>>Good morning and welcome to Global Perspectives.

I'm David Dumke.

Today we are joined by Rick Rossow, who is the chair of US-India Policy Studies at the Center for International Strategic Studies in Washington, D.C..

Welcome to the show, Rick.

>>Thanks for having me.

>>So there has been so much written and said about the US India relationship that it's growing closer, that it's growing more strategic.

What is the status of the bilateral relationship?

>>Well, I like a lot of times to break it off into two different categories, looking at the economic relationship and looking at the security relationship.

The economic relationship, I would say, you know, companies are kind of leading the charge, there's a lot of investment and trade that's moving.

They're our ninth largest trading partner, a large export destination for U.S. goods.

And, of course, the IT services market, which has been so fundamental for U.S. companies trying to reduce the cost of a lot of backend services so their companies are leading, governments are the laggard.

It's been hard for the two governments to find ways to liberalize our economies in ways that would benefit the other.

India wants us to look at reducing immigration restrictions.

We want India to reduce some of their import duty restrictions, things like that.

So the governments have been a little bit less successful in the commercial realm on breaking things open.

Defense is a little bit the opposite.

Defense, our militaries are finding new and important ways to collaborate and work together.

Most notably, India now allows U.S. Navy to dock there for repair.

They've joined a combined maritime force to be run out of Bahrain.

So our militaries are finding good things to do together.

But our commercial sector is a little bit further behind.

India wants to become more self-sufficient in Military production.

The US doesn't want, of course, transfer private US technology to India for less than commercial rates.

So there, you know, I think we're trying to find ways to to get actual action.

But in terms of the threats, we look at the perceptions and the ways our militaries operate.

A lot of progress on the military side.

So it's a mixed bag on both, but generally moving in the right direction.

>>So there's a lot to unpack.

And what you did, what you just said.

And, you know, one of the things I think that's misunderstood about India and you can correct me if you have a different interpretation here, is that that Washington tends to ignore the fact of what India's policies have been over time.

This is a state that, you know, took pride in having an independent course and still arguably does have an independent course.

So you work with the US on the one hand, but you also work with with with Russia.

You also work with other partners that maybe competitors or rivals or enemies of the US.

Where does India see itself in relation to the United States?

>>Well, they want to make sure that they've got strategic autonomy as they term it, where they don't want to be bound in terms of their national partnerships and relationships by any kind of U.S. edicts.

You know, we may announce, you know, that some other country is kind of an enemy of the state for the United States a year from now.

And that may be a country where India has maintained good relations.

They don't want to feel bound to necessarily follow us in those directions.

Now.

That being said, when the United States has announced sanctions programs against countries like Iran and Venezuela, India, if we kind of press will comply.

But, you know, there's others like Russia, where India up until recently was still a major purchaser of strategic defense items, some of which was because the United States wouldn't consider selling those same kind of items to India.

So some of the relationship that India has to that we look at as a little contrary to having a robust relation with the United States.

We pushed India in that direction to some extent.

You know, we can't certainly put all the blame for some of this on Delhi.

Some of that is because we weren't willing to entertain those conversations.

You know, for instance, India is buying the S-400 missile defense system from Russia, the same system which we applied sanctions against a NATO's partner, Turkey.

And we've chosen not to apply sanctions against India because there's a lot on the upside in the relationship.

And because India asked us before they bought the Russian system, would we be willing to sell them advanced missile defense over a decade ago?

And we said no.

So so some of it, you know, they will comply with some US pressure if we bring it up in the right way.

But sometimes they just need to make sure they maintain that autonomy.

The one exception to all that is China, where we both definitely agree China is the core fundamental threat in the Indo-Pacific.

And that's where we actually found a lot of areas of of cooperation with India in military and even even on commercial terms of late.

>>So the nature of the US-Chinese rivalry is different than the nature of the Indian Chinese relationship.

But again, there's there's some principles there.

If we both have a common threat, even if we see it differently.

So how is it different from an Indian perspective?

What do they see when they see China?

