Prime Minister Modi’s visit to the US between 21-23 June has laid the foundation of an alliance that by all counts would be the most significant bilateral relationship for this century. Post-Second World War alliances were led by one great power while other major powers got locked into mutually exclusive relationships with one of the great powers; for example, the US led NATO alliance of democracies. The India-US relationship represents an important departure from this model, and allows a wide degree of strategic sovereignty to both sides. In other words, this is a partnership of equals in the truest sense.
This US departure from the older model of alliances to forge ties with India is very significant. It underlines US recognition of India’s importance to the world order, and the fact that India is in itself a great power in this emerging multi-polar world. That the US would be willing to develop such a deep, transformational strategic relationship with another country that would not be bound to US interests, and in fact has openly stressed that it values its bilateral ties with other major powers like Russia that the US considers hostile, is being seen as harbinger of radical geo-political change with India playing a pivotal role.
This relationship has been long in the making. The foundations of it were put in place by Prime Minister Vajpayee and President Clinton in the late 1990s. The US-India nuclear deal was another landmark. Since 2014, Prime Minister Modi brought a strategic clarity to this relationship that has helped define the precise objectives. Credit must also be given to Prime Minister Modi for clearly underlining that any deep India-US partnership can only happen as an issue-based alliance between equals. The declarations in Washington DC during this visit, and the rare honour extended to the Prime Minister of being one of the very few who have addressed the US Congress twice is the testimonial of his personal stewardship of the India-US relationship.
What is even more interesting is the context and content of this alliance or partnership. It includes commitments for collaboration on all of the five major forces that would drive the global economy and in turn geo-political competition in our current century. These five forces are:
- Technology, and its link to new industrial eco-systems, energy sources and models of production and consumption
- Digitalization and Automation, with its links to communication and services for the modern economy
- Defence, and more specifically the military-industrial complex that would provide the economies of scale to help achieve greater self-reliance and competitiveness across a range of sectors, and have obvious geo-strategic implications.
- Trade, Investment and Supply-Chain, that is establishing new rules of governance for the global economy ensuring greater economic integration between US and India, and other countries committed to a free and fair trading system, while ensuring anti-competitive policies by large non-market entities do not lead to sub-optimal economic outcomes
- People: People to people contacts, represented by India’s diaspora in the US, as well as institutional partnerships between Indian academia and research community and their US counterparts as a force in business, science and technology, culture, and socio-economic development
That this ‘Panchatantra’ packs a powerful punch is in no doubt. Global commentators, including those usually hostile to India, such as the Economist magazine have called the US-India relationship an indispensable one. Let us now examine each of these five elements in a little bit of detail to understand some of their key implications.
The inauguration of the Initiative on Critical and Emerging Technology (iCET) in January 2023 has provided the institutional super-structure that would help drive close collaboration between the two countries across range of technologies that would help define the future of the global economy.
Technology cooperation in itself happens across a range of platforms. These include government to government cooperation, cooperation between businesses and entrepreneurs of the two countries facilitated by a conducive trade, investment and technology transfer regime negotiated between governments, and partnerships between academic and research institutions.
Prime Minister Modi and President Biden’s joint declaration underlined prioritizing the adoption of policies regulations that would facilitate greater technology sharing, co-development, and co-production opportunities between U.S. and Indian industry, government, and academic institutions. Inclusion of the words co-development and co-production are especially important, an as we shall see in the later discussion on defence and digital issues, already bearing fruit.
Indian industry as a whole needs access to a range of key technologies to drive greater competitiveness and be ready for the transition to a technology intensive industrial system that is evolving. However, US export controls on a number of technologies is a major impediment to that access. In that context, the direction from both leaders to their bureaucracies to make a comprehensive effort to address export controls and explore ways of enhancing high technology commerce represents a very significant achievement from the Indian point of view. This direction is not simple rhetoric. An interagency-led Strategic Trade Dialogue has been established between the two government earlier this June to serve as a formal institutional platform for this objective.
Some specific programs and initiatives for co-operation stand out and deserve special mention. First among them is Space co-operation. Space, and the economic and industrial use of space, would be on the critical areas for economic development in the future. US commitment to partnership between ISRO and NASA to develop a strategic framework for human spaceflight, and provide training to Indian astronauts in anticipation of joint program between to the International Space Station in 2024 are huge wins for India. It formally integrates India to more global initiatives in Space. India’s accession to the Artemis accords that represents a vision for democratic and open framework for Space exploration has also been welcomed by the US.
