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Juster, inheritor of bilateral success story

The United States Senate has recently confirmed Kenneth I. Juster as Ambassador to India. He succeeds Richard Rahul Verma, who, under the Obama administration, is credited with enhanced relations in the national security and defense sectors, and in bilateral trade, among other things.

Juster has superb credentials for this important diplomatic post, and the government of India should continue to recognise that America sends its best to New Delhi.

Juster has substantial experience in the public and private sectors, including being undersecretary of commerce during the administration of George W. Bush, the 43rd president of the United States. Juster was closely involved with the India-U.S. Civil Nuclear Agreement of 2008 executed by the administrations of Manmohan Singh and George W. Bush. He was also a partner with Warburg Pincus, a U.S. private equity firm with an investment portfolio in India.

The question is what should this appointment mean for the U.S.-India bilateral relationship?

Juster is inheriting one of the few success stories in recent American foreign policy. Three U.S. administrations have enjoyed excellent relations with the previous coalitions of the Bharatiya Janata Party of A.B. Vajpayee and the Congress Party of Manmohan Singh – and now again with the Bharatiya Janata Party of Narendra Modi. With Sunni-Shiite strife in the Middle East and an adventurist Iran, and contention with China and the nuclear threat of North Korea, India is a remarkably serene situation to behold.

As I have written from time to time, the U.S. and India are strategic partners on three fronts, but there are policy differences over what are mainly operating issues[1]. First, both countries are wary of the ascent of China. The two relationships – the U.S.’ and India’s with China – are multi-faceted: they are competitors, major trading partners, and potential adversaries. The U.S. is concerned with Chinese claims to the South China Sea, and both India and China share the same maritime security interests from the Strait of Hormuz to the Strait of Malacca, where an estimated 40%[2] of the world’s oil moves.[3] India’s border disputes with China in Aksai Chin and on the Arunachal border are well known.

Second, both the U.S. and India must contend with Islamist extremism, and a long history of terrorist acts against their interests. Both countries are vulnerable in different ways: the U.S. with its historical alignment with Sunni monarchies or regimes[4] and India with a Hindu-Muslim fault line, besides the protracted Kashmir dispute with Pakistan.

Third, the U.S. should view India as a major business partner. Bilateral trade was $114 billion in 2016[5]. Total Foreign Direct Investment has shown some recent promise, with $60 billion[6] of incoming investment for the fiscal year ended March 2017. Coming from a relatively small base of about $800 million in fiscal 2014, U.S. FDI exceeded $4 billion in fiscal 2016.[7]

With some possible exceptions, U.S. direct investment in India has been most visible from leading Fortune 500 companies. A more broad-based effort[8] could be of benefit to both countries, although smaller U.S. companies often do not have the resources to contend with cross-border investment risk or trade exposure. While India has improved in the World Bank’s survey[9], “Ease of Doing Business”, there are still complicated protocols for obtaining government approvals for direct investment in India – and earlier perceptions of bureaucracy remain.

Accordingly, direct investment insurance and loan guarantees may be necessary to encourage more engagement from the U.S. corporate middle market – as well as a major Indian initiative to eliminate red tape and effectively communicate that to the U.S. business sector.

One of the first India-U.S. events on Juster’s watch will be a summit[10] in Hyderabad on global entrepreneurship. This is a good signal and a statement that both countries have a culture of business innovation and a commitment to it.

Private equity has contributed to India’s development, although after the financial meltdown of 2008, exit valuations were lower than expectations and returns fell below 7% to inhibiting levels, as detailed in a 2015 report by McKinsey & Company.[11] The potential – of private equity is significant, given the McKinsey estimate that over $100 billion was invested from 2001 to 2014 in over 3,100 Indian firms.

Still, Juster will not have an easy time of it in New Delhi. The record of collaboration and spirit of partnership notwithstanding, there is some opposition to deregulation and free markets in the opposition parties. The philosophy of socialism, suspicion over private capital, and the need for central planning remain ingrained in some quarters, especially with states that have not been strong performers in an evolving federal system, and despite the massive modernisation and deregulation of the Indian economy since 1991.

