Assessing the Future of U.S.-India Relations
What lies ahead for the U.S.-India relationship, and what should Washington put at the top of its India agenda? Over the past several months, the Council on Foreign Relations sponsored an Independent Task Force on U.S.-India Relations—co-chaired by Charles R. Kaye, co-chief executive officer at Warburg Pincus; and Joseph S. Nye Jr., university distinguished service professor at the Harvard Kennedy School of Government; and directed by Alyssa Ayres, CFR senior fellow for India, Pakistan, and South Asia—to examine developments in India, assess India’s likely future trajectory, and identify further opportunities for U.S. foreign policy. The Task Force finds that partnership with a rising India offers one of the most substantial opportunities to advance U.S. national interests over the next two decades, and urges U.S. policymakers to adopt a new approach to the U.S.-India bilateral relationship going forward—a “joint venture” for the new century.
Independent Task Force reports are consensus documents that offer analysis and policy prescriptions for major U.S. foreign policy issues facing the United States, developed through private and nonpartisan deliberations among a diverse and distinguished group of experts.
BUMILLER: OK. Welcome, everybody, today’s launch of the Council on Foreign Relations Independent Task Force Report “Working With a Rising India: A Joint Venture for the New Century,” with our co-chair Joe Nye, project director Alyssa Ayres, and task force member Fred Bergsten.
We also want to give special thanks to our task force members Stephen Cohen and the observers Tom Bollyky, Dan Markey, Neena Shenai, and Rachel Vogelstein for joining us in the audience today.
We’re also pleased to be joined by the Indian ambassador, Arun Singh, here in the front row. (Applause.)
I’d also like to welcome the Council on Foreign Relations members around the nation and in the world participating in this meeting through livestream.
My name’s Elisabeth Bumiller from The New York Times. I should say that also.
So I’m just going to turn to Joe here and ask you to give us a topline on the report and your findings.
NYE: Well, the title tells a lot of it, India rising. But the more important thing, I think, is India’s rising is good for the United States. What we’re arguing in this report is that the rise of India presents one of the really great opportunities in American foreign policy over the next decade or so, and that’s because there really is something of a structural realignment going on in the world—a structural realignment meaning that unlike the, let’s say, 30 years ago when India was insisting on non-aligned and the Americans were having different allies and so forth, the interests of India and the interests of the United States are pretty much in alignment.
It doesn’t require an alliance. Indians are much too sensitive to ever agree to an alliance with a superpower. By definition, an alliance with a superpower is unequal. And if there’s one thing you’ll never get an Indian to say, it’s unequal. But what you can get an Indian to say is what Foreign Secretary Jaishankar has said, that India is going to take a more active, leading role in its foreign policy, be less reactive. And the emphasis on non-alignment that we used to hear so much of in the past you don’t hear as much of now.
So I think the big—the name of the report, India rising, tells it, but I think the—if there were a subtitle it would be “And Structural Realignment With the United States.”
BUMILLER: Let me ask Fred, one of the finding of the reports is, is that if India can maintain double-digit growth, it’ll be the world’s next $10 trillion economy. Can India carry out the reforms to do that?
BERGSTEN: It certainly can. The question is, will it?
The task force, quite rightly I think, put a huge emphasis on the economic side of the relationship. Just picking up on what Joe said, India could become a world power if it could emulate over the next 20 years anything like the economic growth that China experienced over the past 20 to 30 years. What made China a great power was not nuclear weapons, not having a population of a billion people; it was 10 percent growth for 30 years. India could do it. We in the task force felt it. I, from studies I’ve done on the economics of it, feel that India could do it. The question is, will it adopt the policies necessary?
And so, in the report, what we advocate is strong U.S. support for economic reforms in India, both domestic and international, that would enable India to do that. The country’s probably going to grow at 7, 7 ½ percent anyway. But, in order to achieve the prime minister’s goals of cutting unemployment, reducing poverty further, they’re going to have to up that and get up into the 8 to 10 percent range. That’s their stated goal.
To do it, they have to carry out the prime minister’s domestic reforms and they have to add an international dimension. India has been losing international competitiveness. It has been left out of the big international trade agreements, like the Trans-Pacific Partnership just announced. For India to achieve 8 to 10 percent growth, it’s going to have to experience a big increase in its exports, a big increase in the globalization of its economy. No country—repeat, no country—has ever achieved growth of 8 percent or more on a sustained basis without expanding greatly its international engagement and having a big trade dimension to its economic performance. So the challenge for India, in addition to carrying out its domestic reforms which underlie everything else, is to become much more active on the international trade and economic side.
An initial step to achieve that would be for India to come into APEC. That would be a stepping stone to trade agreements down the road. It would begin to enable India to take advantage of trade facilitation agreements, a culture of trade opening up. We hope that that’s something that can happen in the near future. It’ll depend largely on India in the first place showing that it wants to do it. But then of course the United States—and that goes to our report—should, in our view, strongly support such an initiative and help India to move in that direction.
BUMILLER: Alyssa, what has Prime Minister Modi’s record been so far on the economic reforms he promised? Or Fred, whoever wants to jump in. (Laughs.)
BERGSTEN: No. Alyssa, you two go ahead.
AYRES: Well, I wanted to just follow up something that Fred just said, and I’d be happy to answer that in a second.
AYRES: But I did want to note that the way the task force places economic growth as its top priority for U.S.-India partnership actually is something new and different from the way the United States has been focusing on its approach toward India. We have reformed our security ties with India. It’s been at transformation over the course of the past decade. And so, in this report, I think it was the consensus of everyone in the task force that we really need to do the same on the economic side because that is the secret to India’s rise to power, India’s growth, and what will be greater prosperity for the world that the United States can also benefit from. So I just wanted to emphasize this is actually something new. And it sounds obvious, but in fact, that has not been U.S. policy.
