Beginning of a New World Order of Collaborative Knowledge Economies
The State Bank of India’s research report, Ecowrap July 2023, states that Prime Minister Narendra Modi’s recent visits to the US and Egypt mark an important development both in the economic and strategic plane. The deepening of the ties between India and these countries are of vital importance for India’s economic development and position in the Indo-Pacific. The report states that this is the beginning of a new world order of collaborative knowledge economies.
This study dwells upon the four economic aspects of the recent visit touching upon developments in semiconductors, defence trade, climate finance, WTO trade disputes and India’s economic interest along the Suez Canal.
Firstly, the US visit marks shift in onshoring of chip manufacturing in India. The US chip manufactures announced an FDI of $825 million with a combined investment of $2.75 billion to setup a semiconductor assembly and test facility in India. Besides this, semiconductor collaboration will extend to systems development under the 6G network. With multiple disruptive developments taking place in chips manufacturing and supply-chain globally where the dominance of China is being curtailed through collaborative arrangements among biggies like US, Japan, Taiwan, South Korea, Netherlands (and, now India), the strategic alliances between these two nations assumes paramount importance to guide the uncertain future amidst escalating geopolitical tensions.
Secondly, the India-US defence relationship after this visit is expected to move under two tracks. The conventional arrangements going forward will include greater collaborations and strengthening of existing foundation agreements. This will include leveraging India as hub of repair and maintenance of naval assets. Further the repair and maintenance will progressively extend to aircrafts as well. The development in the conventional domain will also include the transfer of technology for manufacturing jet engines in India to manufacture LCAs and assembling of UAVs in India. A reciprocal defence procurement agreement will also be explored in due course which can increase the share of India in defence trade with US which has fallen to 19%. The future collaborations in new defence domains will include the collaboration in defence application of space and AI technology. This will cover prototyping of projects, testing, collaborative research, and co-production of defence systems.
Thirdly, in respect of climate transition and climate finance, to achieve the goals of net-zero, many important collaborations have been announced covering green hydrogen, biofuel, sustainable aviation fuel and critical minerals needed to achieve climate and strategic cooperation goals. MOU signed under which the U.S. Agency for International Development will support Indian Railways’ ambitious target to become a “net-zero” carbon emitter by 2030. A payment mechanism that will facilitate deployment of 10,000 made-in-India electric buses in India. A platform will be created that will attract private capital into India for deployment in green technology projects such as battery, renewables, storage etc. This will lower the cost of capital for green transition by providing catalytic capital and derisking such projects.
Fourthly, in a significant development, bilateral meeting has resolved the 6 major pending disputes at WTO mainly related to steel, aluminium, renewable energy, solar cells, 3 of which were raised by the US against India and 3 raised by India against the US. The US will grant market access to steel and aluminium products under the exclusion process of Section 232 of the Trade Expansion Act 1962. India has agreed to remove the additional duty, i.e., retaliatory tariffs on certain products. However, the prevailing basic import duty on these products applicable to all imports will continue. This market access will restore opportunities for Indian steel and aluminium exporters, which were restricted since June 2018. Going forward, the US Department of Commerce will clear 70% of steel and 80% of aluminium applications for products originating in India. It would provide significant impetus to raise India’s steel and aluminium exports by about 35%.
Fifthly, PM’s US visit was followed by visit to Egypt. An agreement to elevate the bilateral relationship to a “Strategic Partnership” was signed. Three MoUs in the fields of Agriculture, Archaeology & Antiquities and Competition Law were signed. Prior to this visit, Egypt had already shown interest for rupee payment for imports from India. Further in a significant development, Egypt is studying the possibility of allocating a special area of land for the Indian industries in the Suez Canal Economic Zone. The Suez Canal holds significant importance for Indian trade. Out of the total 4.8 million barrels per day of crude oil shipped and transported through the canal, 500,000 barrels per day of crude is shipped to India and is important for shipments to Europe.