>>You know, a lot of what India looks at as the threats from China wouldn't actually be that very different, although it tends to be a little more in-your-face for India, because India has border conflict with China and India is the only country in decades that's actually had conflict, military conflict against China.

Luckily, no shots fired, but dozens of soldiers killed on both sides in clashes with with rocks and bats and things like that in the frozen Himalayan mountains.

So, you know, we look at China's interest in expanding and pushing against its neighbors.

We share a concern about China's ability to dominate global trade flows, particularly of emerging strategic technologies.

Then you've got some areas where India has unique concerns.

You know, like one that I would say in particular is on the fate of Buddhism, with the Dalai Lama fleeing to India decades ago, taking up residence.

He's now in his eighties, and succession planning is unclear.

Beijing clearly wants to make that choice on who the next Dalai Lama is going to be.

So you do have some areas where maybe India's interest, like on religious issues with with China, are a little bit different.

The biggest difference, I would say, though, is the geography and where we're most concerned about.

>>To most US security analysts when you talk about the China threat, you think of the South China Sea, you think of the Taiwan Straits, the East China Sea in Japan, or even islands in the middle of the Pacific, where China's been making inroads.

For India, it's their border and it's the Indian Ocean region where the Chinese navy is playing a much bigger role.

So that's part of what our military folks need to do right now, is figure out ways that we can accommodate India's concern about China geographically and hopefully India to be a little bit more active in the areas we look at as as major concerns.

>>On the defense side, of course, you've mentioned some of the arms sales.

There's been something like $20 billion in sales up to recently with India.

But they also buy a lot from Russia and elsewhere in terms of arms.

So there's there's an arms sales component.

There's also the military to military cooperation.

So India participates in the quad.

So I understand.

Can you talk to tell us a little about that?

>>Yeah, you know, the quad, which is a coalition of the United States, India, Japan and Australia, it originally became kind of a loose grouping after the 2004 tsunami in Asia, where, you know, the navies tend to be the first responders in major disasters like this.

And we found these four navies were kind of the first on the spot they needed to coordinate, because if you're delivering relief to an island, it's good to know you're going there so that another Navy doesn't go there at the same time.

Sometimes we got a pallet of of equipment or supplies that the Australian Navy can take to and deliver to a place.

So we found, you know, some nice level of operational cooperation in the aftermath of the tsunami.

Certainly not the kind of reason you want a grouping to come together.

But the fact that we were able to and coordinate so effectively, you know, kind of inspired and so we had a few meetings at the political level after that to say, is there something there?

Now, this was, you know, almost 20 years ago.

And, you know, China at that point still had, you know, almost say a veto with a lot of our countries, including the United States.

They they felt these four coming together would be a bit of a danger.

Began exerting some pressure.

The United States wanting to try to maintain good relations with China as long as we could.

India not sure they had relationships to counter China.

So the quad crumbled pretty quickly, but began to get revisited at the end of the Obama administration.

And then both Trump and and Biden have really kind of accelerated taking quad meetings to leader level.

It's not a military partnership per se.

Most of what the quad works on is areas of strategic commercial interest.

We don't want China to dominate global 5G lines to make sure we have optionality on the supply of medical equipment, which we saw during COVID when China was looking to slow down, you know, the ability to supply that.

So less on the military front, at least overtly.

We do have a joint exercise, Malabar Naval exercise, which, you know, we don't call it a quad exercise, but it is the same four countries.

So there is some military cooperation that's happening.

But for the most part, the quad today is focused on those areas of strategic commercial relevance where we cannot let China dominate in the future.

>>So we're talking about the US and India.

But I want to talk a little about just India.

You know, one of the efforts of the Prime Minister Modi has been to raise India's India's international profile.

So, for example, their president at the G20.

What are some of the other moves India has made to make itself a viable international player?

You see China doing Belt and Road Initiative.

A lot of talk, again, at least Western media about China expansion.

How does India make its imprint on the world?

>>Yeah, well, today, you know, as we were kind of talking a little bit about the commercial relevance for the United States, India has become just like China has done for manufacturing.

India has done that for IT services and software development.

