India-U.S. Relations: Priorities in the Next Decade

COMMENTARY Asia

India-U.S. Relations: Priorities in the Next Decade

Jun 30th, 2022 35 min read

Commentary By

Akshay Mathur
Harsh V Pant
Trisha Ray
Kabir Taneja
3dmitry/Getty Images

 

This report originally appeared in the Observer Research Foundation.
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Executive Summary

The India–United States (US) partnership—pivotal in maintaining international security and order—could yet be the defining one for this century. The US is India’s most comprehensive strategic partner, and cooperation between the two extends across multiple areas such as trade, defence, multilateralism, intelligence, cyberspace, civil nuclear energy, education, and healthcare. As the two nations venture into a new decade, they must articulate a new agenda for cooperation in the Indo-Pacific region which they are both committed to keeping “free and open”. 

In recent years, exigencies such as the COVID-19 pandemic have redirected the relationship to a forward-looking assessment of regional and global geopolitics. The sectors that will be key to shaping the arc of a strong Indo-US relationship in the years ahead are the following: emerging technologies; national security and defence cooperation; counterterrorism; and trade. 

Today, bilateral defence cooperation has exceeded even the more optimistic predictions that were being made a decade ago. While some of the heaviest lifting has already been done, tasks remain in streamlining procedures, reducing bureaucratic obstacles, inaugurating new military exercises, and re-energising the Defense Trade and Technology Initiative. 

Beyond defence ties, the relationship has begun expanding in scope from the bilateral to the multilateral while embracing a wider range of issues that include: civilian nuclear cooperation and nuclear non-proliferation; infrastructure financing; the production and delivery of COVID-19 vaccines; humanitarian aid and disaster relief; peacekeeping and education; space and cyber security; countering terrorism and extremism; governance of the oceans; and promoting a free and open Indo-Pacific and the rules-based order.  

Meanwhile, two multilateral strategic dialogues that have gained prominence in recent years are the Quad grouping (of India, Australia, Japan, and the US) revived in 2017, and the new West Asian Quad or I2U2 (comprising Israel, India, United Arab Emirates, and the US) inaugurated in 2021. The Quad has become a premier format for India and the US to pursue targeted multilateral cooperation with like-minded democracies while the West Asian Quad’s focus on technology cooperation carries unique potential.

Now that America’s military withdrawal from Afghanistan has reduced its dependence on Pakistan for supply routes, India-US counterterrorism cooperation is likely to expand further, to include multilateral efforts to apply pressure on the Pakistani military-intelligence complex to abandon support for terrorist groups. India and the US must also collaborate with each other, and with other like-minded partners, to meet the urgent need for infrastructure investments in the Indo-Pacific and the growing appetite amongst regional capitals for higher-quality, more reliable alternatives to China’s Belt and Road Initiative. 

Finally, as India and the United States look toward strengthening global value chains (GVCs), they must enhance two-way foreign direct investments (FDI) and provide incentives for the private sector to make investments that facilitate integrated GVCs that serve both countries’ economic and national security interests. 

Key Recommendations

This report recommends that India and the US:

  1. Enhance cooperation in emerging technologies and artificial intelligence (AI) as data regulation, information sharing, and privacy protection become increasingly salient issues crucial to the preservation of national security. 
  2. Strengthen coordination multilaterally and on international issues, including prioritising two multilateral strategic dialogues that have gained prominence in recent years—i.e., the Quad and the West Asian Quad or I2U2.
  3. Pursue greater cooperation on counterterrorism, including coordinating strategies for managing a Taliban-led Afghanistan and leading multilateral efforts to apply pressure on the Pakistani military-intelligence complex to abandon support for terrorist groups such as the Taliban and Haqqani Network, and Kashmir-focused groups like Jaish-e-Mohammed and Lashkar-e-Taiba.
  4. Strengthen and integrate GVCs, using FDI in each other’s economies to strengthen bilateral trade and integrate GVCs as well as incentivise multinational corporations to participate in these initiatives.
  5. Seek greater coordination between line ministries working on cybersecurity, especially identifying relevant counterparts on specific issues.
  6. Embed security and defence issues into their emerging technology agenda, focusing for instance on identifying common principles for defence applications of artificial intelligence.

Emerging Technologies and National Security

India-US technology cooperation has been growing in strength in the past years, and the two sides inked several new agreements in 2021 alone. In March 2021, the Indo-US Science and Technology Forum’s US India Artificial Intelligence (USIAI) Initiative was launched to focus on AI cooperation, including bilateral research and development, AI workforce development, and domain-specific AI research areas in healthcare, smart cities, materials, agriculture, energy, and manufacturing.[i] In September 2021, President Joe Biden and Prime Minister Narendra Modi discussed expanded partnerships in the areas of space, cyber, health security, semiconductors, AI, 5G, 6G, future-generation communications technology, and Blockchain. They also discussed the need to “address vulnerabilities and threats in cyberspace,” committing to mutual efforts to respond to cyber threats via “dialogues, joint meetings, training and sharing best practices.”[ii]

This report identifies action areas under two domains: cybersecurity and artificial intelligence (AI).

