Surjit Bhalla: India-US Trade Deal Could Be Pivotal for Viksit Bharat
In a compelling analysis, economist Surjit Bhalla posits that the India-US trade agreement holds unparalleled potential to rejuvenate private investment in India, a critical component for realizing the vision of a developed nation, or Viksit Bharat. Bhalla emphasizes that engagement with the world's most vibrant free market, the United States, transcends mere trade benefits, potentially reshaping policy-making in New Delhi and fostering market-led growth.
Growth vs. Redistribution: India's Economic Crossroads
Bhalla outlines that any successful development strategy hinges on two fundamental elements: growth and redistribution. Over the past decade, the Narendra Modi government has excelled in redistribution policies, achieving inclusive growth that ranks among the best globally. However, economic growth presents a more complex picture. While India boasts the title of the fastest-growing major economy, with annual growth hovering around 7.8% for the last five years, this expansion has been largely driven by robust infrastructure investment.
Private investment and net foreign direct investment (FDI) have stagnated at concerning levels. Net FDI as a percentage of GDP mirrors figures last seen in 1990, and private investment lags approximately 10 percentage points below its peak around 2010. Bhalla attributes this stagnation to an unfavorable climate for private investment, underscoring the urgent need for a transformative shift.
The Mother of All Trade Deals: India-US Agreement
Bhalla distinguishes the India-US trade deal as the "real mother of all trade deals," overshadowing agreements with the EU, UK, and Australia. He highlights the geopolitical and geo-economic significance, noting that in constant dollar terms, the combined contribution of India and the US to global growth equals that of China, with India at 10%, the US at 24%, and China at 34%. The EU's share stands at 10%.
In the emerging G-2 world, India faces a choice: align with the democratic, open-market model of the US or with the China-Russia axis. Bhalla contrasts the US, characterized as the most open economy globally, with China's "me-first" growth model, which prioritizes manufacturing dominance over democratic considerations. This dichotomy results in the US consistently running large trade deficits and China maintaining substantial surpluses, a trend solidified since China's exchange rate undervaluation in the early 1990s.
Reviving Investment Through Market Forces
Bhalla argues that the India-US trade deal is uniquely positioned to revive private investment by catalyzing a paradigm shift in policy-making. He envisions reforms becoming endogenous, meaning they will emerge from market forces rather than bureaucratic diktats. This shift aligns with economic philosophies advocated by Adam Smith and Friedrich Hayek, promoting economic freedom and reducing state control.
The deal signals a historic dual pivot: from bureaucratic oversight to market-driven reform, and from a closed economy to an open-market orientation. India, Bhalla asserts, will be compelled to open up to essential capital, technology, and trade exchanges, lifting the cloud over investment and mitigating the adverse business climate perpetuated by non-market forces.
Overcoming Diplomatic Hurdles for Long-Term Gain
Addressing the prolonged negotiation of the India-US deal, Bhalla suggests that misunderstandings around former President Trump's tariffs may have played a role. He proposes that these tariffs were less about economic principles and more about international politics, aimed at bolstering European defence spending and containing China's expansionist tendencies.
Despite diplomatic challenges, Bhalla champions engagement as the cornerstone of effective policy. He draws a parallel between economists navigating bad data and diplomats managing tensions, emphasizing that Viksit Bharat's realization hinges on securing foreign capital and technology, with the US being the most effective provider compared to other partners like the EU, UK, Australia, and Canada.
In conclusion, Bhalla's analysis frames the India-US trade deal as a catalyst for market reform, essential for transforming Viksit Bharat from an aspirational dream into a tangible reality. The deal promises to empower market actors, reduce bureaucratic barriers, and foster a conducive environment for sustained economic growth.
