India-US tread firm on the trade front

The US became India's largest trading partner in the previous fiscal year as the former's economy recovered faster from the pandemic than China's. Exports grew by 47% and imports by 49% from the prior year to take two-way trade to $119.42 billion. This is a whisker ahead of the $115.42 billion bilateral trade with China, which grew entirely due to a 44% rise in imports as exports remained flat. Trade with the US is more equitable for India, which ran up a surplus of $32.8 billion, as opposed to a $72.91 billion deficit with China. This is a stupendous 62% of India's trade with China, and these terms are less favourable than the US-China trade where the deficit to Washington and the surplus to Beijing is 46% of the bilateral value. It makes sense for the US and India to deepen ties from the perspective of terms of trade.

On the face of it, the reordering of India's trade partners could be a blip till global supply chains that have China at their core revive from coronavirus lockdowns, and trade disruptions caused by the Russia-Ukraine conflict. Yet, there is reason to believe this signifies a longer-term shift. India's merchandise trade with the US is principally in commodities like mineral oil, diamonds, generic drugs and shrimp. There is ample scope to deepen manufacturing trade as supply chain resilience gains traction among policymakers. India, too, has been pushing domestic manufacturing through production incentives and tariff hikes. The two nations earlier this month became signatories to the Indo-Pacific Economic Framework (IPEF) that has as its key underpinning a 'China Plus One' supply diversification strategy.

Also working for India are its technology services exports, half of which are destined to the US. Essentially, a quarter of the country's services exports are headed to the US, and the scope for scaling up has improved with the growth of cloud services and enterprise digitisation. This is a longer trend that will outlast a surge in merchandise trade caused in part by Washington's fiscal stimulus for the pandemic.