BUMILLER: So let me just follow up with that before then I go—circle back to the Modi question. What are the chances that India is going to listen to the United States on this issue? I used to—
AYRES: It’s not just—yeah.
BUMILLER: I used to live in New Delhi.
AYRES: Yes. Yeah. (Laughter.)
AYRES: All of us have had a lot of experience—(chuckles)—working with officials and friends in India.
This is not a government report. We are an independent task force of American experts on India and people in their fields with experience working with India, all of whom seek, you know, a stronger U.S.-India relationship. So the recommendations come from a position of wanting to see a strengthening of ties. This is not an opportunity to browbeat India into some recommendations that are not in India’s national interest. So I think that’s part of what we try to identify, that what we’re saying here—the bulk of our recommendations are, of course, directed at the United States government. This is a task force comprised of American citizens. But we also have a couple recommendations for the government of India and for Indian political leaders as well. It’s not just the government in India, it’s also the opposition because the opposition has shown its ability to stymie processes in parliament. And for India to attain that 8 to 10 percent growth, there needs to be a little bit more multiparty consensus on the kinds of economic reform and opening that will help the country achieve its own ambitions.
BERGSTEN: Elisabeth, I’m optimistic for sort of objective economic reasons. And let me give you two numbers that suggest why.
The Trans-Pacific Partnership has now been negotiated, and it’s going to expand substantially. There are a whole bunch of major countries already lined up to get into—get into TPP. Korea. The president of Indonesia, when he was here two weeks ago, indicated they want in. The Philippines wants in. Thailand wants in. So if we look out five to 10 years, what we can envisage is a TPP that includes most of the Asia-Pacific region.
We’ve done a big study at my institute that suggests what that would mean for India. If India stays outside that grouping, it will lose at least—at least—$50 billion a year of exports. Its growth will be dampened. Its international competitiveness will be hurt further. If, on the other hand, it joined the TPP—is able to do so, undertakes the reforms that enable it to qualify and join—its exports will increase by $500 billion annually once the whole thing is phased in over a 10-year period. This would be a huge boost to the Indian economy, India’s role in the region and the world. It would enable it to get up into that 8 to 10 percent growth range.
That is fruit that is hanging out there. I won’t say it’s low-hanging because it requires some important changes in Indian policy. It requires the rest of the group to welcome India in. But it is a tremendous opportunity—a tremendous incentive, I would say, for India to move in that direction. And I find it hard to believe that India will, A, want to take the losses which would occur if they don’t join; but, B, take those opportunities to get a step change and enormous historical transformation in India’s growth rate, and therefore its world role.
NYE: We agree—I mean, Fred and I agree, and Alyssa—but it’s worth noting when you open the report that right in about the first or second page it says there are two Indias. And we—this report is very bullish on India, but it’s not Pollyannish.
And one of the things that’s important to note is India is about to pass China as the most populous country in the world in the coming decade, but if you add all those people and they’re not educated, you’re adding a liability, not an asset. And if you look at literacy now at 75 percent and women’s literacy at 65 percent, we’re not going to make the progress we need even if you join TPP within a decade unless you also deal with those issues.
So India’s got—and those are not American problems, those are Indian problems. So the report is pretty clear on saying that, look, there are things that India is—are holding India back that India has to do something about.
BUMILLER: That was actually—I mean, there are so many questions I want to follow up on, but I guess let me just jump at the one about women and girls. I wrote a whole book about Indian women many years ago, and not so much has changed.
So you call for progress for women and girls in India. I mean, do you—what do you see as the progress in the last generation?
NYE: Well, Prime Minister Modi has said the right things, but it’s not clear by the statistics that that much has happened.
But, Alyssa, you—you’re an expert on this. Why don’t you—what progress have we seen?
AYRES: So, you know, one of the things we actually took up as a finding, not a recommendation—because there isn’t so much the United States can do about such an important domestic issue—
AYRES: —but we did note the recent ILO report that found a decrease in women’s labor force participation in India, which was a real surprise. It went from, in the last decade, 37 percent to 29 percent. In fact, it was such a drop that in her visit to India in March, IMF Managing Director Christine Lagarde made a point of saying this is a real issue, actually, that India needs to confront and do something more about.
There’s been plenty of progress for women in India. Of course, if you look at India’s banking sector, it’s dominated at the CEO level by women. I wish I could say the same for our country. It simply isn’t true. But there are a lot of issues that Indian women do face. Some of the recent data coming out from studies like the McKinsey study that came out at the end of September noted the real gains to GDP that India could experience—between 16 to 60 percent of GDP gains—if there was an equal—a closing the gap between men and women in the labor force. So those were some of the issues that we looked at.
BUMILLER: So let me go back to Prime Minister Modi, how you feel he’s—his success rate at carrying out some of these reforms he promised. Anybody can jump in.
NYE: Well, my impression as a non-economist—we’ll see what Fred and Alyssa say—is he came in with a very interesting agenda, and he’s been very pragmatic on his domestic reforms, a bit too much so. He’s certainly invested a good deal in foreign policy, which has been good. I mean, I like the steps he’s taken in foreign policy. My feeling, that some of the steps that are necessary for domestic reform have been pretty cautious and pretty slow and not up to the scale of the task that we describe in the—in the report. I mean, land reform is just one example, but there are many others.
BUMILLER: Let me move on to—
BERGSTEN: Let me—let me just—
BUMILLER: Go ahead, sure.
BERGSTEN: Joe and I agree on practically everything, but I’d be a little more optimistic. It’s true that the biggest economic reform of all, the goods and services tax, was not gotten through the parliament in the last—in the last session. However, I think there’s a good chance it will make it in the upcoming session.