You know, it may employ less people, but the jobs are very high end.

And seeing that part of the economy, which didn't exist 25 years ago, now becoming so core and fundamental.

So a lot of foreign companies that have any kind of relationship with India, it tends to be on the back office and the IT service side.

So that's one thing that India has done to become a lot more integrated globally.

You also see the lifting of foreign direct investment restrictions.

Governments before Modi would do three or four, maybe incremental lifting of foreign investment restrictions per year.

Modi did about 40 at 40 of them his first couple of years in office.

So it really kind of welcomed foreign investors to come in and to set up shop there.

You see some outreach within the neighborhood.

I think some of India's grand aspirations on being a global player.

They don't have the resources to make that a reality.

So they may not have the direct kind of impact that China can, you know, in Latin America and Europe and places like that, where China is willing to bankroll big projects because a lot of these countries, you know, what they want is money.

It's nice to show up and say Global South regulatory cooperation, blah, blah, blah.

But money speaks much louder than, you know, system of governance and things like that.

So where India has applied most of its actual resources tends to be within its own neighborhood.

Because again, when you think of the time that Prime Minister Modi came to office ten years ago, most of India's direct neighbors had closer relations with Beijing than they had with with New Delhi, despite sometimes, you know, much stronger historical and social bonds with India than they have Beijing.

And so, you know, a lot of India's impact outside of their own nation's borders too have that within their own neighborhood.

Now it comes and goes.

I mean, Sri Lanka, they supported opposition parties that unseated a pro-China government.

But, you know, Sri Lanka has been on wobbly foot ever since then.

Maldives is one back and forth in terms of, you know, more pro-India or pro-China.

But countries like Bangladesh where India's initiated a number of agreements to resolve land dispute issues, maritime dispute issues.

So they've had some success with the neighborhood.

So IT services has been fundamental.

Foreign investment coming in has been very supportive.

Modi likes that within the neighborhood.

Those are three of the big ones.

Beyond the G-20 that I think have really helped to to build India's image outside of its own borders.

>>Rick, your background, you did a lot in the private sector before you entered more of a policy oriented profession.

So you you have a lot of extensive experience with the Indian economy.

I think for viewers it'd be very helpful for you to explain kind of the nature of of India, India's economy, and how it has reformed in recent years.

I know this is a question you could talk about for hours.

But we're talking about a country that was very statist once it became independent from from the British.

A lot of state controlled capitalism believe as is what what what they called it.

So what explains kind of Modi, some of the economic growth and where India is today economically?

>>You know, when I get asked this question, I think it's always helpful to kind of compare the system of governance to the United States.

Our national governments have very some very similar policymaking authority, national security, trade agreements, some highly regulated industries the national government may cover.

Here in the United States, and you think like who else is in charge of development and economic issues?

It's kind of split between your state government, your county government, your city.

In India, all that is actually really been been subsumed by the state government.

States in India have never really devolved power below that.

So when you talk about the structure of the Indian economy and where policymaking authority really kind of happens, a lot more of that is actually vested with state governments in India than it is in the United States.

And a lot of international you know, you think what is Modi doing to reform the economy, things like that.

That's helpful.

But the states that have actually taken big initiatives to make local reforms, the things that states control would be.

And these are all fundamental to business.

The electric power grids, water, sanitation, labor regulations, state governments share convergence, regulation of that with the national government.

Land acquisition and a lot of the the oversight that has on environmental issues and such are actually run by states.

So if we really want to see the economy booming, state governments have got to take a lot of steps to make that happen.

So you've got 28 states in India, a few of them, I'd say, wake up and think, all right, looks like foreign companies are drawn away from China a little bit.

How can I win a share of that?

A few states have done big reforms on electricity and labor and things like that.

Not many.

You know, so when we think about when is India really going to start humming, When is the economy going to become unavoidably big for US companies to start putting these big investments like they were doing with China in recent decades?

You've got to get a few more big states in India to start pulling at the oars on economic reforms, I think to kind of make that happen.