Cybersecurity: Encoding Resilience

In recent years, the increase in the incidence of cyber-attacks, including ransomware, espionage campaigns, and other malicious activities has provoked concerns about the resilience of critical infrastructure and digital assets. India was among the countries in Asia that experienced the most number of cyber-attacks in 2021, with India’s Computer Emergency Response Team (CERT-In) reporting 1.4 million cybersecurity incidents.[iii] In 2021, reported victims of cybercrime in the United States and India stood at 466,501 and 3,131, respectively.[iv]

While overall cyber resilience of industry, government and communities is critical, the nature of cybersecurity threats that both India and the US face also have a geopolitical dimension. As India’s security relations with China deteriorate, India has seen a 261-percent annual increase in China-backed cyber-attacks as of August 2021, over the same period in 2020.[v] Meanwhile, the US has accused China’s Ministry of State Security (MSS) of being responsible for the Microsoft Exchange server exploitation that resulted in the theft of intellectual property from businesses, governments, and organisations in various parts of the globe.[vi]

Testament to the growing importance of cybersecurity in the India-US bilateral, a Senior Officers Meeting of the India-US Homeland Security Dialogue was held in January 2022; it is set to be followed by a ministerial-level dialogue later in the year.[vii] The dialogue aims to strengthen cooperation in cybersecurity and securing critical infrastructure, among other areas.

Yet, cybersecurity is not the exclusive purview of any single ministry or department. The US and India should seek greater coordination between the line ministries, especially identifying relevant counterparts on specific issues. Depending on specific action area, on the US side, this would include the State Department’s bureau for cyberspace and digital policy (created in April 2022), the Department of Defense, National Security Agency, Department of Homeland Security, Cybersecurity and Infrastructure Security Agency, the Office of the Director of National Intelligence, and the National Cyber Director. On India’s side, this would include the National Cybersecurity Coordinator, the Ministry of Electronics and Information Technology, and the Cyber Diplomacy Division of the Ministry of External Affairs.

The US and India should also consider joint tabletop exercises, involving CERT-In, Defense Cyber Agency, and the National Cyber Coordination Centre (NCCC). The US Department of Justice and Federal Bureau of Investigation could seek further cooperation and information exchange with the Central Bureau of Investigation (CBI) on combating cybercrimes.

Identifying these channels should be followed by information-sharing and cooperation agreements with their Indian counterparts in the areas of critical infrastructure, cyber threats, and cyber defense best practices.

AI in Defence and Security: Building Foundational Cooperation

After years of growing S&T ties, paired with unprecedented geopolitical alignment under the Trump administration, in October 2020, the US’s National Security Commission on AI recommended making India the lynchpin of US tech engagement in the Indo-Pacific.[viii] The NSCAI report also proposed the creation of a US-India Strategic Tech Alliance, focusing on R&D, innovation, talent flows, as well as defense and security. Then in March 2021, India’s Department of Science and Technology and the US State Department launched the U.S. India Artificial Intelligence (USIAI) Initiative.[ix] USIAI has since organised symposiums on AI in healthcare, agriculture, urban development, education, energy, and transportation.[x]

While USIAI has promoted knowledge exchange between relevant stakeholders in the two countries, India and the US should also engage on AI in the context of national and regional security, as envisioned in the NSCAI report. Deeper engagement on this intersection has been slow, likely due to the US’s wariness of India’s relationship with Russia,[xi] although the US’s response to India’s equivocal stance during the Ukraine crisis indicates that this red line may be softening. As Secretary Blinken said following the 2+2 ministerial dialogue in April 2022, “Today we are able and willing to be a partner of choice with India across virtually every realm — commerce, technology, education, and security.”[xii]

Given the expanse of issues that could be covered under AI cooperation, this report recommends focusing on Explainable AI (XAI)—a set of methods that enable users to understand outputs generated by AI models. The US’s Defense Advanced Research Projects Agency (DARPA) has, for instance, already embarked on an XAI project. In India, the Ministry of Defence has forayed into the AI space by establishing the Defence AI Project Agency (DAIPA) under the office of the Secretary (Defence Production). DAIPA, along with the Defence Ministry, will also chair the Defence AI Council (DAIC) to provide policy guidance and structural support for AI adoption.[xiii] While XAI is not a declared part of DAIC’s agenda, it will be a critical piece of policy guidance as the Indian defence establishment begins to mainstream AI applications.

Defence Cooperation

Defence cooperation, a longstanding pillar of India and the US’s strategic partnership, has reached new heights in recent years. For decades, advocates of stronger India-US defence ties met with resistance from sceptical politicians and recalcitrant bureaucrats in both capitals. Over the past few years, however, India-US defence cooperation has exceeded even the more optimistic predictions that were being made a decade ago.

Between 2016 and 2020, India and the US inaugurated a new “2+2” defence and foreign ministers dialogue and signed three key “foundational” military agreements: Logistics Exchange Memorandum of Agreement (LEMOA), Communications Compatibility and Security Agreement (COMCASA), and Basic Exchange and Cooperation Agreement (BECA). They allow for reciprocal provision of logistics support and services; the transfer and use of encrypted communications equipment; and the exchange of geospatial intelligence. In that same period, the two sides also signed a helicopter cross-decking agreement (HOSTAC) and an Industrial Security Annex (ISA) to the General Security of Military Information Agreement (GSOMIA) agreement which allows the US government to share classified data with Indian defence firms.