For those of you who don’t know India that well, the goods and services tax is actually a(n) absolutely critical reform. We talk about India integrating in the world economy. In some sense, India is not an integrated national economy because the different states have their own regulations, barriers. That’s why the trucks line up at the border, et cetera. The goods and services tax would be a unified national tax, which would be a huge breakthrough in integrating the Indian economy at the national level, and thereby would both greatly improve its competitiveness by wiping out lots of unnecessary costs, but also positioning it as a true national economy to participate more actively internationally. I think there’s a good chance that will get through.
Some of the other reforms which have been blocked at the national level have already been, you might say, outsourced to the states. And some of them actually are already being implemented by some of the more progressive states, including those in political alliance with the prime minister and his party.
So it’s a mixed bag. India is a messy democracy. We all know that, coming from a messy democracy as we do. And so it’ll take some time. But again, I think the reform agenda, again, is so compelling and such a political commitment of the prime minister’s that I’d be more optimistic that a good part of it will get through. It may take some time. There may be some shimmying around the margins. But I think the big ones will probably progress. And that, in turn, is crucial to enable India to do the kinds of things I was talking about before.
AYRES: Can I just follow that up quickly?
AYRES: I think it’s important to remember that the Modi government actually did succeed in getting the insurance bill passed, which raised the FDI cap on insurance. That was something that was at the top of everybody’s reform list for more than a decade. The UPA government was not able to achieve that, in part because the BJP when they were in opposition opposed it. But now that they’re in power, they managed to get that through. So that was something that actually did capture a lot of attention when it happened.
I think part of the challenge has been that the Modi government has not been as forward-leaning as many people expected that they would be on economic reform. So the first budget was not forward-leaning; it was a little bit more cautious. They made a series of ordinances last December that kind of set the direction of where they’d like to be going, but they haven’t been able to get all of those passed through parliament because of this problem with not having a significant representation in the upper house.
So they have the lower house, but they can’t get legislation passed very easily. They have not been able to advance the land acquisition bill permanently. That is a major issue that, as Fred said, will probably devolve down to the state level. Goods and services tax, very important. They haven’t done enough on taxation. That remains an issue that a lot of global companies have had trouble with. And that has been a little bit of a problem for the image of the government because, of course, on the campaign trail they talked quite a bit about ending “tax terrorism” and making this a friendly place to do business.
But FDI is now up in India. In a report about a month ago, India is now the number-one global destination for FDI. It’s up I think more than double as of midway through this year than it was last year. So that is an indication that some things are going really right.
NYE: And we have to—we have to see what happens as a result of the Bihar election about getting reforms through the upper house. It’s still an open question.
BERGSTEN: But I just wanted—I wanted to actually note that in the few days since the Bihar election, which has been widely characterized—rightly so—as a setback for the prime minister, the government has gone ahead, put out a new deregulation package, adopted or approved a big new investment by General Electric which had been pending for a long time. So, far from being deterred from moving ahead by that, they’ve done what they could at the executive branch level. And it may be that the loss there underlines and reinforces the prime minister’s commitment to move to economic reforms to try to recoup some of the momentum and popularity that he had when he won his initial election just over a year ago.
BUMILLER: Let me just move quickly to geopolitics and ask Joe this question. You talk in the report about how India can advance American interests. Is that code for having India serve as a counterweight to China in the region?
NYE: Well, I don’t know whether it’s a code. It’s a—it’s a fact.
BUMILLER: (Laughs.) OK. OK. (Laughter.)
NYE: No, but I mean, the report’s very—
BUMILLER: You’re not—you’re not in the government, I see.
NYE: That’s right. (Laughs, laughter.)
The report’s very careful to say this is not designed for an anti-China alliance. I mean, we have a lot of agenda items with China, some of them positive, some of them negative.
What we are showing is that if you look at the rise of China, which Fred aptly described, how China behaves will depend greatly on the balance of power in East Asia, which will depend upon Japan and India—Bill Emmott described this in the book the “Rivals” 10 years ago—as well as smaller countries like Vietnam and South Korea and others. The chances of making China behave as a responsible stakeholder, to use Bob Zoellick’s term, depends on shaping the environment so that, as China faces options, it sees that some are costly and some are less costly, and it would be led to the less-costly ones—the more cooperative ones.
So the fact that India and the United States and Japan and other countries have an interest in shaping the environment to encourage China to be responsible, that strikes me as not an alliance against China; it’s a fact. This is what I mean by structural realignment. It’s not—it’s not that we’re trying to get a new Cold War to contain China. It’s we can shape the environment, and that’s what we’re trying to do.
BERGSTEN: Elisabeth, I might just chime in on that. There’s, as usual, an economic dimension to that question as well.
I mentioned before what I regard as the huge opportunity that TPP offers for India, also the threat if India does not come in. That, of course, is hugely magnified if China comes into the Trans-Pacific Partnership. Two years ago, China was roundly opposing the TPP as a U.S. plot to surround it. Now, the last year or so, China has been talking very positively, engaging almost every week with U.S. officials, talking about the possible road to Chinese participation in the TPP. If China did so, I find it inconceivable that India would not want to do so as well because of the implications for its economy—that would be more trade diversion and losses; because of the implications for its foreign policy, its role in the region, its role in the world. So that would up the stakes greatly and add to the case, I think, for India to pursue the kind of path we’re trying to talk about in this report.
BUMILLER: Let me also move into Pakistan and Afghanistan. You say that—I thought that was interesting—New Delhi is very afraid the United States will extricate itself from the region and that you—you’ve called for the U.S. to extend its commitment to Afghanistan. Are you calling for more troops?
NYE: I don’t think we ever got an agreement in the group or tried to get an agreement on particular numbers of troops. But there was a view at one stage that we were on our way out, you know, by the end of 2016. I think our task force, well before the latest announcement the president made, said no, mistake. It’s not so much the number of troops as the presence and the indication of continuing interest.
