The Benefits of a Strategic Economic Partnership Between the United States and India

Four Reasons Why We Should Support India’s Economic Development

President Barack Obama has shown that he clearly understands the benefits to the United States of a strategic partnership with India by calling for a seat for India on the United Nations Security Council and announcing a $10 billion trade deal to potentially create 54,000 jobs in the United States.

India is clearly important to the United States as a partner in combating terrorism and in the ongoing war in Afghanistan, and as a player in the U.S. relationship with Pakistan. But India’s rise as a powerful economy on the global stage is also in the United States’ strategic interest. The United States and India have the opportunity to craft an economic relationship that is significant and mutually beneficial to both countries—though not immediately and not without effort.

President Obama’s trip is a big step in the right direction. But it must be the first of many dialogues between two of the world’s biggest democracies.

It is in the United States’ interest to support India’s economic development and its rapid rise in the ranks of the global economy. Here are four reasons why.

First, India has the second largest population in the world after China. Its economy has been growing steadily since 1980 with its gross domestic product growing an average of 6 percent annually over the last 30 years, according to World Bank and OECD national accounts data. India also has the highest private domestic consumption as a share of GDP in the Asia Pacific region (57 percent in 2008).

These factors point to the country’s tremendous potential as an export market for U.S. products and services. They also indicate that India will continue to become an important source of global aggregate demand, or a significant consumer in the global marketplace. This would alleviate some pressure on the American consumer to be the world’s major shopper and would distribute the burden for fueling global economic growth across more countries such as India.

Second, the United States and India are major trading partners, and the two countries can explore an immense potential for continued economic growth through trade. India, like China, has enjoyed high rates of economic growth, and its high rates of growth, like China’s, have been driven by its exports. But unlike China, India allows for fluctuations in its currency exchange rate.

The United States has a trade deficit with India, but there is significant potential to develop this trade relationship in a more balanced and sustainable way in the future to the mutual benefit of both countries. President Obama’s announcement of a $10 billion trade deal to potentially create 54,000 jobs is a step in the right direction.

Third, India is home to one of the most dynamic private sectors in the world today. Indian entrepreneurs are developing new and innovative ways to add social and economic value to Indian society through market-based approaches to social-service delivery such as banking through mobile phones. This creates an opportunity for the United States to supply the technology for these efforts.

President Obama’s itinerary on his trip to India includes government-to-government dialogue on national security issues and U.S.-India economic ties, but it also includes an “entrepreneur’s roundtable” that will bring together American and Indian business entrepreneurs to leverage Indian business innovation and explore the potential for cultivating Indian demand for American technology.

Indian companies have invested over $26 billion in the United States between 2004 and 2009. And efforts by the United States and India to promote the dynamism of India’s private sector will create opportunities to further expand Indian investment in the United States.

Fourth, as India continues to become a stronger economy, it will have a greater voice on the global stage—in the governance of the International Monetary Fund, for example. It can then serve as a potential ally in finding a multilateral solution to global challenges such as China’s currency misalignment.

India and the United States have much to gain from close economic ties with one another. But the first step is for both countries to realize the positive potential of their partnership. President Obama is doing just that with his historic trip to India.

Sabina Dewan is the Associate Director of International Economic Policy at American Progress.