In 2018, the US granted India Strategic Trade Authorization Tier 1 (STA-1), easing regulations for US high-tech defence and aerospace exports. The two countries have also been collaborating on aircraft carrier technology since 2015, with the US assisting in the design, development, and production of India’s indigenous aircraft carriers.

Meanwhile, India and the US have expanded and upgraded a range of military exercises—from Yudh Abhas (army) to Malabar (navy), Red Flag and Cope India (air force), Tarkash and Vajra Prahar (special forces), and the more recent Tiger Triumph exercise (tri-service). High-level defence and security-related dialogues have also proliferated, including: a Maritime Security Dialogue, Space Dialogue, Homeland Security Dialogue, Cyber Security Dialogue, Strategic Security Dialogue, Joint Working Group on Counterterrorism, and Inter-Agency Task Force to foster defence trade. Meanwhile, India is now stationing a permanent representative with the US Central Command in Bahrain, and the US has been invited to join India’s MILAN naval exercise. Additionally, a liaison officer from the US is also present at the Information Fusion Centre-India Ocean Region (IFC-IOR) in Gurugram, India.

The growth in India-US defence cooperation has also resulted in enhanced operational cooperation. When a crisis erupted at the China–India border in 2020, the Trump administration provided India with two advanced surveillance drones and cold-weather gear for Indian soldiers. Certain prominent US lawmakers and government officials also condemned China’s aggression at the Line of Actual Control.

US arms sales to India have continued, even if they are unlikely to return to the heights reached between 2008 and 2018, when India purchased over US$20 billion in US defence equipment. The last major defence deal was concluded in 2020: an over-US$3 billion sale of 24 Seahawk helicopters for the Indian Navy and six Apache helicopters for the Indian Army.[xiv] Talks are underway regarding the provision of US armed drones to India and future defence deals are likely to materialise as India pursues an ambitious military modernisation programme.[xv]

The US’s defence cooperation and strategic convergence with India now exceeds that of some formal treaty allies. While the heaviest lifting has been done, however, important tasks remain.

Current Imperatives in India-US Defence Cooperation

1. Cut more red tape. In 2016, the Obama administration began to refer to India as a “Major Defense Partner” of the US. While the US has been gradually easing bureaucratic restrictions to allow for greater defence cooperation with India, another requirement is to amend the Arms Export Control Act (AECA). The US Department of State, which has authority over arms-export regulations, must recognise India as a unique partner that deserves special treatment. In particular, the AECA should be amended to include India among a specific group of NATO and non-NATO partners and allies that need preferential treatment alongside Australia, Israel, Japan, New Zealand, and South Korea. Adding India to this category would reduce regulatory burdens on arms exports, including easing congressional notification requirements. In India, while the Modi government has taken positive steps to eliminate bureaucratic red tape, there is more work that needs to be done to encourage the development of the country’s private defence sector, reform inefficient government processes, and ease barriers to investment in the Indian defence sector. These include burdensome restrictions like investment caps, ownership limits, “offset” policies, and a degree of overcautiousness about national security which disincentivise the US and other international investors. Even as the two work to broaden their defence relationship, joint efforts in encouraging their start-ups and innovation ecosystems should complement cooperation in the defence sector.

2. The China challenge. While the India-US partnership involves far broader and deeper issues, among the predominant, shared concerns is China’s increasingly aggressive behaviour, in particular along the disputed China-India border. A border crisis in 2020 resulted in the first casualties from hostilities in over 40 years and the situation remains tense at the time of writing this report, with their armies continuing to be deployed to forward positions at multiple junctions along the border. The Biden administration and the US Congress should publicly condemn China’s aggressive tactics along the border; this would signal the US’s readiness to assist India in the capabilities and intelligence required to defend its territorial integrity. While recent focus remains on the ‘Western Sector’, where Ladakh meets Tibet, reports in 2021 suggest China is enhancing its infrastructure along the LAC in the ‘Eastern Sector’, where Arunachal Pradesh meets Tibet, including building new villages.[xvi] The US should also remind Beijing that it recognises Indian sovereignty over Arunachal Pradesh, where China still claims as much as 90,000 sq km of Indian territory.

3. New exercises. India and the US have been conducting various bilateral and multilateral exercises over the years. The two sides should consider doing a naval exercise in the Indian Ocean, which could be hosted at India’s Andaman and Nicobar Command (ANC). After decades of reticence, the Indian government has gradually grown more comfortable with a US presence on and around its Andaman and Nicobar Islands, which are strategically located near the mouth of the Strait of Malacca. In October 2020, a US P-8 maritime surveillance aircraft was refuelled for the first time at an Indian military base in the Andamans. In the future, the two sides might also consider adding observer nations to the annual Malabar naval exercise, which Australia rejoined in 2020, marking the revival of Malabar as a quadrilateral naval exercise between Australia, India, Japan, and the US.

4. The Defense Technology and Trade Initiative (DTTI). The DTTI was established in 2012 as a “joint endeavor that brings sustained leadership focus to the bilateral defense trade relationship, creates opportunities for U.S.–India co-production and co-development, and fosters more sophisticated science and technology cooperation, all while ensuring that bureaucratic processes and procedures do not stand in the way of…progress.”[xvii] It was envisioned as a way to jump-start the co-production and co-development of defence hardware. Several small-scale projects were identified as pathfinder projects, but none were taken forward to the production phase.