So I would adjust—personally, I would adjust the numbers on the realities on the ground. But having some troops there as a leverage for trying to have some influence, I think, is crucial.
BUMILLER: And how long are we talking about?
NYE: Well, I would not set a time limit.
AYRES: We did not set a time—
BUMILLER: I noticed that. (Laughs.)
AYRES: —in the task force report.
BUMILLER: And then on the other—on Pakistan, you say that the United States should encourage India to get along better with Pakistan. I mean, that—what—(laughter)—
NYE: That’s it. (Chuckles.)
BUMILLER: Can you talk about that, please? (Laughs.)
AYRES: I’m happy to take that one.
BUMILLER: OK. (Laughs, laughter.)
AYRES: We very specifically say that, you know, India does have this risk of conflict in its own neighborhood, and that for India’s own rise to prosperity, its rise as a global power, it shouldn’t want to have its strategic options continually hemmed in by this threat of conflict with its smaller neighbor. So the United States should encourage India to try to improve its relationship with Pakistan.
In that same recommendation, we also go on to say at the same time the United States should do more to insist that Pakistan uphold its commitments as a state to tackle terror emanating from its own territory. And that is critically important.
So those two recommendations are part of the same one. They go together.
NYE: You know, the United States and India and Pakistan, the extent to which you can use that word for a collective set of groups, have a common interest, which is to prevent the failure of the Pakistani state or its hijacking by jihadist groups. And in that sense, there ought to be grounds for us to cooperate on a lot of things.
Now, there are parts of the Pakistani government that don’t necessarily see things quite the same way. And that’s why the more interesting part of the report, I think—the more interesting recommendation—is not that we should work together to try to improve situations with Pakistan and in Pakistan, but that if there’s another terrorist attack of the scale that we saw in Mumbai, this will be a disaster, and that if we see that the Pakistani government is giving Lashkar-e-Taiba and other groups free reign which might bring about such a risk we should stop selling arms to Pakistan. That is a—I mean, to say we should cooperate and get India to have better relations with Pakistan is like, you know, motherhood and warm milk or whatever.
BUMILLER: I know.
NYE: But to say that we should not sell arms to Pakistan if they don’t get hold of Lashkar-e-Taiba, that has teeth.
BUMILLER: We have—we have threatened to cut off funding in the past and they have temporarily.
BUMILLER: But it’s a long haul.
NYE: Some F-16s shouldn’t fly.
BUMILLER: Well, on that subject you also say that the United States should invest more in India’s security. What do you mean by that specifically? More weapons? More joint military exercises, technology? What are you talking about here?
NYE: Oh, we already have joint exercises.
NYE: I mean, Malabar is an important naval exercise we do together. We have greatly advanced the India co-production.
When I was in the Pentagon in the 1990s—this is a tale slightly out of school—I was chair of the U.S.-India Joint Military Commission, and my instructions were don’t do anything. (Laughter, laughs.) I’m simplifying, but the basic—you know, those were the days where you had the so-called hyphen. You don’t—you didn’t do anything for India you couldn’t do for Pakistan, and it meant you couldn’t do much of anything.
That’s totally gone. The hyphen has been dropped. The idea of co-production with India is now very much in the forefront. India is purchasing more American systems. So I think there really has been a change there.
AYRES: We do—I think all of us felt that the secular trend in deepened strategic and defense ties between India and the United States has been very, very positive. And so we do note that these positive trends should continue.
Where we emphasized the need for a little change was in increasing the importance in priority level of counterterrorism and homeland security cooperation, which has begun well with India but really not gotten to where it could be potentially, particularly on an issue that’s so important to both countries and where we do really have a common interest.
BUMILLER: Before I open up to the audience, let me just ask one last question, on climate, which is really big right now as the world heads to Paris at the end of the month for this climate summit. India has set forth a plan, but it’s requiring a great deal of money. And as you know, there’s a—there’s an issue about less-developed nations requiring the developed nations, like the United States—which India argues has been polluting for years and years and years—that there has to be some sort of compensation. What do you—what do you make of India’s climate plan? And what more needs to be done before it’ll be sort of workable in Paris?
AYRES: Is that one for me?
BERGSTEN: Go ahead, yeah.
AYRES: So there are kind of two pieces to cooperation between the United States and India on the climate set of issues.
In one of those pieces, the area of renewable energy, that cooperation is going really, really well. That’s one of the leading edges of cooperation between India and the United States. So that should continue, and we do address that. In fact, that’s been very, very positive.
What has become more challenging is where we have differences in the multilateral negotiations. And so part of what the group talked about was the importance of the United States continuing to, you know, press our view—it is a U.S. view that India should be doing more to try to put a cap on its emissions at some point. Realistically, we have not seen any indication that India is willing to do so. And as far as I can tell, that seems to be a belief that’s held across political positions in India.
So there are things that the United States could do to be more helpful to India’s emissions process. One of those would be to try to provide more cooperation at a technical level on work towards clean coal. There is no indication, looking at every scenario going out for the next several decades, that India is going to be decreasing its use of coal. In fact, that’s going to continue. So why can’t we do a little bit more to help try to make that less emissions-intense? So that’s something that we recommend.
We used to have a U.S. policy, our international energy policy, where we used to try to help countries on this. We no longer really do so. That would be something where we could try to make a difference in India’s needs where we already clearly have a major difference of opinion.
BUMILLER: Let me just follow up. I mean, so far in India there’s not been the domestic unrest over climate that there has been in China over the state of—you know, state of the air in China. Is there—is there any sign in the next decade or so that will happen in India?
AYRES: I would not be surprised to see more people speak out more vocally about the problem of pollution. You’re now seeing it in India’s major cities. Delhi is one of the worst-hit. Delhi now is—
NYE: It simply is worse than Beijing.
