India's Economic Growth: A Strategic Partner for U.S. Security

India's economy is undergoing a significant transformation as it adapts to the changing global landscape, particularly in light of the escalating US-China trade tensions. As companies seek to diversify their supply chains, India has emerged as a favorable destination for investment. Moody's Ratings has indicated that there is an increased potential for capital flow to India and other ASEAN countries, reflecting a shift in global investment patterns [03a1dd95].

Jean-Pierre Landau, an Associate Professor of Economics at Sciences Po, asserts that India possesses all the growth drivers that China had 20 years ago. He emphasizes the importance of raising education levels to enhance productivity, which is crucial for sustaining economic growth. Landau notes that India's service sector is generating positive externalities, contributing to overall economic development [74552bab].

The year 2016 marked a pivotal moment coinciding with Donald Trump's presidency, which disrupted the global economy. During this time, India faced transformative changes, including the controversial demonetisation initiative, reminiscent of the liberalisation era of the 1990s. The imposition of US tariffs on Chinese goods, which rose from 10% to 25% by May 2019, resulted in a notable surge in India's chemical exports, increasing from $32 billion in FY16 to $45 billion in FY19. Similarly, India's engineering goods exports grew from $57 billion in FY16 to $79 billion in FY19, showcasing the country's expanding export capabilities [846cf1aa].

In recent years, India has focused on enhancing its global export competitiveness through initiatives such as the Production-Linked Incentive (PLI) schemes, which have attracted over $12.5 billion in investments by November 2023. The electronics sector, in particular, has seen remarkable growth, with production value reaching Rs 2.04 lakh crore and exports nearly doubling from $16 billion in FY22 to $30 billion in FY24. Major companies like Foxconn and Pegatron are expanding their operations in India, while Tata Electronics has acquired Wistron Corporation, further solidifying India's position in the global electronics supply chain [03a1dd95].

India's pharmaceutical sector also plays a crucial role, supplying over 20% of global generic medicines. This sector stands to benefit from the 'China+1 strategy' adopted by many US companies looking to diversify their sourcing away from China [03a1dd95]. Despite these advancements, India has completed only 13 Free Trade Agreements (FTAs) compared to China's 24, indicating a cautious approach to trade policy. However, the government is actively pursuing new agreements to bolster its global trade position.

Landau warns that rising global protectionism poses a threat to economic growth, and he criticizes EU regulations that interfere with trade. He also highlights that India's imports from China exceeded $100 billion in FY24, underscoring the interconnectedness of the two economies. The digital transformation in India has played a crucial role in enhancing economic resilience. The rapid expansion of digital technologies has facilitated e-commerce, online banking, and digital payments, leading to increased efficiency and productivity across various sectors. This digital shift complements the manufacturing growth driven by the government's 'Make in India' initiative, which aims to promote domestic production and reduce reliance on imports.

Looking ahead, the Indian government plans to implement subsidies and infrastructure investments to attract foreign businesses, although risks remain, including potential dependency on the US market and the threat of new tariffs [03a1dd95]. In conclusion, India's economic resurgence relies on its readiness to seize global opportunities, particularly in emerging industries. The combination of strategic initiatives, digital transformation, and a focus on manufacturing and exports positions India favorably in the global economy. However, challenges such as poverty, education, inflation, and unemployment need to be addressed to ensure sustained prosperity. Strategic foresight and adaptability will be crucial in navigating the future of India's economy as it seeks to enhance its global trade position and reduce dependency on external markets. Landau also expresses concern over high real interest rates and unprecedented levels of indebtedness in advanced economies, which could impact global economic stability [74552bab].

In a broader context, the global trade dynamics are shifting from free trade to strategic trade, as highlighted by recent analyses. Countries like Pakistan are urged to develop strategic clarity in their trade agreements, especially with India, to avoid disadvantages stemming from technological gaps and trade surpluses favoring India. The rise of China has significantly impacted US manufacturing jobs, with an estimated loss of 2 million jobs since China joined the WTO in 2001. The US trade deficit reached $921 billion in 2022, prompting a shift in policy that included tariffs on steel, aluminum, and Chinese exports [b3ee7af2].

The Center for Strategic and International Studies highlights that U.S. elections impact global partners, with India and the U.S. sharing concerns over reliance on China. India is expected to grow over 7% in 2024, with BlackRock predicting it will become the third-largest economy by 2027. Goldman Sachs forecasts India as the second-largest economy by 2075, valued at $52.5 trillion. Indian firms have invested $80 billion in the U.S., employing over 400,000 people, while foreign direct investment from India reached $4.7 billion in 2023. Notably, Vikram Solar plans a $1.5 billion solar manufacturing facility in the U.S. to further reduce reliance on Chinese imports, which totaled $148 billion in FY 2023. The U.S. and India are also collaborating on technology sectors, with the establishment of the U.S.-India Semiconductor Supply Chain Partnership in 2023. Other countries like Vietnam, Indonesia, and the Philippines are emerging as key partners in this shifting landscape, as the U.S. administration plans to engage with India until 2029, emphasizing the importance of economic integration and policy stability [84a2dcbb].