The language of the declaration clearly underlines that US recognizes India as a Space power, and is willing to work with India to develop the global regulatory framework for the management of Space. This would be critical as Space exploration and its economic benefits would become a new sphere of geo-political competition, and US sees India as a key ally in this context.
The second interesting program for cooperation is the proposal for Lam Research to train over 60,000 Indian engineers on semiconductor fabrication related technologies using a virtual platform. This represents a radical innovation in technology transfer and capacity building, as well as skilling in high-technology areas. If successfully implemented, it has the potential for replication across a range of areas. Such virtual platforms can expedite industry-to-industry learning and tech transfer at scale in pharmaceuticals, biotech, advanced materials engineering and a number of such sectors critical to the future global economy. This initiative is also integral to developing critical supply chains in key industries that would be discussed later.
The third interesting area of collaboration that has significant future implications is in the area of quantum and high-performance computing. Quantum computing will have applications across industry, defence, infrastructure, research and development, agriculture and a number of other areas. India’s transition to the cutting edge requires a robust partnership with the US. Major achievements include the establishment of a joint Indo-U.S. Quantum Coordination Mechanism to facilitate collaboration among industry, academia, and government, and a commitment to work towards comprehensive Quantum Information Science and Technology agreement.
2. Digitalization and Automation
Our modern lives are dictated by digital technologies and solutions, which in turn is dependent on flow and access to data. All the apps in our phones that help us in our day to lives, whether they are maps or GPS, or service aggregators helping us order food or buy things, or even get an appointment with our doctor or barber, define the modern consumption economy. Less well know are the different applications which help manage traffic at ports, remotely drive trains (Indian drivers help manage driverless trains in the UK today), or maintain factories remotely. Production using 3D printing or remotely controlled robots in the factory floor are transforming the way we work in factories.
Being at the cutting edge of digital technologies and automation, including solutions emerging from artificial intelligence is therefore critical to ensuring India’s competitiveness in the future global economy. However, data can be misused or weaponized. For example, access to individual financial or medical data of citizens, or detailed GPS data related to industrial infrastructure or electricity grid can be used by enemy states or unscrupulous actors to harm individual citizens or national systems.
The contours of the India-US cooperation in this field is therefore extremely important from both economic and security perspectives. The India-US joint statement includes a commitment to develop trusted and resilient global infrastructure for next-generation telecommunication that would support a global digital economy. In other words, a global digital public infrastructure that allows likeminded, trusted countries to participate in.
Prime Minister Modi and President Biden together launched two Joint Task Forces on advanced telecommunications, focused on research and development in 5G/6G technologies. Public-private cooperation between vendors and operators will be led by India’s Bharat 6G Alliance and the U.S. Next G Alliance. The roadmap for cooperation includes the development the standards for an ‘Trusted Network/Trusted Sources’. India and US leadership in developing such standards will also drive the global framework for ‘trusted parties and networks’ governing flow of data and the physical networks enabling such flows.
The joint statement also includes a commitment for both countries to jointly work together to develop global governance norms on artificial intelligence (AI). This is very significant. AI would become a critical element in all aspects of life and economy, and would be integral to automation and robotics used across manufacturing and services sectors. But use of AI poses several risks. These risks are both ethical in terms of fair, appropriate and transparent use of AI. But serious risks can be posed due to AI ‘failures’ at an operational level leading to industrial or transport disasters or risk to human safety.
The India-US commitment to work together for trustworthy, transparent and responsible AI technologies is therefore a very important development. Democracies have to credibly work together on AI so as to counter developments by less transparent regimes. US support for Indian leadership in this area, i.e., India’s leadership as Chair of the Global Partnership on AI is also significant in this context.
It needs to be reiterated here that India is one of the world leaders in IT and IT enabled services (ITES), and will continue to be a major player in the digital delivery of technical and professional services that depend on the cross-border flow of data. The US is and will continue to be India’s most important market for such services. The India US collaboration in this area is therefore very important for the Indian economy, as well as for the global framework of rules that will regulate such activities in the future.
US also recognizes India’s leadership in development of digital public infrastructure (DPI), and huge developmental impact of secure access to large public data stacks through efficient public service delivery and inclusive growth. India and US have therefore agreed to work together to develop and deploy DPIs across a range of areas. To that end, the planned U.S.-India Global Digital Development Partnership is expected to bring together technology and resources from both countries to enable development and deployment of DPIs in developing countries. If properly designed and executed, this would become a key program for both countries to invest in deepening democratic models of development across Africa, Asia and Latin America.