But Modi himself, you know, he he really wants to make sure that you you create a lot of low skill and medium skilled jobs because about half of Indian labor is still stuck, stuck in basic agriculture when they start modernizing agriculture.

And you see mechanization, you're going to see a lot hundreds of millions of people leaving the farms and moving to cities.

So Modi's number one priority is to make sure there's jobs waiting for them when that urbanization really starts to accelerate.

So this manufacturing push is fundamental.

That means that they've been imposing customs duties and making it harder for US companies and foreign companies to move product into the market, encouraging investment to try to get manufacturing companies in and doing some domestic reforms in sectors that were considered kind of vital.

So policymaking really is split between the national government and the state government.

And for Modi, creating those jobs for low skilled folks that are going to be leaving agriculture in coming years is a must do.

>>Any developing country, obviously, as you develop and get going to manufacturing, there's significant energy requirements.

And India is the most populous country in the world and you already have a lot of people to deal with.

You've done a lot of work on the energy sector.

Tell us a little bit about that.

>>Yeah, you know, India, you think energy is primarily controlled, again by state governments and most states in India believe they've got to give free electric power to farmers and to general consumers, free or low cost.

Otherwise, they're going to get voted out of office.

And that's been the case.

The few states I've seen that have tried to change that dynamic do tend to get voted out of office.

So it's quite real.

And it's not even that the state subsidizes that.

They simply tell the electricity distribution utility, you just can't charge these folks.

And then that means that they try to overcharge industrial users to try to make up for that.

So despite being a developing country, India actually has relatively high electric power rates.

So when they try to attract investment, that's one of the things that you have to think about.

>>How do you invest in a business, though, that's giving it away for free?

>>Right.

Yeah, Yeah, it's tough.

It's tough.

Some states have done I mean, the states like Gujarat and Haryana have managed to reform their state owned distribution utilities.

One state, Odisha, tried to privatize the entire state 30 years ago and failed, but they just did it again four years ago.

Kind of one of those quiet stories.

Nobody's talking a lot about one state.

And one state only has completely privatized its electric power grids.

The Indian conglomerate Tata Group, which has a terrific reputation, now owns all four distribution utilities.

And that's one state that I'd say let's keep an eye on the next couple of years.

I think Odisha, they've got political stability.

The longest serving state leader, chief minister in the country, private electric power.

So good things are happening there.

But the question usually comes down to India and its climate commitments.

When we talk about India and, you know, that's where these price pressures that I mentioned about giving away a lot of electric power and yet India having these massive aspirations and becoming independent on energy and and building out renewable energy, particularly wind power and solar power for India, it's not a voter issue.

Voters, you know, when you talk about rating climate change in terms of the 20 things you show up at Election Day for, it doesn't make the list of 20.

>>21.

>>21, but jobs makes the list.

And so for India, a lot of the push that you see right now and the adoption of renewable energy, knowing the monetary constraints that the electricity utilities have, paying high prices for renewable energy, it's difficult to do.

But they're doing it because they want energy independence and because they want to create the jobs that might come from making solar panels and making wind turbines.

They're hoping that for them, climate change is more of an opportunity to maybe leapfrog and become a manufacturing superpower based on this big transition that's happening globally with these new technologies.

So less about climate change and more about job creation.

Not probably different than how a lot of US voters and others probably think about it too.

>>Green job sounds a lot better.

>>Yeah.

>>So what you've seen this India Indian growth rates for for a number of years, very healthy quick growth rates where is that growth coming from?

>>You know, you still see a ton of India's economy is driven by IT services.

You know, most labor is in agriculture about 50% or so of labor is in agriculture, producing about 15% of GDP.

On the flip side of it, you've got about 30% of labor in services.

That's producing about 60% of GDP.

So this explosive growth of services, I mean, it's not just I.T.

services, it's telecom.

We remember 25 years ago going to India, it cost you $4 a minute to call the United States and they they liberalized telecom, allowed private companies to come in, broke the monopoly.

And it's not just telecom companies, but, of course, opening up telecommunications has made things like a farmer.

You know, you grow your crop, you've got two markets you can drive to being able to call and check which one has a little bit higher price on corn that day can have a meaningful difference on your annual income.

