India-U.S. Economic and Trade Relations
After decades of strained political relations, the U.S. and Indian governmentsare currently pursuing a “strategic partnership” based on numerous overlappinginterests, shared values, and improved economic and trade relations. India is in themidst of a rapid economic expansion, and many U.S. companies view India as alucrative market and a candidate for foreign investment. For its part, the currentIndian government sees itself continuing the economic reforms started in 1991,aimed at transforming a quasi-socialist economy into a more open, market-orientedeconomy. However, the U.S. government is concerned that India’s economic reformsare progressing too slowly and unevenly.Bilateral merchandise trade has grown from $6 billion in 1990 to $33 billion in2006. Although India was only the 21
largest export market for the United Statesin 2006, the United States has become India’s leading trading partner, mostly due tothe growth in India’s exports to the United States. However, recent increases in tradewith China have made it a close second to the United States. In 2006, the U.S.bilateral trade deficit with India totaled $13 billion.In 2006, India’s gross domestic product (GDP) grew by 9.2%, a growth ratesecond only to China among Asian nations. India’s economic growth has alsobrought about the emergence of a sizeable “middle class” and the largest number of billionaires in Asia, but the country’s mostly rural population remains comparativelypoor and largely isolated from the benefits of growth. In addition, there is growingconcern that the economy is “overheated,” as evidenced by rising rates of inflation.Moreover, despite several years of strong growth, investment in infrastructure islagging, creating a potential bottleneck for long-term economic expansion. Finally,attempts at additional economic reforms aimed at resolving these and other economicproblems are constrained by India’s political dynamics.Despite the significant liberalization of India’s trade and foreign investmentpolicies, there remain a number of bilateral and multilateral trade issues between theUnited States and India. The United States seeks greater market access to India’sagricultural market and key service sectors for its exports and for foreign directinvestment. The United States is also concerned about “outsourcing,” and would alsolike to see improvements in India’s intellectual property rights protection. India, forits part, calls for the lowering of perceived U.S. barriers to agricultural and serviceimports, as well as an expansion of the H-1B visa program.Many of the more prominent Indo-U.S. trade issues may have indirectimplications for Congress. The growth of India’s services exports to the UnitedStates has contributed to congressional consideration of possible legislation toprovide greater assistance to displaced U.S. workers. Also, India’s growing demandfor crude oil has raised the possibility of boosting bilateral energy cooperation.Finally, the passage of the Hyde Act in 2006 (P.L. 109-401) has led to thenegotiations of a bilateral peaceful nuclear cooperation (“123”) agreement, whichcannot go into effect without congressional approval. For a broader review, see CRSReport RL33529,
. This report will be updated as warranted.