ArticlesRecord Trade and Strategic Alliances: India and US Strengthen Ties in 2022

India-US Trade

Record Trade and Strategic Alliances: India and US Strengthen Ties in 2022

Highlights of a stronger US-India relationship and a glimpse at what lies ahead in 2023

By India Index

4 min read

The year 2022 marked a historic and triumphant year in India-US relations. Multiple productive discussions between prominent political figures of both countries translated to the realisation of landmark achievements and actions that only strengthened the ties between India and the USA.

Let’s take a look at the significant accomplishments in 2022 that only herald a stronger, richer relationship between the two democracies in the coming years.

Booming Trade

Bilateral trade between US and India hit a record high of US$157 billion, a sharp increase from recent years.

The US has now overtaken China as India's top merchandise trade partner and accounts for nearly 12% of India's total merchandise trade. According to US Census, the merchandise trade between India and the US was $123.48 billion in 2022, an increase from the previous year's $113 billion.

The growth in trade can be attributed to factors such as high consumer demand in the US, rising demand for items such as jewellery and electronics, and companies diversifying their supply chains. For instance, electronic component manufacturers, including Apple, have relocated production to India, with Apple now exporting a million smartphones from India to the US each month.

The Signing of the Investment Incentive Agreement (IIA)

On May 23rd 2022, the governments of both nations signed an Investment Incentive Agreement that aims to increase US investment in India across all industries. The IIA is a necessary legal requirement for the US to maintain its operations and financial assistance in India through DFC programs.

Under the agreement, the DFC has proposed investing $4 billion to offer financial support to the healthcare, renewable energy, pharmaceutical, small and medium enterprises, and infrastructure industries in India.

The DFC is a development finance agency of the United States that invests in development projects based in lower and middle-income countries.

Indo-Pacific Economic Framework

India joined the US’s initiative, Indo-Pacific Economic Framework (IPEF), along with 12 other nations in May 2022. Members of the IPEF constitute 40% of the world's GDP and 28% of global trade in goods and services.

According to the Office of The United States Trade Representative, “the [IPEF] will advance resilience, sustainability, inclusiveness, economic growth, fairness, and competitiveness for our economies…and offer tangible benefits that fuel economic activity and investment, promote sustainable and inclusive economic growth, and benefit workers and consumers across the region.”

The IPEF has four pillars–fair trade, infrastructure and decarbonization, supply chain, and anti-corruption and tax. Currently, India is a part of all pillars except for trade. 

Commenting on India’s participation in the IPEF, the country's Commerce and Industry minister Piyush Goyal said, “We believe it will open up opportunities for us to work in partnership with each other to ensure that particularly during challenges or difficult times, supply chains remain open, businesses don’t suffer and people of countries don’t suffer because of chaotic conditions that we have seen in the last few years, first with Covid and then the conflict with Russia and Ukraine.”

What Lies Ahead in 2023

Both nations expect a stronger bilateral relationship in 2023, with the defence sector being a key focus.

During the US-India Trade Policy Forum held earlier in January 2023, Kurt Campbell, deputy assistant to US President Joe Biden, expressed the US's goal to help India reduce its dependence on Russia in the defence industry.

Additionally, the US Joint Chiefs of Staff and the Indian Defence Force Chief have recently emphasized military alignment in response to increased border tensions between India and China.

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