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India, Positioned To Manage A Trump World – OpEd

2024 was billed as the year of elections, and voters in India — the world’s largest democracy — and the United States — the world’s richest — certainly made their feelings clear. Dissatisfaction over jobs and inequality weakened Indian Prime Minister Narendra Modi’s electoral mandate, and disillusionment with inflation and the state of politics saw the United States turn back to Donald Trump. Indian officials are now getting their playbook ready to deal with Trump 2.0, drawing confidence from the two leaders’ round one bonhomie. The place to start will be to draw out the lessons from the electoral shock. Prime Minister Modi and his Bharatiya Janata Party (BJP) were widely expected to romp to a commanding majority of 400 seats, granting him an even bigger mandate for his vision of India as a majoritarian Hindu state. Instead, the electorate bowled a googly and sent the BJP backwards. With the loss of 63 seats and his majority in the Lok Sabha parliament, Modi was forced into coalition government for the first time in his prime ministerial career. As Robin Jeffrey writes in this week’s lead article, the key reason for the surprise result was that India’s ‘enviable economy story … has not produced the millions of new jobs that young voters are desperately searching for’ — those offering ‘predictable wages in profitable activities’. While ‘service industries (especially IT), domestic construction, real estate and finance’ are flourishing, these sectors employ only a tiny fraction of India’s workers. Most of the population remains stuck in low-productivity agricultural work, if they have jobs at all. The government has signalled that it understands the frustration of disenchanted workers. Notably, it has introduced ‘employment-linked incentives’, targeted at new entrants into the workforce and the manufacturing sector, and created the ‘Prime Minister’s Internship Scheme’ for young people not in full-time study or employment. But ad-hoc schemes such as these will not address the deeper structural issues in the Indian economy. Those advocating for a focus on high-skilled services and technology to propel India’s growth overlook the fact that unemployment has become as much a social issue as an economic one. The imperative is for India to devise an economic strategy that makes use of its comparative advantage of a vast, young workforce. The government has ambitions to build a ‘self-reliant India’, but India’s economy is and will continue to be dependent on external trade, chiefly with China and the United States. As Jeffrey points out, ‘[m]ost Indian exports are US-bound’ and ‘[m]ost of its imports — manufactured goods, components, chemicals and pharmaceutical ingredients — come from China’. The question now is what consequences Trump’s return will have for India’s strategic environment. Trump appears determined to continue his ‘America First’ policy, prioritising bilateral agreements over multilateral institutions and taking a deals-based approach to international relationships. For India, there is some appeal in Trump’s transactionalism. Both governments define China as their principal strategic threat and see a convergence of interests in countering Beijing’s rise. Under Trump and Biden, India’s role as a counterweight to China grew. The two countries deepened military ties by signing interoperability agreements such as the Communications Compatibility and Security Agreement and the Security of Supply Arrangement. With the US likely to strengthen this security-led deals-based framework under Trump 2.0, India will become an even more important partner. As Pratnashree Basu wrote earlier in East Asia Forum, ‘India has become central to US defence and strategic thinking in the Indo-Pacific’ due to its ‘geographic position in the Indian Ocean and growing military and economic capabilities’. And there’s a political element, too. Jeffrey notes that the BJP ‘accused the Biden administration of carrying out “a deep state agenda” to undermine India’s success story’. Such accusations are less likely under a Trump administration that many expect will go easier on democratic backsliding than a Harris administration might have done. Yet navigating the relationship will not be plain sailing. Any benefits that Trump might provide for Indian domestic politics and security ties is likely to be undermined by the threat he poses to the international economic environment. India’s population is large but not wealthy, meaning that capital investments and demand for its products and services must come at least in part from foreign markets. Maintaining a stable rules-based trading system is still a core interest for India so that it can accelerate its growth trajectory by playing a bigger role in global value and production chains. Trump has already promised 60 per cent tariffs on China and 10 per cent on imports from the rest of the world. His policies threaten to destabilise the international trading regime and depress global incomes — the last thing India needs at this stage of its economic development. What’s more, with the US running a sizable trade deficit against India and Trump having labelled the country as a ‘very big abuser’ of tariffs, India may well find itself in the firing line. The temptation will be to seek a bilateral deal. Jeffrey contends that the ‘Modi government hopes Trump will make problems go away by granting waivers where needed’. This is a temptation that it would be wise to resist. Trump is likely to demand India to commit to a stronger Western-aligned security posture, which risks overextension of India’s capacity and would undermine its prized foreign policy philosophy of strategic autonomy and non-alignment. The fact that US-India strategic convergence is founded on mutual concerns about China is also a risk. In his first term, Trump sought a managed trade deal with China. Though it failed to deliver on his aims, he may again seek a bilateral ‘G2’ style agreement. Washington and Beijing finding a way to manage their conflict would diminish the need for New Delhi as a counterweight, undermining the main ballast of US-India alignment. Countries in Asia have shown that middle powers can come together to advance their interests independently of the United States, most notably through their initiatives in negotiating RCEP (despite India’s in the end walking away from the agreement) and finalising the CPTPP after Trump pulled out of the TPP in 2017. A framework now exists in East Asia to coordinate on Trump through RCEP, the world’s largest free-trade agreement — which membership of and participation in remains open to India. RCEP is an avenue for India to engage in the defence of the rules-based trading order, consistent with the pursuit of its urgent economic agenda. In an increasingly economically fragmented world, swing powers like India have the sway to play a more influential role. It may not have the clout to determine global issues by itself, but no global issue can be easily solved without India’s heft. With the advent of a second Trump presidency, India is well positioned to use its growing leverage to defend the global order that made the Asia–Pacific a stable and prosperous region and realise its ambition for a genuinely multipolar order. This article was published by East Asia Forum. The EAF Editorial Board is located in the Crawford School of Public Policy, College of Asia and the Pacific, The Australian National University.