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27 June 2019, Gateway House

En route to Modi-Trump in Osaka

India’s foreign minister S. Jaishankar and U.S. Secretary of State Mike Pompeo have sorted through the India-US niggles and minutae, so that the substance of the bilateral can be advanced by their leaders who are meeting in Osaka this week

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The visit of US Secretary of State Mike Pompeo to India on June 26, was an advance in unexpected ways. Instead of a resentful capitulation to U.S. demands, India was able to make explicit its bottom line on several issues, from the long, trustful defence relationship with Russia, to market access for the U.S., which needs to be consistent with what India can offer to other trading partners. It has laid the ground work for healthier negotiations with the U.S. – and with other international countries and groupings like RECP.

This new confidence is certainly the outcome of the big electoral mandate won by Prime Minister Narendra Modi, and the dexterous diplomacy of Foreign Minister S. Jaishankar. But it is also a sign of India’s expanding economy and more mature engagement as an international player.

The visit’s essential focus was on three major, interlinked challenges and opportunities: one, the immediate issue of US sanctions on Iran & Russia (strategic, energy); two, technology and trade issues; three, defence and security.

Central to the on-going India-US discussions is Iran. The US pressure on Iran and the sanctions – in addition to the OPEC cap on production – have pushed up the price of oil by $30 a barrel since end-2017, and it continues to rise. India is the third largest importer of oil globally at 1.4 billion barrels annually. It is among the top 10 consumers of oil, but it also has the lowest per-capita income in that list. Therefore, any measure which pushes up the price of oil will have a disproportionate impact on India in several ways:

Overall, it means fewer budgetary resources available for PM Modi’s big domestic development programmes and his ability to reshape global and regional engagements. It is critical for the US not to erode his electoral support and his major mandate.

On defence, it means reduced funding for India’s major programme of defence imports from the US – and a possible return to cheaper Russian arms to fill the gap. It also means a reduced strategic role for India in the Indo-Pacific – more specifically, a distraction from the existential threat that China poses both to the US and to India.

The domino effect of a lower spend on modern US arms for India directly impacts the future of technology, both military and commerce. Accessing US tech will strengthen India to counter China’s 5G ecosystem, by collaborating on next-generation telecom systems like satellite-based 6G which can include members of the QUAD like Japan and Australia, both tech powers. This will bring India in sync with other players in the Indo-Pacific, the new theatre of contestation between China and the QUAD powers.

Military engagements inevitably deepen commercial bonds. Having inter-operability agreements with sophisticated US defence systems takes the India-US bilateral beyond narrow, commerce-only ties. This is vital, especially because as the latter are currently fraught with complaints over data localisation by US companies.

Without an affordable alternative to Iranian oil, India will be once again dependent on Saudi and IRAQ for its energy needs instead of being able to diversify into buying gas and oil from the US – a stated goal of Washington. There was no discussion on Indian equity investments in US LNG, and US investments in Indian LNG terminals – a sure way to ensure US energy imports.

There are religious sensitivities for India to consider. The Modi government has spent the last five years building a big relationship with the Gulf countries – and major US allies – like Saudi Arabia and the UAE. But Iran too has its supporters in India – 20% of India’s 200 million Muslims are Shia whose bonds to Iran must be considered.

With these critical issues to discuss, India did not over-react to the withdrawal of the General System of Preferences (GSP) imposed by the US. The price of $200 million in concessional tariffs for approximately $6 billion of exports is a small one to pay, to advance relations with the U.S. – strategic and commercial.

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