3. Defence and Military Industrial Priorities
The India-US military to military cooperation has been growing over the last two decades. The joint statement has laid out the vision to take this to the next level. A careful reading of the ambition contained in the joint statement would make it clear that the kind of collaboration and partnership being considered is unprecedented for the US. It does not have such a deep commitment for partnership for many of its existing NATO allies, let alone countries that have clearly indicated a strategic independence from any US led military alliance.
First up is the extension of the scope of the security partnership to include Space and AI. Second is the sheer scale of cooperation being planned between the military-industrial systems of the two countries. The two countries have agreed to adopt a Defence Industrial Cooperation Roadmap that will drive co-production of advanced defence systems and collaborative research, testing, and prototyping of projects. A key element of this roadmap is the US willingness to co-produce and co-develop defence products, in other words being open to technology transfer.
This reflects a historical shift. It was the US that had taken the lead to deny India key technologies in a number of areas that stymied or delayed Indian development in defence production or in Space. This denial was not limited to US technology, but also technology from its allies like France and Israel. Today, it is the US that is committing to a framework for comprehensive technology transfer in defence and related fields.
The two shining examples of this shift are the deals related between General Electric and Hindustan Aeronautics Limited for the manufacture of GE F-414 jet engines in India and allowing the assembly of MQ-9B HALE UAVs or drones by General Atomics in India. The manufacture of the GE F-414 jet engine in India will allow the Indian defence industry access to technology that will help India gain the knowhow to be able to leapfrog in developing indigenous solutions. The assembly, maintenance and repair of advanced drones in India would do the same for drone related technology.
The US recognizes that India would be the world’s third largest military industrial complex by 2030. Given geo-political trajectories, it needs to have a strong partnership with India, and between private sector firms representing the respective military-industrial eco-systems. The maturing of the Indian military Indian eco-system pushed by the policies of Prime Minister Modi lies at the heart of this US recognition. Indian defence exports touched approximately USD 2 billion from almost nothing in 2014, and India has been rapidly indigenizing many military industrial products.
It is for that reason that US is committing to commence negotiations for concluding a Security of Supply arrangement and initiate discussions about Reciprocal Défense Procurement agreement that would allow Indian and US firms take advantage of each other’s large defence markets. This is hugely important for India as well. The economies of scale of the defence establishments would provide huge opportunities for Indian firms.
Defence production is a significant contributor to the economy, and makes disproportionately large contribution to industrial research, development and innovation. Products developed initially for the military helped developed civilian products and brands worth billions. These developments will go a long way in ensuring India’s industrial prowess and provide economic security in addition to helping it meet key military needs.
The expanding scope of cooperation includes the launch of the U.S.-India Defence Acceleration Ecosystem (INDUS-X) that is tasked with facilitating the joint development of technology and co-production of advanced defence products through collaboration between research establishments and industries in both countries.
4. Trade, Investment, and Critical Supply Chains
The India-US economic relationship is worth USD 128 billion and is India’s most important export market at USD 78 billion. It is also a market with which India has a positive trade balance. Recent times, dictated by shocks to the supply-chains due to the pandemic, as well as the need to secure supply-chains for key industrial raw materials and technology products, has given rise to new priorities.
Both countries have launched industrial policies to help accelerate development in key industrial sectors-India has launched its Production Linked Incentive (PLI) scheme and US has initiated the Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act.
These new challenges require a new framework of economic agreements that go above and beyond the design of Free Trade Agreements or FTAs. The Indo-Pacific Economic Framework or IPEF, where US and India are two main drivers, provide some elements of such frameworks.
IPEF has four key areas of cooperation. Three of these include secure supply chains, clean economy, and fair economy. Supply chain co-operation focuses on the development of secure, efficient, transparent and resilient supply-chains that can withstand physical shocks and disruptions and also ensure that no one country can use their dominant control of supply of any raw material or industrial product to diminish or hurt other countries economies. Clean economy is specifically focused on cooperation of clean energy and fair economy prioritizes transparent, rules-based economic behaviour included for foreign investments and development initiatives.
The outcomes related to trade, investment and supply-chains emerging from Prime Minster Modi’s visit serve to further deepen the vision envisaged in IPEF through additional bilateral initiatives. Some key areas of such cooperation include the U.S.-India Climate and Clean Energy Agenda 2030 Partnership and Strategic Clean Energy Partnership (SCEP). The SCEP will support joint efforts to develop energy storage technologies.