AYRES: Exactly. It’s really—
BUMILLER: But there doesn’t seem to be the kind of domestic pressure on the government that there is in China.
AYRES: Not yet. But I just can’t imagine that in such—you know, in a democracy where there are so many NGOs and so much citizen activism that you wouldn’t start to see over time more people saying we want to raise our children with cleaner air, a clean environment; we want to, you know, have a place that’s healthier for all of us.
BUMILLER: OK. So with that I will invite members of the audience to join the discussion. So please wait for the microphone, speak directly into it, and please state your name and your affiliation. And please keep your questions to questions. This is Washington, I know, so—(laughter)—but please make them questions.
Yes, right here.
Q: Bob Hathaway at the Woodrow Wilson Center.
Congratulations to all the task force for a report that I know will be widely read and I expect widely applauded.
Which gets to my question. I expect most of us will leave this room today agreeing with the thrust and in most—in many instances with the details of your findings and your recommendations. But I’m also aware, as you are, that the Council and other institutions have had a whole host of these similar reports in the past, and it’s astonishing—at least to this naïve witness—how difficult it is to implement what appear to be commonsensical recommendations. So I’d like to get the views of the panelists on what you see as the challenges and the difficulties in both countries, but maybe particularly in the United States, to moving forward on your recommendations, on the agenda you all set forth.
NYE: Well, if I can start—but I’d like to hear my colleagues—one of the interesting things is that India and the United States, as large democracies, are very good at confusing each other because there is such a cacophony of voices. But it also means that we sometimes are driven off course by almost irrelevant things. About a year and a half ago we had the Khobragade affair of an India diplomat who was charged or indicted over what was alleged mistreatment of a household servant and so forth, and that drove India-American relations off course, even after you’d had two decades starting with Clinton and then George W. Bush and then Obama trying to improve the relationship. So there are—implementing a set of recommendations is not easy in two democracies.
I think, though, that one of the things that would help is if we had a lot more contact at effective working levels in the governments. If you look at American relations with, let’s say, Britain or France, or even Japan as an Asian partner and ally, we’re in a constant working relationship with them. We have much less of that with India. And I think the way you put the ballast in the boat to prevent it being tipped over by certain storms like the Khobragade affair is to have this more constant interaction.
And that’s one of the things that actually is in the report. It’s not a highlight. I mean, it’s not—it’s not a dramatic thing like don’t give arms if there’s terrorism or something. But it is, I think, probably one of the more important aspects of the report.
BERGSTEN: On the—on the economic side, keep in mind that what we’re really proposing is a free-trade agreement between the United States and India, done probably through a regional compact, the expanded Trans-Pacific Partnership. The Trans-Pacific Partnership, remember, in its first stage is largely a free-trade agreement between the United States and Japan. We didn’t pursue it bilaterally. We pursued it through a regional agreement. But that’s what it is. And so when we propose India coming into that context, we’re talking about free trade between the United States and India, with the usual exclusions and caveats. But that’s what it amounts to.
So the domestic constraints would be the usual ones in pursuing a trade agreement, which we’re seeing now in spades with the TPP going before the Congress. So the people that don’t like trade agreements would say, wow, India, low wages, low labor standards, low environmental standards; terrible thing, we can’t pursue any of those things. All those would be addressed in the agreement, be negotiated. You see where you come out and see if it would be in the U.S. interest on balance.
But there’s a crucial fact about India that I think would make the challenges, though daunting, less so than with many other countries. India, remember, has a rather unique pattern of economic development. It basically skipped over the stage of a manufacturing powerhouse. This is not China. So a U.S.-India agreement would not be NAFTA on steroids. It would not be bringing in a country that would be a big competitor to us across the board in manufacturing. Rather, a country whose economic growth and expertise and comparative advantage is largely in services, which happens to be ours as well.
So in the more detailed economic study of all this that I’ve done and we’ve done at my institute, it looks like mutual advantage. We might even do a services-only agreement to get the thing started because we’re both services-exporting powerhouses. We would not—repeat, not—have to worry about a big loss of low-wage manufacturing jobs because that’s not India’s thing. In fact, India’s going to try to do more manufacturing. The prime minister’s “Make in India” strategy suggests that India ought to do more in that to get its growth rate up. But this is not China. This is not even Korea. This is not Indonesia. This is not a country that’s got a lot of manufacturing stuff that would cause big worries on the job front here.
I don’t mean to minimize the challenge. Any of this is going to be difficult, particularly in the current context about trade policy here in this country. Remember that any expansion of the TPP to include India, other countries is at least five years out. This is not immediate. That’s important in terms of what India can contemplate in terms of making itself ready and prepared to join. It’s also important in terms of our domestic politics, give it a little time to digest the current agreements and kind of let that simmer and adjust through our economy. But I think, interestingly, India might not be as big a problem as people might reflexively fear.
But again, just to underline, even to contemplate this seriously would require big reforms in India—big changes in their policy, the domestic agenda by the prime minister, going beyond that in some cases, and certainly a change in its policies toward international trade and investment that would provide credibility that it did want to move significantly in the direction of more integration with the world economy. As I said, I think the cost-benefit analysis for that is so overwhelming that India will increasingly move in that direction. But that is a sine qua non for doing any of the cooperative things that we talk about in the report.
BUMILLER: Yes, here in the second row.
Q: Good afternoon, everyone. Diane Farrell with the U.S.-India Business Council.
First of all, congratulations. For those of us who are also friends of Alyssa, we know how much time and effort she’s put into this. So it’s really quite wonderful to be here today and celebrate with you, and to congratulate.