During the Trump administration, the DTTI was reorganised, with its eight functional working groups pared down to five.  In 2019, the two sides identified the potential for future cooperation on unmanned aerial vehicles, lightweight small arms, and aircraft support systems. The Biden and Modi governments are again trying to inject new life into the DTTI, and in July, the two sides announced that they will co-develop air-launched, unmanned aerial vehicles under DTTI. Each side will contribute US$11 million to build the prototype, which will likely take three to four years. It is important for both sides to give the nearly decade-old initiative a win and demonstrate that they can operationalise their desire to co-develop defence platforms.

From Bilateral to Multilateral

India and the US spent much of the Cold War estranged from one another. Even as their ties began warming after the turn of the 21st century under the governments of George W. Bush and Atal Bihari Vajpayee, observers have often remarked that cooperation was getting stronger bilaterally but remained largely absent in the multilateral arena. Notably, India and the US have often found themselves at odds at the United Nations General Assembly (UNGA). According to one account, since the turn of the century, Australia and Japan have voted with the US roughly 80 percent of the time on significant UNGA votes; India, for its part, has voted with the US only 20 percent of the time.

In recent years, however, the India-US strategic partnership has evolved, expanding in scope from the bilateral to the multilateral and embracing a wider range of issues that include: civilian nuclear cooperation and nuclear non-proliferation; infrastructure financing; the production and delivery of COVID-19 vaccines; humanitarian aid and disaster relief; peacekeeping and education; space and cyber security; countering terrorism and extremism; governance of the oceans; and promoting a free and open Indo-Pacific and the rules-based order. 

The two have either joined, or themselves initiated new multilateral dialogues and platforms. They are cooperating in legacy international forums, including the UN Security Council (UNSC) and the G20. India joined the UNSC in January 2021 for a two-year term and assumed the presidency of the Council in August 2021. India and the US might also consider reviving the largely defunct ‘U.S.-India Dialogue on UN and Multilateral Issues’ that first met in 2015 but has lost momentum in recent years.

Since the George W. Bush administration (2001-09), every other succeeding US government has voiced support for India receiving a permanent seat at the UNSC. China is the only member of the Permanent Five that has refused to endorse a permanent seat for India. The reform of the Council remains contentious and is unlikely to see progress in the coming years. China has also opposed India’s bid for membership in the Nuclear Suppliers Group—the international body that monitors and regulates the supply of nuclear fuel; the US supports India in this matter.

India and the US are also involved in various multilateral military exercises, including the Malabar naval exercise that was revived in 2002 after the 9/11 terrorist attacks in the US the year before, the Desert Flag air force exercise, Rim of the Pacific Exercise (RIMPAC), and the Milan naval exercise. They also conduct one-off exercises and “joint sails” with partner nations, such as the India-Japan-US-Philippines joint sail through the South China Sea in 2019. 

Two multilateral strategic dialogues that have gained prominence in recent years is the Quad of India, Australia, Japan, and the US, revived in 2017, and a new India-Israel-UAE-US quadrilateral dialogue, announced in 2021. The arrangements, and others too, such as the India-Japan-US trilateral, underscore India’s intent to move away from its non-aligned past, toward more flexible strategic partnerships with like-minded countries even as it works to maintain its strategic autonomy. These forums also reflect the fact that the world is moving away from military treaty alliances of centuries past, toward more flexible and functional coalitions.

Since its reconstitution in 2017, the Quad has become a crucial format for India and the US to pursue targeted multilateral cooperation with like-minded democracies. In addition to its historical focus on maritime security and promoting a free and open Indo-Pacific, the Quad expanded its agenda in 2021. Following a virtual Quad meeting in March, the leaders of the four democracies met in person in the US in September 2021 for the first-ever Quad summit. The 2021 National Defense Authorization Act includes a plan to train air force pilots from Australia, India, and Japan at Anderson Air Force base in Guam.

Since assuming office in January 2021, the Biden administration has prioritised expanding the Quad’s agenda to include a new COVID-19 Vaccine Partnership, a Climate Working Group, and a Critical and Emerging Technology Working Group. Meanwhile, mid-ranking diplomats and embassy officials from the four democracies now meet periodically.

At the virtual Quad summit in March 2022, the four countries pledged to “join forces to expand safe, affordable, and effective vaccine production and equitable access” and establish a vaccine “expert working group.” The US also committed to “produce at least 1 billion doses of COVID-19 vaccines by the end of 2022.”[xviii] Japan, meanwhile, is in discussions with India to provide concessional loans for the latter to expand manufacturing capacity for export-bound COVID-19 vaccines.

The Quad must remain committed to delivering on its vaccine promises and demonstrate that it can effectively wield soft power and contribute to global public goods. Many countries, including those in Southeast Asia, see this as even more important than the Quad’s contribution to regional security.

Quad members are increasingly aligned in their vision for a Free and Open Indo–Pacific and their concerns about China’s Belt and Road Initiative (BRI) as the dominant regional infrastructure project. Quad countries have already “explored ways to enhance coordination on quality infrastructure based upon international standards such as the G20 Principles for Quality Infrastructure Investment, and discussed strengthening partnerships with existing regional frameworks.”[xix]

Yet, while the four capitals have in recent years launched unilateral, bilateral, and multilateral regional infrastructure initiatives that are running in parallel, there has been no such initiative that is uniquely that of Quad. This needs a remedy, and the four countries must recognise that there is an urgent need for infrastructure investments and a growing appetite among regional capitals for higher-quality, more reliable alternatives to the BRI. An enterprise initially targeted at the island states of the Indian Ocean and Oceania would make strategic sense and can serve as a valuable “test bed” for a project that could eventually be scaled up.