Besides this headwind, there is also some entrenched resistance to becoming too reliant upon the U.S. as a defense contractor, and the fear of disappointing Moscow[12]. While Russia is presently India’s largest arms supplier[13] , providing about 38%[14] of military equipment, from time to time the U.S. has been in the lead.[15] India now increasingly imports from Israel and Europe.

The media will doubtless focus on the issues that divide the U.S. and India, and there are quite a few from both sides: retrospective taxation, drug adulteration, airline safety, H-1B visas, and climate change, have been among the divisive forces. Nonetheless, there should be cause for optimism when U.S.-India relations are viewed from the perspective of the Cold War, from whence it has travelled far and into the spotlight of the current strategic alignment. There is greater scope for an enhanced bilateral relationship, with continuing focus on defense policy, military logistics support and joint exercises as well as on education, health, direct investment and trade.

Juster, as a practical businessman and close aide to President Trump, can be the person to further deepen the bilateral relationship and moderate the cautions that persist. Any advice he can bring to bear on the sourcing of Foreign Direct Investment and increased trade with the U.S. would likely be most welcome.

Frank Schell is a business strategy consultant and former senior vice president of the First National Bank of Chicago. He is a lecturer at the Harris School of Public Policy, University of Chicago on South Asian affairs and a contributor of opinion pieces to various journals. He served in the U.S. Peace Corps and was posted in north India from 1969-1972.

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[1] Schell, Frank. “Strategic interests contribue to draw the two closer.”, The American Spectator, 10 June 2016, <https://spectator.org/the-u-s-and-india-buddies-in-the-same-foxhole/>

[2] Jaishankar, Dhruv, “Indian Ocean region: A pivot for India’s growth”, Brookings Institution, 12 September 2016, <https://www.brookings.edu/opinions/indian-ocean-region-a-pivot-for-indias-growth/>

[3] U.S. Energy Information Administration, U.S. Government, World Oil Transit Chokepoints, (Washington: U.S. Energy Information Administration, 2017)

[4] Patil, Sameer, Amit Bhandari and Manjeet Kripalani, “Saudi purge: Arab Spring 2.0?”, Gateway House: Indian Council on Global Relations, 9 November 2017, <http://www.gatewayhouse.in/saudi-purge-arab-spring-2-0/>

[5] Embassy of India, Government of India, Brief on India-U.S. Relations, (Washington D.C.: Embassy of India)

[6] Ministry of Commerce and Industry, Government of India, Bilateral Trade between India and the US, (New Delhi: Ministry of Commerce and Industry, 2017)

[7] Balachandran, Manu, “The Modi effect: UD FDI into India has jumped 500% in the last two years”, Quartz, 30 August 2016, <https://qz.com/768804/the-modi-effect-us-fdi-into-india-has-jumped-500-in-the-last-two-years/>

[8] Acharya, Nishith, “Q&A: India-U.S. Partnership: $1 Trillion by 2030”, Gateway House: Indian Council on Global Relations, <http://www.gatewayhouse.in/wp-content/uploads/2015/08/Nish-Acharya-interview-transcript_FINAL.pdf>

[9] The World Bank, India Jumps Doing Business Rankings with Sustained Reform Focus, (Washington D.C.: The World Bank, 2017)

[10] U.S. Embassy & Consulates in India, U.S. Government, Global Entrepreneurship Summit 2017 to be held in Hyderabad, November 28-30, (New Delhi: U.S. Embassy & Consulates in India, 2017)

[11] McKinsey & Company, India Private Equity: Route to Resurgence, (New York: McKinsey & Company, 2015)

[12] Ministry of Defence, Government of India, Defence Deals, (New Delhi: Ministry of Defence, 2016)

[13] “Russia’s 2014 Arms, Military Equipment Supplies to India Amount to $4.7 Bn”, Sputnik, 18 February 2015, <https://sputniknews.com/military/201502181018409751/>

[14] Fleurant, Aude, Pieter D. Wezeman, Siemon T. Wezeman and Nan Tian, “Trends in International Arms Transfers, 2016”, Stockholm International Peace Research Institute, February 2017, <https://www.sipri.org/sites/default/files/Trends-in-international-arms-transfers-2016.pdf>

[15] U.S. Naval Institute, U.S. Edges Out Russia to Become India’s Largest Military Equipment Vendor, (Maryland: U.S. Naval Institute, 2014)