Or fishermen.

To know that it's a rough day at sea, you better stay on shore that day rather than risk losing your your catch and losing your boat.

So telecom, I would say as well.

So services has really been, I think, the hyper driver of India's economic growth, you know, with with as much GDP as comes from agriculture, sometimes the monsoon has an impact just as much as government policymaking does too on India's economic growth rates.

A couple of years of good monsoon, you've got decent growth in agriculture and that that's a fundamental part you have not seen the same kind of explosive growth in manufacturing.

And that's, as I kind of mentioned before, where India needs to move into.

When Modi took office, manufacturing was about 13% of GDP.

They made the pronouncement they wanted to get that to 25% by the year 2025.

So 12 months away, they're still stuck at 13, 14%.

You've got a couple of very notable announcements by Apple suppliers, for instance, about setting up manufacturing in India.

And it feels like maybe they're kind of hitting the stride.

But then you look at the government of India's own numbers, foreign direct investment has dropped by about 20% in the last year.

So you've got a couple of shiny notable announcements on global manufacturing, but the real numbers show that it's really not taken off yet.

Now, India is globally competitive in a few areas, autos and auto components.

You know, every US automobile has a substantial portion of Indian made content, you know, built in it generic pharmaceuticals.

If you open up in the United States, your medicine drawer, most generic pharmaceuticals you're going to have on the shelf are made in India.

So they have shown in a couple of sectors where they've been globally competitive, but that still is the exception rather than the norm.

So services has been the driver, but they sure hope that that switches to manufacturing.

>>So this year is an election year in India and Prime Minister Modi and his his his BJP party seem to be cruising to victory at this point.

What do you contribute?

What what what makes him popular?

Is it the economic growth or is there more to it than that?

>>Yeah, it's a mix of things.

You know, certainly the the main opposition party, Congress has had a difficult time getting its act together.

They've had leadership difficulties.

They continue giving state leadership positions to some of the old guard rather than some of the rising young folks.

I think that can inject that bit of energy.

So, you know, Modi is somewhat aided by the fact that the opposition has had a difficult time being an effective opposition in a lot of ways.

But he himself, you know, he looks at a few things that they kind of put on the table that that they believe is driving their political success.

Number one is bringing actual delivery of public services to the poor.

Modi has announced these massive programs of bringing electricity.

I mean, when he took office, there were still 18,000 villages in India that didn't have electricity.

So this national drive to electrify the last villages and bring electricity to almost every single home in the country, it's not great electricity.

You know, you're not getting 24 seven reliable electric power.

>>But it's some.

>>Some.

You go from no electricity in history for your family to getting some for the first time.

They're digitizing the provision of a lot of the financial programs the government runs out.

So instead of trucks of rupees driving down dirt roads and delivering money, usually little taken off the top, they can now press a button and put that money for subsidies and programs like that directly in people's bank accounts.

And, you know, digital payment tools have become pretty ubiquitous in India.

You've got programs on building toilets and delivering clean, clean water.

Now you know, look, I mean, a lot of groups went after the fact and said, you know, it's not quite all the Modi government says it is.

Right.

They they started here.

They say they got here.

And really the truth is here.

Well, moved from here to here on these programs has improved a lot of people's lives pretty dramatically.

So that's certainly part of the mix.

Hindu nationalism that comes up a lot and it certainly is part and parcel for what the BJP is.

They haven't taken hyper explosive steps on religious intolerance, I think, but some small steps that have generate a lot of attention.

The state of Kashmir, which is the only Muslim majority state when it was created, they gave them a special set of laws, a little bit different than the normal Constitution.

Well, you know, Modi decided after 70 years of running Kashmir that it should be following the same laws as the rest of the country.

So a bit explosive, but I think you could reasonably understand why that might happen.

Ending the practice of triple Talaq which is, you know, this a very divisive tool for how Muslim men can can can divorce their wives, and women don't have the same privileges.

So they ended that, then you've got an accelerated path of citizenship that they offered for people that flee to India for religious persecution reasons, but they exempted Muslims from from having that apply.