I do have a question, probably directed at Dr. Bergsten, with regard to the TPP, also APEC, because the U.S. government had said as recently as the 3rd of November that India’s accession to APEC will not be on the agenda for the APEC meetings that are going to take place tomorrow and the following day. So first question would be, then, what I the game plan? We have a year, effectively, to plan some form of a campaign, as it were, with the U.S. government particularly, but other members and leaders of APEC as well, so that perhaps this can be a discussion point on APEC 2016’s agenda. And then the other is the RCEP negotiations that have been taking place, as well as the EU FTA between U.S. and India that are—it’s in somewhat of a stalled state. But nevertheless, how do you see those agreements also impacting what TPP’s impact might be, and whether you see those agreements as being meaningful and valuable enough to actually make a difference?
BERGSTEN: Well, if India wanted to go down the road that I’ve been advocating and that our taskforce advocates in the international trade area, there are lots of ways they could do it. One is to dust off their currently dormant FTA negotiation with the European Union. In a way, that’s a natural because it’s been going now since 2007. It’s been held up mainly because India’s been dragging its feet. They could revive that if they wanted to.
India could also begin to participate in the plurilateral trade negotiations going on in and around the World Trade Organization in Geneva. As those of you who are trade aficionados know, there’s a big trade in international services agreement being negotiated. This is essentially the services part of the—of the Doha Round that was not pursued that hived off, and there’s a big agreement to liberalize trade in international services.
It’s an anomaly—a huge anomaly that India is not participating in that because it’s a big services producer and exporter, and potentially huge exporter. So I think India is missing a huge bet here. This would be a relatively easy one because it’s multilateral, therefore sells better in Indian domestic politics, and it would cater to a sector where India is obviously very competitive. If India were to join that, it would give a very important signal to the rest of the world that India now wanted to get more engaged in this internationalization business.
The RCEP, the Regional Comprehensive Economic Partnership of Asian countries only, is a much less ambitious Asia-only answer to TPP. India is in it. It would get benefits from working it out. Our studies show that too. But not nearly what it would gain from TPP. There is an intersection between the two, however, because if one contemplates an Asia-wide free trade agreement of the Asia-Pacific, it could occur through a kind of amalgamation between the TPP and the RCEP. And since India’s a member of the RCEP, that would be a channel, a route through which India could come to these broader arrangements.
Now, what’s fascinating—you talk about the one-year horizon—what’s fascinating about the next year in the APEC context is that China’s in chair. So China’s chairing APEC over the next year. Well, does that help or hurt the chances that India would come into the process? China invited India to attend something a year or so ago. India did not come. That’s what—I’m sorry, China chaired APEC. Next year, China chairs G-20, my mistake. China chaired APEC last year, invited India to join—invited India to come to the meeting, observe, did not work out. China has said it would welcome India coming in.
Again, I come back to where I underlined all the way through. If India begins to move down the economic reform path, then I think the United States could in good conscious support or even champion India’s interest in joining. The prime minister said quite clearly after his last meeting with President Obama, India wants into APEC. So now it’s got to demonstrate its bona fides. The United States has a very simple, but very understandable objection to India’s joining APEC, and everybody ought to understand that.
APEC has turned out to be a very valuable device, and the U.S. government has placed very high priority on it. It’s not a negotiating forum, but it has instigated and incubated some really major international trade agreements—the information technology agreement and now its second incarnation, the new environmental goods agreement which is a big negotiation on green goods and liberalization of trade in those. Those things were started in APEC. And the U.S. government has feared that if India, with its tendency to block international trade initiatives, might have put the kibosh on that kind of thing in the past, and wants an assurance that if India came into APEC now it would not do that. Indeed it would hopefully be to the contrary. It would support initiatives of that type.
So if India were willing and able to demonstrate that kind of change in its attitude, then my suspicion is that you’d get a fairly positive reaction, certainly from here, it should be, in other APEC member countries, and move even in the course of a year, which is pretty fast by APEC standards, but nevertheless to move down this path.
BUMILLER: Did you have a question here?
Q: I’m Lansing Lee from the law firm of Squire Patton Boggs. And again, I want to add my thanks to all the panel for all the great work that y’all have done.
My question is about infrastructure in India, and what you’ve found in your work about infrastructure, the conditions of it, what their interest is improving as vis-à-vis the U.S.’s interest in improving its own, a lack of interest and a lack of doing anything about improving its own infrastructure. But what did you find about India and its infrastructure? I saw something on the Internet the other day with the trains and the rail and people hanging over the side of the trains and up on the roofs and all that sort of stuff. And they’re talking about improving the rail system, which was a massive, multibillion dollar operation. So anyway, just in general about infrastructure is the question.
NYE: Well, in one word, appalling. But, Alyssa, why don’t you. (Laughter.)
AYRES: We do note in our background section, where we tried to take a look at the different trends taking place in India and where India will probably be headed over the course of the next decade this big challenge that India faces in needing to build out an infrastructure to meet the demands of a 21st century economy. So that infrastructure that India needs to build out is by now a widely cited fact that it will cost on the order of a trillion dollars over the course of the next decade. And in fact, people have been citing this, myself included, for at least five to six years. India’s not moving as quickly as it could or should on the infrastructure front. And that can be a drag on its ability to grow faster.
Part of what we do recommend in term—in our section where we recommend placing a much higher priority on findings ways that the United States can be helpful to India’s own domestic economic growth needs is where we advocate finding whys that we can provide more technical advice, technical consultation on things like creating debt markets for infrastructure creations is something that India doesn’t really have, and it’s a challenge, municipal bonds. I mean, things where we can bring the wherewithal of U.S. knowledge to provide that kind of advice, and then people can use it if they like or, you know, conform—you know, put it in another context, if they like, to make it work in India. So we do prioritize infrastructure as something—an area of positive cooperation between India and the United States, and something where we could be doing more together.
BUMILLER: Yes, here, on the—woman here on my—on the right side, your left, there.