In October 2021, India and the US, along with Israel and the UAE, initiated a new quadrilateral dialogue that some analysts have dubbed the ‘West Asian Quad’. The inaugural video conference among the foreign ministers of the four countries took place while Indian External Affairs Minister S. Jaishankar was visiting Israel and the Indian Air Force was participating in the Israeli-hosted Blue Flag exercise.

The four sides discussed collaboration in COVID-19 relief efforts as well as “expanding economic and political cooperation in the Middle East and Asia, including through trade, combating climate change, energy cooperation, and increasing maritime security.”[xx] The Israeli government highlighted the “possibilities for joint infrastructure projects in the fields of transportation, technology, maritime security, and economics and trade.”[xxi]The group’s focus on technology cooperation carries a unique potential. Given synergies in the innovation and start-up sector, it is logical that this new Quad works towards tech-based collaboration. Such a partnership can leverage Silicon Valley’s venture capital funding; Tel Aviv’s close-knit organic linkages between start-ups, industry, and academia; and UAE’s funding and focus on innovation. To this complementary mix, Bengaluru (and potentially Hyderabad) can add opportunities for scaling up and manufacturing.[xxii]

The meeting was a result of the historic opening in Israel-UAE ties following the signing of the Abraham Accords in September 2020, as well as India’s warming ties with both countries. In 2015, Prime Minister Narendra Modi’s trip to Abu Dhabi was the first visit by an Indian prime minister to the UAE since 1981. Later, in 2017, PM Modi became the first Indian prime minister to ever visit Israel. India and Israel in 2021 signed an agreement to set up a 10-year roadmap in the area of defence cooperation that will make India the largest importer of Israeli defence equipment in recent years.[xxiii] India’s and the US’s commitments in this new quadrilateral forum are expected to complement their bilateral agenda on the eastern flank of the Indo-Pacific through their activities within the Quad mechanism. India and the US, armed with their experience in the Quad, can work with Israel and the UAE in drawing up agendas as well as in establishing working mechanisms to shape the road ahead, especially given that the ‘West Asian Quad’ has progressed slowly since its first conceptual meeting.

Over the past two decades, India and the US have increasingly aligned their bilateral and multilateral agendas to achieve synergy between their individual interests and global goals. The US has proved to be a reliable partner for India to advance its regional and global multilateral interests, including in the United Nations. As the geostrategic landscape continues to change, both India and the US need to further align their strategies in the Indo-Pacific and beyond.

Emerging Concerns in Counterterrorism

Cooperation between India and the US on counterterrorism has seen a steady improvement since the 9/11 terrorist attacks on the United States, and even more after the 2008 attacks in Mumbai by Pakistan-based Lashkar-e-Taiba (LeT). Not only did the two nations work together in the capture and interrogation of two of the planners of the attacks, but the US also placed a bounty on Hafiz Saeed, the leader of LeT.[xxiv] It was a pivotal decision and signalled a shift in the US’s approach to Pakistan-based terrorists who intend to carry out operations in Kashmir. The shift complemented a larger confluence of geopolitical interests between Washington D.C. and New Delhi vis-à-vis the disruptive rise of China, which gave a sense of urgency for the strategic and tactical building of bridges between the two democratic states.

Diplomatic mechanisms such as the US–India Counter Terrorism Joint Working Group and the US–India Designation Dialogues have helped build further confidence between the two.[xxv] These institutionalised efforts have played a crucial role in bridging existing gaps in the geopolitics of countering terrorism between the two states. Those gaps included differences over the fight against the Islamic State (ISIS, or Daesh in Arabic) in Syria, and the 2011 conflict in Libya to dislodge the rule of Muammar al-Gaddafi. India was sceptical of both US-backed initiatives as it did not support any regime change in these states, which was the ultimate aim of these efforts.[xxvi]

India has also historically been unnerved by US support to rival Pakistan, despite Islamabad’s well-known support for various Islamist-jihadists groups that have operated against US and Indian interests. However, this has become less of an irritant in bilateral relations since Pakistan and the US have grown more estranged over Pakistan’s support to the Taliban and other terrorists operating in Afghanistan. Former President Donald Trump famously suspended US aid to Pakistan in 2017 and relations have remained frosty under President Joe Biden; at the time of writing this report, he has yet to speak directly with Pakistani Prime Minister Imran Khan.[xxvii] 

Overall, there remains great potential for India and the US to further collaborate on counterterrorism, particularly in South Asia. The withdrawal of US troops from Afghanistan and the Taliban’s takeover of Kabul in mid-2021 is threatening both countries’ security interests. Not only has India lost its foothold in the country, where it has invested billions of dollars in infrastructure and development programmes, but it also remains concerned about the agenda of the Taliban and allied Pakistani-backed terrorist groups like the Haqqani Network and Lashkar-e-Taiba. 