So there's some small steps meaningful ones that you look at and say, you know, in small ways they've tilted the playing field away from Muslims.

Nothing explosive quite yet.

But you know, that could happen and that certainly plays to the base pretty well.

And then globalization, you know, Indians are rightly proud of the fact that India now is seen as a major player on the global stage.

So you mixed together a weak opposition delivery of public services to the poor, stoking religious intolerance occasionally, and then India's international image sparkling.

It comes across pretty well.

And so voters obviously at the national level have responded pretty favorably.

At the state level, a little bit less so.

You know, the BJP peaked at controlling 14 states, they're now down to 12.

So it's been more of a mixed bag when you look at state level elections.

So the dominance, you know, when you focus only on Delhi seems pretty dramatic.

But when you look a little bit closer at state level politics and such, some of these feisty regional parties have done a pretty good job of pushing back.

>>Of course you've got you've always had some outliers.

You have you have a communist state government in India, for example, and you also, you know, then you have a Hindu nationalist government in another state.

So there is a mixed bag there.

So I think a lot of that gets lost.

But but with some of the criticism that's coming from, you know, the Western media is about this intolerance is about the nature of what Modi's party stands for that challenges India's secular identity that Gandhi championed, for example.

Do you see India's nature changing?

>>To some extent.

You know, the fact that the BJP came to power at all versus more traditional secular parties is an indication.

The question is, you know, are they are they thermometers or thermostats?

Are they are they changing the weather because of kind of pushing an agenda or they're reactive to citizens kind of interests?

And, you know, that's a question I think only Indians themselves can kind of choose to unpack.

But you do see a government that is less secular than what you've seen before is definitely a change in the nature.

But there's there's a wider set of issues that sometimes get, you know, Modi gets this kind of label.

Is he a rising Erdogan or Chavez or something like that?

They call him right wing, you know, and in some ways it is.

But when you talk about the expansion of delivery of public services, to us, that sounds like an absolute left wing kind of thing, right?

So doesn't fit narrowly in kind of the neat boxes.

They talk about him as a as a as a nationalist or something like that.

But he's done a lot of work to devolve power to state governments, even states that his party doesn't control some of the states that have actually adopted his programs the fastest are states that are generally opposed to him.

So, you know, fitting into this box, is he autocratic?

I wouldn't I wouldn't put that on him.

Divisive on religion for sure.

Devolving power to states.

It's a strange mix, I think, and it doesn't.

Yeah.

Again, that doesn't fit neatly in the boxes.

We sometimes try to try to portray that not not like other leaders that we've seen.

>>So we just have time for one last question.

And I guess the question is, you know, there's all these good stories and you've mentioned India's sparkling image in the international community.

Is this good story going to continue?

India still has real problems like poverty, like they have, you know, the most populous country in the world.

You have tremendous wealth, but you also have tremendous challenges in terms of developing the people.

So is this story going to continue or when does it come to meet reality?

If you will.

>>Let me paint the positive side for this, something that I do firmly believe in, and it gets back to something I brought up before, which is India's development trajectory is going to be written by its states, not by its national government.

And state governments today are elected by poor farmers.

And when urbanization really begins to take root, when city urban voters that want electricity and they want jobs and things like that, when they begin driving state elections, that's when I think things begin to accelerate.

India's development path begins to move.

So you'll have, I imagine, you know, find 6%, 7%, maybe hitting 10% growth on odd years here and there.

But in about 20 years from now, nationally, you'll have more people living in cities than than you'll have rural farmers.

And that's when decision making changes and modernization and winning elections based on reforms and building business and creating jobs becomes the driver of elections rather than a kind of an afterthought.

So I think you'll have fine growth for a couple of decades, but in 20 years, I think that's when the real acceleration began.

So I think the best years are still definitely ahead of us.

>>Rick Rossow, thank you so much for joining us today's excellent conversation.

We hope to have you back again.

>>That's a pleasure.

>>And thank you for joining us.

We'll see you again next week on another episode of Global Perspectives.