Q: Good afternoon. My name is Sahar Chaudhry. I’m with the U.S. Commission on International Religious Freedom. But my question is only tangentially related to that topic. I’m more here personal interest.
This past spring nearly 9,000 NGOs had their registrations revoked, which were quite concerning given many of these NGOs deal with human rights, climate change—Greenpeace and Ford Foundation. I was wondering if you could comment on the Foreign Regulations—Contributions Regulation Act, how this is detrimental to business in the U.S. investors potentially wanting to work in India.
NYE: Well, there are some trends in India which are not altogether happy. And that is one of them. I mean, they’re—India is a wonderful democracy, but there are strands of illiberalism in India democracy. And I think the registration of the nonprofits, NGOs, is an example of that. But, Alyssa, you want to say more about what we have in the report? We don’t say a lot about it in the report.
AYRES: We don’t talk about the FCRA in the report at all. And we had a limited number of issues that we could take up. I will note that there’s been a lot of attention to this issue. And the strengthening of that law took place actually under the previous Indian government. So what’s been happening over the course of many years is not something that is new or exclusively a Modi government phenomenon.
Of course, every country has the right to regulate the way organizations operate. Our registered nonprofits have to adhere to IRS guidelines. And that’s an important piece of this. But this is an issue that Indian democracy needs to work out for itself. So you do see a lot of foment now in India, a lot of different people standing up and saying, no wait a minute, what’s going on? There have been people standing up and saying, wait a minute, we need to have different voices of opinion out there in the public square.
When I’m asked questions like this, I have to say, I am a big believer in Indian democracy. And I see a place where you have many different voices that do make their way out there and can voice their opinions, their objections. And so I see—you know, you have one move in one direction and then you’ll see civil society come up and bring that back in another direction. So I think this is an issue that is being sorted out and will be sorted out through the strength of Indian democracy.
BUMILLER: Yes, over here on—right here. Sorry.
Q: Larry Korb, the Center for American Progress.
Did you get into the whole nuclear deal we did with India in the Bush administration? And how do you think that’s turned out in terms of our relations and who got more out of it?
NYE: Well, if you look back at the nuclear deal, it helped to break the ice for the Bush administration. It got a major change in the climate of the U.S.-India relations that President Bush was looking for and that Bob Blackwill, when he was ambassador, in particular was pushing for. Blackwill always used to say he got the U.S.-India relationship out of the clutches of the nonproliferation ayatollahs. So in that sense, it was a change in American policy more than a change in Indian policy. But because of domestic politics in India, the legislation to fully implement it and to produce the cooperation in real economic terms really hasn’t gotten that far.
So my view is that it served its purpose. Who knows? It may be possible to have exports to India in that area, but I don’t—in the report, we don’t pin our hopes on that. But I don’t know, Alyssa, you may have a different view on this.
AYRES: We do in the report recommend continued consultation on civil nuclear energy cooperation. It is true that the civil nuclear agreement did reset our strategic ties with India. So that has been a net positive. But it’s also true that the commercialization of that has been a disappointment for many Americans. And so that’s an area where I think—and that’s an area that’s important to American members of Congress who changed U.S. law in 2008. And a lot of people kind of look at that and say, well, wait a minute, how come there aren’t any American companies who have been able to set up nuclear reactors and work with Indian partners providing civil nuclear energy.
So I think that’s an area that we do need to keep out there as one for discussion. There was an announcement at the Republic Day Summit that a certain definition of India’s liability law would help provide avenues for non-parastatal firms to be able to operate in India, meaning private companies, like in the United States. So far, that hasn’t happened yet. We’ll have to continue to see how that unfolds. This is an—you know, the other interesting thing happening is to see what’s been happening with the overall pricing on solar energy, which is now starting to become a very viable competitor to the price of nuclear. So I’ve seen some reports saying that over time it may end up being the case that solar becomes much more competitive. And so that raises questions about the huge capital costs of building these large reactors. But that’s sort of a new thing happening now.
BERGSTEN: I would mention one other dimension, or one other implication of the nuclear agreement, underlining something Joe said in passing. The nuclear agreement was a game changer in terms of the U.S.-India overall relationship, its security dimensions, its political dimension. Paradoxically, the economic dimension has lagged. It has not experienced a similar game changing occasion. So as we thought about it in this report, with our emphasis on the economic side of the relationship, the importance of the economic dimension for India’s future, we looked for something similar.
And the idea or moving toward essentially a U.S.-India free trade agreement, probably done through a regional framework, as I’ve described, commended itself to us. We’d like to see something on the economic side that would be equally dramatic, equally substantive, equally game changing to what an earlier team worked out, including you, on the security side, to try to bring the overall relationship to the level of priority in overall U.S. foreign policy, national security policy, that the task force felt was really the centerpiece of what we wanted to see.
BUMILLER: The gentleman back here. Right there, yeah.
Q: (Off mic)—you see the Indian-American community playing—I mean, it’s a three million-plus community, one of the most affluent and well-educated—in pushing some of these reforms on the Indian side as well as policy reforms here in the United States towards India?
NYE: Well, the Indian-American community has played an enormous role inside the United States, as you know. The saying is that American foreign policy always is determined by the origins of Americans. And as you have more people well-placed to have their origins in India, it has an effect on American foreign policy. So that, I think, is natural and good. But the interesting question is the reverse side of this. Will the diaspora change things back in India?
What’s interesting to me is that when Modi travels, he travels to the adulation of the diaspora. We saw this both in his visit to the United States, but also in his visit to England and to London. And the interesting question is, how does that play—I mean, presumably he’s not doing that just to please the diaspora. He’s doing that to reverberate or to echo back home. And how effective that will be in Indian politics is, I think a good question, an interesting question. I don’t know, Alyssa, how powerful is it?
