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ISSN 2816-1971

  • Alex Tan and Neel Vanvari

Betting On India: What History Tells Us That Snapshots Don’t

Updated: Aug 1, 2023

India looks to be the bet to not only be the next big market for the global economy, but also a vital partner for the U.S. as it seeks to assert itself in the Indo-Pacific. Yet somehow, this story seems all too familiar.

US President Joe Biden and Indian Prime Minister Narendra Modi
Image credits: AP

Since Indian Prime Minister Narendra Modi’s state visit to the US in June 2023, there has been extensive commentary on the state and trajectory of India-US relations. The relationship has been seemingly elevated to new levels through enhanced cooperation in areas such as defence and security, technology transfers, people-to-people ties and sustainability. Convergence between the two countries on the issue of a more assertive China in the Indo-Pacific has also been credited by some as being a key driver of the relationship. Beyond areas of common interest and convergence on China, some observers even noted that despite the Biden administration’s focus on the importance of democratic norms, any criticism of India’s democratic backsliding and human rights concerns by the White House have been muted at best.'

Even before the state visit commenced, several observers were labelling India as being a ‘bad bet’ for America. Others contested this and argued that India is the ‘best bad bet’ for the US in the Indo-Pacific. Despite these wide-ranging views on the state of the relationship, the US has clearly indicated that it believes investing in the India relationship is beneficial to US interests. India, with its growing economy and expansive military, is seen as a bulwark against a more forceful China in the Indo-Pacific. The scale and extent of new initiatives which emerged during the state visit is indicative of the level of importance which the US is attaching to its relations with India. However, will this investment in India yield the results which the US is hoping for?

Cooperation in the defence and security sphere has become the hallmark of US-India relations. The two countries hold frequent military exercises, engage in visits by military personnel and India has also increased its purchases of US arms and ammunition. At the multilateral level, the two countries have several joint exercises like MALABAR, multilateral forums like the QUAD and several informal trilaterals and minilaterals as platforms for cooperation. The US has encouraged India’s presence on global multilateral institutions and President Obama even lent some support for India’s plan of becoming a permanent member of the UNSC.

Defence and security were also a cornerstone of this particular state visit with initiatives such as a joint production of the GE-F414 jet engine in India being highlights. Several analysts noted how this was a historic step in alliance building as the US was approving high-end military technology transfers to a country which was not a formal ally or with whom it did have an alliance treaty. Some argued that these developments have taken the relationship to new heights and the sticking points of India not being a formal US ally as well as the extent of India’s commitment to the US do not dominate discussions of the relationship anymore. Through such ground-breaking initiatives, Indian and US leaders have gone past the hurdle of India’s non-aligned status being the defining aspect of the relationship.

The evolving nature of geopolitics, specifically the rise of China and its consequences, has affected how India and US engage with each other. Indeed, there is increasing convergence between the two on the question of China. The deterioration of US-China relations coincided with the simultaneous nosedive in Sino-Indian ties, as demonstrated by the military standoff in the Himalayas. However, China alone is only one variable which explains India’s foreign policy calculus. Beyond China, India’s desire to become one of the poles in a multipolar world and its aim to become a ‘leading power’ and not merely remain a ‘balancing power’ are still aspects which dominate its foreign policy calculus. As such, there is still ample room for a preference for multi-alignment and ‘strategic autonomy’ may still continue to remain a staple of India’s foreign policy. Even if India’s strategic autonomy posture may not dominate the conversation anymore as some analysts argue, it may still continue to define India’s foreign policy making and India will have little hesitancy to diverge from the US on issues where the two of them do not see eye to eye. This may also sometimes be in contradiction to US interests in the Indo-Pacific and beyond. While addressing the rise of China may be one part of the equation, the other aspect, this being India’s own global ambitions, will continue to influence its decision-making and the US must take this into account as it keeps assessing its policy towards India.

Beyond geopolitics, the US also seems to have made a bet on India’s economy. During the Cold War, not only was India’s relative military weakness and non-aligned status a hindrance in the US-India relationship, but India was also a sluggish economy facing low growth and significant challenges. As such, India was of limited importance to the US, both economically and militarily. However, since economic liberalisation in the 1990s, India’s economy has always been courted by countries and investors. With a market of 1.4 billion domestic consumers and a large workforce, India’s economy is a lucrative destination for countries and companies to set up shop. Geopolitics is also at play here. Since the COVID-19 pandemic and its fallout, countries and companies are increasingly looking to India as concepts such as ‘reshoring,’ ‘friend-shoring,’ and ‘China plus one’ gain traction. Some even tout India becoming the next factory of the world.

However, despite India’s best efforts, it has still struggled to replicate China’s meteoric economic transformation. While China’s growth rate has reached double digit figures for over two decades, India’s GDP has rarely breached the 10% threshold. Since 2014, the Indian government has focused on boosting the country’s manufacturing. However, India’s manufacturing sector has struggled to emulate China and other Asian states such as Vietnam and Bangladesh are quickly carving out a niche for themselves as lucrative destinations offering substantive manufacturing potential. Instead of adding jobs in manufacturing, the sector has lost over 20 million jobs between 2017 and 2019 and agriculture continues to employ more people than manufacturing in India.

Despite some similarities such as a large workforce which it may share with China, India’s political economy context is different from China’s. Characterised by one scholar as ‘a fragmented multi-class state’, the existence of formal and informal veto players and democratic politics result in economic decisions having political consequences. In effect, it becomes difficult to fundamentally alter the political economy of a diverse society like India’s. Despite the Indian government’s stated aim of boosting manufacturing capacity, policymakers are constrained from overhauling the country’s political economy and addressing the existing structural issues. The decision to opt out of the Regional Comprehensive Economic Partnership (RCEP) – at the last minute – is illustrative of how existing domestic coalitions can constrain governments and exert a political cost.

Unlike the Cold War, the India-US relationship today also has an economic basis. The focus on technology and trade in services as well as manufacturing are emerging as important pillars of the relationship. As the joint statement after the state visit indicated, the US is willing to make these investments in India and it sees India as being an important actor not only geopolitically but also economically. There is no denying that India has also transformed significantly since it opened up of its economy 30 years ago. However, the possibility of India becoming the world’s factory and an economy of China’s stature has also been touted continuously for these last 30 years. Yet, India has not fully stepped up given the constrains and endemic structural issues that prevent it from achieving that coveted status.

There is no doubt that India-US relations today are unrecognisable from how they were at the end of the Cold War. Both sides have carefully cultivated and built the relationship taking it to a level where it stands today. There is also no denying the fact that there is geopolitical convergence and economic congruence between the two. However, it may be too early to predict whether America’s investment in India pays off to the extent that the US hopes it will. Despite getting closer to the QUAD and the US as a result of converging interests on China, India may still seek to safeguard its strategic autonomy and not fully commit itself. In the economic sphere, although India’s economy has made advances in the last 30 years, its political economy environment constrains its policymakers and despite all its advantages, India may still struggle to replace China and become the next factory of the world.

DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of IIPA and this platform.


Alexander C. Tan is principal research fellow at the Institute for Indo-Pacific Affairs, and professor of political science and international relations at the University of Canterbury, Christchurch, New Zealand

Neel Vanvari is research fellow at the Institute for Indo-Pacific Affairs, and PhD candidate in political science at the University of Canterbury, Christchurch, New Zealand



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