Efficient and cheap energy storage would help rapidly upscale renewable adoption. The ability to store energy from sunlight, wind or waves efficiently for future use instead of having to use them as produced will transform the energy landscape and in turn the global economy. It will also help address the global environmental challenge.
The newly established U.S.-India New and Emerging Renewable Energy Technologies Action Platform will support cooperation and technology transfer in green hydrogen, offshore and onshore wind, and other emerging technologies. India and US will also collaborate to develop a multi-billion dollar investment platform that will provide capital for renewable energy and battery storage projects in India with lower cost capital and help de-risk such projects better. This will be a big boost for innovators in India in this sector who are being held back due to access to capital at reasonable rates and riskiness of such ventures.
India’s accession to the Mineral Security Partnership (MSP) is a result of direct US support. MSP is an alliance of like-minded democracies to cooperate to develop open access supply-chains in minerals such as lithium, cobalt, graphite etc. that are critical to batteries, semi-conductors, electric vehicles and a range of new technology products. The MSP, in combination with the IPEF supply-chain pillar, enables India to be a part of a multi-national effort to develop secure supply-chains. Events during the pandemic has clearly indicated that supply-chain dependence can be weaponized, and being part of such alliances is therefore essential to India’s future economic security.
The joint statement also showed convergence in pursuing greater trade integration through like-minded blocks. For example, the cooperation between the I2U2 countries of India, Israel, United Arab Emirates, and the United States seeks to leverage the bottom-up economic integration initiatives such as the Comprehensive Economic Partnership Agreement (CEPA) between India and the expected future FTA with Israel with top down macro-level initiatives such as the I2U2. The macro level initiatives will help drive rule making in new areas such as supply-chains, secure flow of data and regulation of cross-border digital trade, and transparency and fairness related principles for trade and investment. The bottom-up initiatives will deal with the micro-details of sectoral liberalization of goods and services markets and addressing product market regulation that impact trade.
The trade and investment partnership is also supported by sector or area specific cooperation initiatives. For example, INDUS-X will facilitate joint defence technology innovation, and co-production of advanced defence technologies between the respective industries of the two countries. Another example is from the Space domain where The U.S. Space Force has signed its first International Cooperative Research and Development Agreement with Indian start-up 114 AI and 3rdiTech. Both companies will work with General Atomics to co-develop components using cutting edge technologies in AI and semiconductors respectively
Last but not the least, the leadership by Prime Minister Modi and President Biden has re-invigorated the India-US Trade Policy Forum. Both sides have been able to settle long-standing trade disputes bilaterally. It is expected that this forum would be able to drive key trade policy goals for both countries expeditiously and also help develop mutual collaboration and understanding of respective positions in forums such as the WTO.
The Indian diaspora in the US is a source of income, investment, technology and entrepreneurship. In addition, it serves as a bridge between science, technology, academic and cultural sectors for both countries. Exposure to Indian culture creates demand for Indian products such as food, textiles, garments, cinema and music in the US market. India receives upwards of USD 20 billion USD of remittances from the US annually. The increasingly economic and political heft of the Indian community underpins India’s rising influence in US policy-making and creates awareness of India’s strategic importance to the US political leadership across all of its major states.
Thus, people-to-people contact represents soft power that translates effectively to hard economic and strategic power components. Several initiatives have been launched or improved during Prime Minister’s Modi’s visit to further deepen this critical aspect of people to people contact between these two countries. These include addressing challenges to accessing visas for students and temporary worker categories and reviving the U.S.-India Commercial Dialogue (USICD) to expand cooperation in the areas of talent, innovation, and inclusive Growth.
Specifically, the USICD is focusing on the concept of ‘Innovation Handshake’ that is expected to help connect the startup ecosystems in both countries. Given the strong diasporic linkages and the presence of Indian origin techies and entrepreneurs within both the US and India start-up eco-systems, this is a great fit for a natural partnership. The initiative will also address specific regulatory hurdles to cooperation, and promote further innovation and job growth, particularly in emerging technologies that are linked to priority sectors identified under iCET discussed earlier.
Other sectoral initiatives like the INDUS-X also includes platforms for greater people-to-people contacts in academia. INDUS-X seeks to create a network of universities that are working in the field of defence technologies. Indo-U.S. Quantum Coordination Mechanism will do the same in the field of quantum computing.