For the US, the withdrawal of its forces from Afghanistan has resulted in significantly diminished human intelligence-gathering capabilities. The US is also understandably worried that other international terrorist groups will again find a safe haven in Afghanistan and become emboldened by the US’s exit.[xxviii] With both countries lacking better options in Afghanistan, cooperation between the two governments becomes even more imperative.

While India is keen to work with the US to combat the threat posed by the Islamic State in Afghanistan (ISKP), it remains sceptical of suggestions that the US should engage with the Taliban to defeat ISKP. The Taliban has in the past claimed responsibility for attacks in Kashmir and has been vocal about its willingness to work with other anti-India groups in the region.[xxix]

India is also sceptical of ISKP’s ties to Pakistan’s intelligence service, the ISI. While the Taliban and ISKP may have ideological differences, the two groups share organisational linkages to Pakistan’s military complex. The ISKP cadre also boasts several former Tehrik-i-Taliban Pakistan (TTP), Haqqani Network and LeT militants. There also appear to be different factions of the ISKP, some with closer links to the ISI than others. This complex nexus between the groups poses a significant challenge for counterterrorism programmes and operations, given that it suits Pakistan’s interest to portray the Taliban as the “lesser evil” compared to ISKP. Its aim is for the US and the Taliban to work together against a common enemy—a marketable proposition from Islamabad aimed more at the Pentagon than the White House.

Despite these challenges, cooperation has already been initiated. In 2017, the Central Intelligence Agency (CIA) shared information with the Indian security establishment about an Afghan national suspected of planning attacks in India under the ISKP moniker.[xxx] The person in question, Abdul Rahman Al-Logari—an engineering student studying at a private university near New Delhi—was apprehended and handed over to the US in 2016.[xxxi] In August 2021, as the US finalised its exit from Afghanistan, it was Al-Logari who led a brutal terror strike on Kabul airport that killed more than 200 people.[xxxii]

Since October 2001, the US has viewed Pakistan as an important component of its counterterrorism campaign in Afghanistan and a vital supply route into the landlocked country. Despite the obvious support Pakistan was providing to America’s enemies, Washington continued to partner with Islamabad, much to New Delhi’s disappointment. Now that America’s military withdrawal has reduced its dependence on Pakistan for supply routes in Afghanistan, India will look to expand counterterrorism cooperation with the US even further. India is hoping that the US will support Indian and other multilateral efforts to apply pressure on the Pakistani military-intelligence complex to abandon support for terrorist groups.

Beyond the conventional areas in counterterrorism, a joint comprehensive approach to counterterrorism by India and the US should focus on choking financing for the terrorist groups. While India and the US have worked on various aspects of counterterrorism, the bane of terrorist financing in South Asia—Hawala—continues to escape the formal financial system. Therefore, the two sides need to look at how Hawala can be countered. Another potential area of cooperation between India and the US within the area of terrorist financing is closely scrutinising the diversion of charitable donations from West Asia to Pakistan-based terrorist groups.

Among other areas of concern for both countries, the use of cyberspace by terrorist groups continues to remain another concern for propaganda, recruitment, and financing. Moreover, in recent years, the use of encryption technologies like VPN and TOR by terrorist groups in South Asia has added to the headache of the security establishments.[xxxiii] India and the US need to work together through partnerships with tech companies to combat these trends.

Bilateral Trade and Global Value Chains

India and the US have substantial economic ties. For one, the US is India’s largest trading partner, with bilateral trade setting a new record in 2019 at US$146 billion before dipping slightly in 2020 due to the COVID-19 pandemic. They are on-track to break new trade records in 2022.[xxxiv] The US is also the largest source of FDI in India, with US$48.2 billion in cumulative inward investment flows between 2000 and 2021.[xxxv] The depth of the trade and investment relationship not only complements and underscores their strategic partnership but holds the potential to shape the emerging economic architecture in the Indo-Pacific.

As India and the US look towards strengthening GVCs, it is worth examining what has, and is likely to shape the bilateral trade agenda in the near future. There are three determinants worth reviewing:

  1. FDI as a basis for bilateral trade and for integrating GVCs
  2. Facilitating direct investments to drive trade in critical sectors
  3. Incentivising multinational corporations to participate in bilateral trade and each other’s GVCs

First, American FDI into India will be key for integrating Indian companies into GVCs. A 2019 World Bank study concluded that an increase in foreign direct investment often precedes a nation’s integration with global value chains.[xxxvi] Examples of Germany in Western Europe, the United States in North America, and China in East Asia and the Pacific show that FDI hubs and GVC hubs are often congruent. For the US and India, a strategy for trade and global supply chains will be weak without a commensurate plan for investments. It is worth recalling that American firms in China accounted for up to 50 percent of China’s exports, even reaching 75 percent in certain high-tech sectors.[xxxvii] Similarly, foreign capital is estimated to account for two-thirds of Vietnam’s exports.[xxxviii] Without investments from leading firms in the US, or partner firms in Western Europe and East Asia, India’s integration into global value chains, particularly in high-tech sectors will remain a challenge.

Second, facilitating greater direct investments from the US to India can encourage bilateral trade in critical sectors. The US government has taken various steps over the years to support trade with India, particularly in key industries such as nuclear energy (e.g. India-US nuclear deal), natural gas (e.g. exports to non-FTA partners like India), and defence equipment (e.g. India-US Defence Technology and Trade Initiative under which the Project Agreement for Air-Launched Unmanned Aerial Vehicle was signed in November 2021[xxxix]).

