Recent Indian e-commerce diktat last straw for Trump, cancels $5.6 billion in trade concessions

The cancelled trade concessions will be yet another setback for Indian Prime Minister Narendar Modi, who faces national elections in a few weeks.
Written by Rajiv Rao, Contributing Writer

If you're ever in India, it's hard to evade the ubiquitous mug of India Prime Minister Narendar Modi beaming down at you from pretty much any elevated vantage point: Billboards, check-in screens at airports, or moving buses. 

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While this isn't anything new, Modi's need to be top of mind may become a little more urgent considering that United States President Donald Trump just a few days ago revoked a preferential trade agreement between the two countries worth $5.6 billion. The move will ultimately impact manufacturers of things like auto spare parts and casings for wires that are too low on the value chain for American manufacturers to bother making stateside.

There's a recent history to this decision. In December, the Hindu nationalist Modi government decided to force, almost overnight, the adoption of restrictive e-commerce rules for foreign players that were updated in 2016 but had not yet been enforced. The government also insisted that payments firms such as Visa and MasterCard house their data on domestic servers or suffer market access-related consequences. 

President Trump clearly decided that enough was enough. His move brought an end to the trade concessions enshrined in the Generalized System of Preferences (GSP) program that had allowed Indian goods worth $5.6 billion a duty-free entry into the United States. In a letter to Congress, Trump declared that he was doing so "because, after intensive engagement between the US and the government of India, I have determined that India has not assured the US that it will provide equitable and reasonable access to the markets of India." India had been the largest beneficiary of the GSP program to date.

For its part, India responded with statements from trade official Anup Wadhawan, who said the actual benefit of the program was only $250 million a year and therefore not such a big blow to the country after all.

Clipping the wings of e-commerce companies like Walmart's Flipkart and Amazon by capping their equity stake in suppliers as well as limiting their procurement of goods from any one e-commerce entity to under 25 percent of the total collectively acted as the final straw that upended an otherwise amiable relationship between the two countries. But there were also other incidents that had previously piqued the Trump presidency.

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India's tariffs, especially on imported electronic products, smartphones, and motorcycles in the wake of its 'Make in India' program was one of them. "India is a very high tariff nation. They charge us a lot," Trump said. "When we send a motorcycle to India, it's a 100 percent tariff. They charge 100 percent. When India sends a motorcycle to us, we brilliantly charge them nothing," he added.

But the thing that really perturbed the United States President was the country's price cap on two kinds of medical devices, namely knee implants and cardiac stents, which are both treated as 'essential medicines' in India. The United States has long desired for these caps to be lifted so they could profit enormously from the gigantic market that India offers.

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So, where does this leave India and Modi? In a normal world, the $5.6 billion would not be such a mortal blow for India. After all, the goods trade surplus with the United States was a healthy $22.9 billion in 2017. However, employment growth, especially in manufacturing, has remained flat or declined -- although the government has tried to contest the legitimacy of this trend. The country is still suffering from Modi's impulsive and poorly executed regeneration of currency notes and there is still a lot of debate as to whether the newly introduced GST tax regime has been good for the country. And exports, shockingly, have been largely flat over Modi's tenure in real terms. With close to 12 million youths joining the workforce every year, this is not the kind of record that the Prime Minister, who had offered himself up as a saviour of the Indian economy, needs if he is to win the upcoming election.

In other words, while the scuppered trade concessions are not an economic disaster for India, the optics of it have come at a pretty bad time for a leader who is about to go to the polls, notwithstanding the albatrosses of communal conflagration, inept economic policy making, and controversial military skirmishes with Pakistan that are already around his neck.

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