A major on-going initiative that finds mention (and thus commitment for further expansion) is the joint collaboration between India’s Department of Science and Technology and the National Science Foundation of the US. An implementation plan for joint research and development in 35 areas covering computer and information science and engineering, cyber physical systems, and secure and trustworthy cyberspace is already in place.
New areas such as semiconductor development, AI and intelligent transport systems, reflective of India-US priorities will also be added. This represents a massive program for people-to-people collaboration and partnership between academia and research communities in both countries. This is in sharp contrast with recent developments to restrain partnerships with countries such as China, and needs to be looked at in this geo-strategic context.
The Indispensable Allies
The story of the global economy in the last two decades, especially from a developing country perspective, has been that of coping with the rise of China. The process of integration of China into the global economy was championed by major western powers, including the US in the 1990s. In the famous words of President Clinton, China’s integration into the global economy would be a ‘historic step towards continued prosperity in America, reform in China, and peace in the world’.
Subsequent events were to prove the naivety of these assumptions. The state-sponsored Chinese economic machine surreptitiously broke every single rule in the global trading rule book established by the World Trade Organization (WTO). In the early phase Chinese economic machine posed a major challenge to developing world industrial powers like India, Mexico and Brazil. But by the 2010s, China was beginning to undermine the dominance of western firms even in these technologically sophisticated industries. The west, and especially the US were now forced to reckon with manipulation of the Chinese state and its blatant disregard for global trading rules.
As the US seeks to counter China, reform the global trading rules to address imbalances in partnership with other countries with shared interest, and develop new markets and opportunities, India is emerging as the key economic partner in this context. It needs to be noted that very few countries have the absolute numbers of skilled personnel essential to successful technology adoption and innovation that India has. Human resource development trajectories indicate that China and India would have the largest pools of technically qualified human resources in the world in the near future. In the longer-term, with the right policies, India’s pool of human resources would outstrip that of an ageing China. India’s National Education Policy (NEP) is expected to help to ensure the depth, expanse, and quality of such human resources.
As global production becomes more and more tech-driven, a large consumption economy like India stands to gain as it has much more leverage in being able to attract technology transfer. In addition, India’s relatively credible legal institutions and independent judicial system would inspire confidence in global technology rights holders to engage with Indian industry.
India is, therefore, the critical force-multiplier for sustaining a democratic and rules-based global order along with the US. Indeed, India is the other great power of the 21st century along with US and China, and therefore the key ‘swing’ state. In the longer-term, much more than the major European powers like France, Germany and UK, or Japan, it is India that has emerged as the main lynchpin of a world order that is respectful of democracy and transparent frameworks of global governance.
The US would be the biggest beneficiary of a rising India that is economically and strategically committed to such an alliance of democracies. The size of the Indian market and its investment heft provides the most potent alternative to China in South Asia, South East Asia, Eastern Africa, and the Middle-East. An India centric regional value-chains in South and South East Asia would be able to counter or at the very least reduce the influence of China backed Belt and Road Initiative (BRI). An India centric regional value-chain will be based on market economy principles and would be governed by rule of law and reciprocity. This dovetails with the economic and strategic priorities of the US.
US firms would stand to benefit most from the rising appetite of an Indian market expected to become the world’s second largest in PPP terms within the next 15 years. As the US economy becomes even more knowledge intensive due to the paradigm shifts in production technology, it would be even more sensitive to ensuring that it gets a fair return to the intellectual property produced by US firms and individuals. By 2035, India will be the largest such market where US firms and investors can operate under the protection of transparent laws and fair access to a judicial process.
All of this makes India the ‘indispensable ally’, the must-have partner for the US. But Prime Minister Modi’s pragmatic and strategic approach to foreign policy in the last nine years has made it clear to the US that India will not be a junior partner in an US led alliance, but a genuine trusted ally in the defence of shared priorities and values. The gamut of initiatives leading up to the Prime Minster’s visit, and ones that were unveiled during his time in Washington DC represent represents this realization. The US has now accepted that it would have to treat India as an equal. US also realized that India’s rise is in its own strategic interest and it must make genuine efforts to address India’s key strategic and developmental needs.
The US-India relationship will not be without bumps and challenges. As robust democracies, they will not always see eye to eye, and both will maintain their strategic independence which at times will be at odds with each other. But the platform for cooperation has been established, and over time India-US ties along the five broad areas discussed in this article will bring about transformative change to both countries, and lead to irreversible integration between their economies, militaries, scientific and academic communities, and people. This compact will ensure that both countries have a permanent interest in each other’s long-term security and prosperity.