AYRES: Well, just to quickly follow that up, you’ve given me an opening to talk about one of my favorite statistics, because it shows the distance where we still need to grow. In the report we do talk about the important role that the Indian-American community has played in becoming more visible politically, at ever higher levels of accomplishment, and keeping India on the political and economic agenda for the United States. But we also looked at a series of data that different surveys have come up with. The Chicago Council on Global Affairs has done a long-running survey where they ask a question about the warmth that different Americans feel towards different countries. And they’ve been doing this for decades. So we could compare that.
Where India falls that survey was at a 53. It’s a one to a hundred scale. So that was good. It wasn’t as cold as Americans who answered this survey felt about China, for example. But it wasn’t as warm as the warmth towards the U.K., which I believe was a 77, or Germany, which I think was a 65. So we sort of looked at that data point and said, well, you know, there’s a long way to go on that end. And we also noticed some of the data—in fact, there’s the new iteration of the Institute for International Education’s Open Doors Survey just came out yesterday.
We looked at that data too, and made the observation that despite the fact that we do have this very strong Indian-American community, that the fact is that the number of Americans going to study abroad in India is really, really low. It’s quite embarrassing. There are more than 100,000 Indian students studying in the U.S. And that’s been the case for pretty much the past decade. But it hovers around 4,500, the numbers of American students who go to study in India. Now, of course, there’s a difference in overall population size, but something like 36,000 American students per year go to study in the U.K. There’s nearly twice the number of American students who go to study in Costa Rica or go to study in Ireland than go to study in India.
So we kind of looked at that data too and said, well, you know, we’d like to see these numbers be much higher. That would put India much more on the American imagination radar screen in a much more prominent way than at present. So we also saw that as an area for improvement.
NYE: But it just—could I just add quickly on that? But it reinforces the point that I make. If this is to be a major foreign policy interest of the United States, you’ve got to have much more contact at all levels, whether it’s students, diasporas. Brent Scowcroft and I have been chairing a U.S.-India Aspen Strategy Group Dialogue since 2002. And it’s interesting, just the more you see of these contacts back and forth, the more you get to have some understanding in the relationship that really hasn’t existed in the past.
BUMILLER: We have time for one more question. And before I take it, I just want to say, just to remind everybody, this meeting is on the record. (Laughter.)
AYRES: It’s been webcast.
BUMILLER: I know. I’ve been told to say that, just so you know. This gentleman here, you’ve been very persistent. (Laughter.)
NYE: Or patient. (Laughter.)
Q: Persistence pays off, I guess. (Laughter.) I’m Ray Vickery from the Woodrow Wilson Center.
I understand about what India needs to do in regard to changing this policy, opening up that, and so forth. Here a lot less about what the United States needs to do. And going back to the civil nuclear deal, that was a change basically in American policy, American thought, that caused a breakthrough. Now, India has a whole list of things in regard to restrictions on technology exports, H-1B visas, totalization agreements, and so forth. My question is, did the group give attention to what it is the U.S. can do? And are there any specifics that would help in that regard?
NYE: We do mention those—sort of that list of contentious issues. But that’s not where you’re going to change the relationship. We make—we use a term called joint ventures, where we say there are some areas where we and India have common interests and we ought to really move on those. One of them is in the cyber realm. When India changed its position at the ICANN meetings in South America last year that was a big change in terms of alignment with the U.S., Brazil, and Europe, as opposed to China and Russia, who have a more authoritarian view of Internet governance. There’s an area where the two countries really can have a joint venture. Public health ventures is another area where you could have more. So we were not focusing on the traditional list of complaints, which you enumerated, though they are mentioned in the report, but asking: Where can we find some new joint ventures?
AYRES: Let me just follow that up. I mean, Ray, I want to make sure that this is very clear. This is an independent task force of American citizens. So the great bulk of our recommendations here at directed at the United States from the concept—re-conceptualizing the way we think of our partnership with India as something more akin to a joint venture, in a term borrowed from business. That is directed at Americans, in part—well, actually, because we tend to look towards India and this great relationship between democracies as something that should behave like an alliance. But India’s not seeking an alliance from us. So our top recommendation is to kind of recalibrate the way we’re thinking about these tie to India so we are much more focused on what’s achievable and we don’t end up with disappointments when India’s view of Russia isn’t the same as ours, which it’s not going to be.
But as Fred and as Joe said earlier, the way we place as our top priority in that collaboration of joint ventures the need to raise the priority of economic ties—we have many recommendations for what the United States needs to do on that front. And even having that would be a major shift in U.S. policy toward India. So we do have some recommendations for India here, but it is mainly directed at the United States because we are American citizens and we wanted to say what we felt we could be doing in the United States to further our ties with India.
BERGSTEN: Let me just add that you quite rightly mentioned three of India’s major asks of the United States in the economic area. And we do look at those. I’ve studied those elsewhere. In economic terms, it would make great sense for the U.S. to liberalize on H-1B visas and, in fact, on totalization. But they are political hot button issues here. They cause big problems in the Congress. It would require a major political push by a president to overcome those and accede to India’s requests. India, to put it mildly, has not given the U.S. an incentive to do that because it’s not been willing to put its own sensitive barriers on the table and get into a negotiation of the type we’re talking about.
At the end of the road that we are proposing here would be an agenda that would include those items. It would be tough for the United States to make concessions on them, but they would have to be on the agenda. If India made its own liberalization initiatives of the type we’re talking about, it would then open up the chance to achieve its objectives. And the U.S. certainly ought to be willing to put them on the table. But again, just to sound like a broken record, this is going to require in the first instance India showing some significant changes in its own trade policies. If it does that, then I think all this becomes a possibility.
BUMILLER: Thank you all very much. Thank you for our panelists. (Applause.)
This is an uncorrected transcript.