security Linked Incentive (SLI) that ensures that through domestic production or through “friendshoring”, national security is boosted. Equipment in critical services such as power, electricity, health and transportation need to be sourced from friendly locations rather than from countries hostile to India. Given the possibility of the insertion of trojans, especially in electronic equipment and in software systems, there needs to be a Zero Tolerance policy towards what may be termed enemy-shoring. Adding the SLI to the list of incentives already given by the Modi government would result in tax and regulatory changes that enable goods produced within India to be globally competitive. 2014 was a firebreak from the past.

Since then, Prime Minister Modi, assisted by External Affairs Minister Jaishankar, has made it clear that trade relations cannot be normalised until the Sino-Indian boundary issue is settled. This ought preferably to follow the line already accepted by the Chinese government (in the case of Myanmar), which is the McMahon Line. It is expected that both through government policy as well as by the dynamism of business entities, the high level of dependence on Chinese products in fields critical to India’s security will get reduced at an accelerating pace during the next few years.

India Ideal For Friendshoring

CCP policies vis-à-vis India have made Ramesh’s Chindia, the coming together of China and India, over as an aspirational construct, and this has been replaced by what financial analyst James Lee terms “Chissia”, otherwise known as the Sino-Russian alliance. The PRC has two prongs in its geostrategic quiver, the Sino-Wahhabi nexus and the Sino-Russian nexus. As a consequence of NATO’s obsession with Europe and Russia, as exemplified in the Russo-Ukraine war that has been playing out since 24 February 2022, Chissia has developed to a level unprecedented before.

With each turn of NATO’s screws on Russia, that country is becoming more dependent on China, which is why even in the case of India, Moscow is giving Delhi the extraordinary advice that its supply of Russian oil should be paid for not in rupees but in Chinese currency, the RMB. President Putin has clearly been unable to fend off Xi’s pressure and agree to accept Indian rupees instead of RMB. Had he resisted Xi, not only would the relationship between Moscow and Delhi strengthen in a way that would increase Putin’s freedom of action in his relationship with Xi, but Russian entities could have set up manufacturing and other facilities in India that could service the Global South in particular. The more the PRC works to damage the interests of India, the greater the gravitational pull of taking a different side during Cold War 2.0 (principally between the PRC and the US) than it in effect did during Cold War 1.0 (between the USSR and the US).

A mutually beneficial outcome will be the shift of manufacturing and other US facilities from the PRC or elsewhere to India, to take advantage of the cost and brainpower advantages of the country. Unless the large defence manufacturers in the US, for instance, set up plants in India to handle part of the manufacturing and service process, they will steadily be outpriced by Chinese and by Russian substitutes in the fast-growing markets that are outside the NATO bloc. Brushing aside the attitudes of the past, Prime Minister Modi recently met the CEO of Walmart, which is a company that has sourced billions of dollars of goods from China, and which is now looking at “friendshoring” more of this to India, given that Washington and Delhi are close in a manner that Washington and Beijing are not any more.

Visit Heralds High Growth

While President Biden and Prime Minister Sunak are talking only of “de-risking” rather than decoupling from China, that country is on track to substantially decouple much of its activity from the US. Already it has created a Digital Iron Curtain blocking access to platforms and data that the CCP deems to be incompatible with its interests. Now that Hong Kong has become almost indistinguishable from any other large Chinese city where the power of the CCP is concerned, it will not take long before the Hong Kong dollar separates from the US dollar peg and moves on to an RMB peg. In the past, Hong Kong served as a financial gateway to the economies across both shores of the Atlantic. Once the territory moves to an RMB peg, the speed with which that currency will be used in global trade will in the view of the CCP increase.

Meanwhile, CCP General Secretary Xi is making sure that US dollar holdings are getting converted into physical dual use assets in a number of countries, and slowing down the accumulation of US dollar reserves. The financial sanctions imposed as a consequence of the war in Ukraine since 2014 have resulted in a loss of confidence in the holding of US, British, European and Swiss currencies as reserves both public and private. India also has been moving towards a system where more and more of its external transactions are being carried out in rupees, but Prime Minister Modi, together with External Affairs Minister Jaishankar and Finance Minister Sitharaman, has made it clear that such a move will not in any way dilute the close relationship that is being established between the US and India. The India-US relationship is expected to reach an unprecedentedly high orbit during the upcoming State Visit of Prime Minister Narendra Modi to the world’s largest economy. This time around, unlike during the 1950s to the 1990s, the expectation is that the immense range of opportunities created by shifts in geopolitical tectonic plates will not go unutilised by India. It was the taking advantage of such shifts that enabled Deng Xiaoping to transform the PRC from penury to plenty. A similar trajectory has been opened up for India as a consequence of the geopolitical shifts that have occurred in the 21st century. The Modi visit this month to Washington is expected to give momentum to such a progression towards high growth in India, just as the Deng visit in 1979 to the US accomplished for China.