More recently, the reconfiguration of US Overseas Private Investment Corporation (OPIC) to US International Development Finance Corporation (DFC) is one such attempt by the US government to provide more support to private enterprises. DFC has committed USD500 million of debt financing in 2021 for First Solar, the largest American solar manufacturer to open a facility in India.[xl] It has earmarked another US$50 million for US-based Biologic E. to expand its vaccine manufacturing footprint in India.[xli]

Government dialogues should connect US firms to investment opportunities in India, and vice-versa. They should also seek to remove regulatory barriers in each country in order to maximise trade and investment.

So far, the idea of American firms diversifying out of China, towards India, has not materialised. Of the few American firms that have diversified out of China, most of them chose Vietnam, with only a select few investing in India. A McKinsey study in 2020 showed how firms in extractive industries, capital-intensive operations, and high-technology sectors have found it difficult to replicate their investments in alternate geographies.[xlii] Only those firms in labour-intensive sectors have considered relocating, and only if the costs and market access incentives are attractive. Many American firms have found it easier to bring elements of their supply chains back to the US. Indeed, in 2019 and 2020, the US was the largest FDI destination in the world, underlining that for multinationals, the US remains the best place for business.

Third, India and the US will have to focus on facilitating multinationals in both nations to collaborate in global value chains. In some sectors, Indian companies have established a formidable presence in global markets. For instance, India’s telecommunications sector is the second largest in the world, while pharmaceutical is the third, auto is the fourth, and chemical is sixth.[xliii] In other sectors such as electronics, engineering goods, capital goods, and agriculture, India attracts less FDI flows, and therefore finds it difficult to compete, trade, or negotiate favourable terms in the global marketplace. However, recent analysis suggests that electronics exports are increasing: India exported USD16 billion worth of electronics exports in 2021, double the level of 2018.[xliv]

Recognising these challenges, the Indian government has launched new efforts to develop 13 “industry champions” and introduced production-linked incentive schemes to promote manufacturing in India with a total outlay of INR 1,97,291 crore (US$ 25.4 billion) in 2021. In some cases, such as medical devices, 21 companies have already been approved to avail the benefit of INR 1,059.33 crore (US$ 136 million) of the total INR 3,420 crore (US$ 441 million) for the sector.[xlv]

In the last few years, the US has taken steps to respond to the geopolitical and economic imperative for securing and redirecting their supply chains away from China. India has benefitted from some of these measures. With an improved business environment and government cooperation, particularly for investments originating from the US, it will be possible to bring about a crucial transformation of supply chains that favour both the Indian and US economies and their strategic interests.

Conclusion

The spectrum of India-US ties continues to expand, and the next decade could witness greater opportunities for the two countries to align their objectives and capabilities. This report has identified five areas that would require particular attention from India and the US: emerging technology and national security; defence cooperation; aligning bilateral with multilateral priorities; counterterrorism; and trade.  Other promising areas are education and outer space.

A targeted focus on these areas is expected to broadly shape the trajectory of India-US relations through the next decade. At the same time, it will require unprecedented coordination not only bilaterally, but also with regional and global stakeholders. Under the ambit of these five specific sectors, it is expected that sub-domains of cooperation will be created for both countries.

For instance, even as threat perceptions change for both India and the US in the Indo-Pacific, emerging tech and national security would have to be increasingly tied by compulsions of regional strategy. Both India and the US will look to the next decade to expand cooperation in the defence sector, as the challenges at the regional and global levels require an enhanced momentum. India-US cooperation in these areas will also provide a framework for the application of combined strategies in the Indo-Pacific region. In the event of a changing threat perception and strategic recalibration of the US in the Eurasian heartland, a heightened, coordinated and cooperative approach will be key to stronger India-US ties through the next decade and beyond.


Dustin Carmack is a Research Fellow for cybersecurity, intelligence, and emerging technologies at The Heritage Foundation.

Akshay Mathur is former Director of ORF, Mumbai.

Harsh V Pant is Vice President for Studies and Foreign Policy at the Observer Research Foundation.

Trisha Ray is Associate Fellow at ORF’s Centre for Security, Strategy and Technology.

Jeff Smith is a Research Fellow for South Asia at The Heritage Foundation.

Kabir Taneja is a Fellow with the Strategic Studies Programme at the Observer Research Foundation.


ENDNOTES

[i] “US India Artificial Intelligence (USIAI) Initiative launched,” Department of Science and Technology, Government of India, https://dst.gov.in/us-india-artificial-intelligence-usiai-initiative-launched

[ii] “U.S.-India Joint Leaders’ Statement: A Partnership for Global Good,” The White House, September 24, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/09/24/u-s-india-joint-leaders-statement-a-partnership-for-global-good/

[iii] “X-Force Threat Intelligence Index 2022”, IBM Security, https://www.ibm.com/downloads/cas/ADLMYLAZ

“CERT-In detects over 14L cyber security incidents in 2021”, Economic Times, March 26, 2022, https://telecom.economictimes.indiatimes.com/news/cert-in-detects-over-14l-cyber-security-incidents-in-2021/90452616

[iv] “Internet Crime Report 2021”, Federal Bureau of Investigation, 2021_IC3Report.pdf

[v] “Taiwan says it faces 5 mn cyberattacks daily: A look at China’s cyber capabilities, what it means for India,” First Post, November 12, 2021, https://www.firstpost.com/india/taiwan-says-it-faces-5-mn-cyberattacks-daily-a-look-at-chinas-cyber-capabilities-what-it-means-for-india-10128621.html

[vi] Michael Novinson, “U.S. Government Blames China For Microsoft Exchange Hack,” CRN, July 19, 2021, https://www.crn.com/news/security/u-s-government-blames-china-for-microsoft-exchange-hack

[vii] “Senior Officers Meeting of India-US Homeland Security Dialogue held today”, Press Information Bureau of India, January 12, 2022, https://pib.gov.in/PressReleasePage.aspx?PRID=1789437.

[viii] “Interim Report and Third Quarter Recommendations”, NATIONAL SECURITY COMMISSION ON ARTIFICIAL INTELLIGENCE, October 2020, https://www.nscai.gov/wp-content/uploads/2021/01/NSCAI-Interim-Report-and-Third-Quarter-Recommendations.pdf

[ix] “US India Artificial Intelligence (USIAI) Initiative launched”, Department of Science and Technology, Government of India, March 2021, https://dst.gov.in/us-india-artificial-intelligence-usiai-initiative-launched.

[x] Indo-U.S. Science and Technology Forum, U.S. - India Artificial Intelligence (USIAI) Initiative, https://usiai.iusstf.org/usiai-activities

[xi] ORF and The Asia Group, “An Agenda for Innovation in the U.S.-India Defence Relationship,” ORF Special Report No. 153, July 2021, Observer Research Foundation, https://orfamerica.org/newresearch/a-five-point-agenda-for-innovation-in-the-us-india-defense-relationship

Meenakshi Ahamed, “America Has Never Really Understood India”, The Atlantic, May 20, 2022, https://www.theatlantic.com/ideas/archive/2022/05/joe-biden-narendra-modi-us-india/629823/

[xii] Prashant Jha, “India and US bridge Ukraine differences”, Mint, April 13, 2022, https://www.livemint.com/news/india/india-and-us-bridge-ukraine-differences-11649793031103.html

[xiii] “TASK FORCE FOR IMPLEMENTATION OF AI “, Press Information Bureau, Marh 28, 2022, https://pib.gov.in/PressReleasePage.aspx?PRID=1810442

[xiv] Dinakar Peri, “India, U.S. sign defence deals worth over $3 billion,” The Hindu, February 25, 2020, https://www.thehindu.com/news/national/india-us-sign-defence-deals-worth-over-3-billion/article30915848.ece

[xv] “Dialogue on India-US deal for 30 Predator armed drones at advanced stage: Reports,” BusinessToday, February 27, 2022, https://www.businesstoday.in/latest/deals/story/dialogue-on-india-us-deal-for-30-predator-armed-drones-at-advanced-stage-reports-324058-2022-02-27

[xvi] “Indian Army says China building infrastructure near Arunachal border,” Business Standard, May 17, 2022, https://www.business-standard.com/article/current-affairs/indian-army-says-it-s-gearing-up-to-match-china-s-infra-at-arunachal-border-122051601091_1.html

[xvii]“Fact Sheet: U.S.-India Defense Relationship”, U.S. Department of Defense, https://dod.defense.gov/Portals/1/Documents/pubs/US-IND-Fact-Sheet.pdf

[xviii]Quad Leaders’ Joint Statement: “The Spirit of the Quad,” The White House, March 12, 2021, https://www.whitehouse.gov/briefing-room/statements-releases/2021/03/12/quad-leaders-joint-statement-the-spirit-of-the-quad/

[xix] “U.S.-Australia-India-Japan Consultations (“The Quad”),” U.S. Department of State, November 04, 2019, https://2017-2021.state.gov/u-s-australia-india-japan-consultations-the-quad-2/index.html

[xx] Ned Price, “Secretary of State Antony J. Blinken’s Meeting with Emirati Foreign Minister Sheikh Abdullah bin Zayed, Indian External Affairs Minister Dr. Subrahmanyam Jaishankar, and Israeli Foreign Minister and Alternate Prime Minister Yair Lapid,” U.S. Department of State, October 18, 2021, https://www.state.gov/secretary-of-state-antony-j-blinkens-meeting-with-emirati-foreign-minister-sheikh-abdullah-bin-zayed-indian-external-affairs-minister-dr-subrahmanyam-jaishankar-and-israeli-foreign-minist/

[xxi] Harinder Mishra and Lalit K. Jha, “Indian EAM S Jaishankar discusses ways to expand economic, political cooperation in Middle East, Asia with counterparts from US, Israel and UAE,” The Economic Times, October 19, 2021, https://economictimes.indiatimes.com/news/india/indian-eam-s-jaishankar-discusses-ways-to-expand-economic-political-cooperation-in-middle-east-asia-with-counterparts-from-us-israel-and-uae/articleshow/87129858.cms?from=mdr

[xxii] Sameer Patil, “A collaborative tech vision for US, UAE, Israel and India,” The Indian Express, November 19, 2021, https://indianexpress.com/article/opinion/columns/tech-vision-for-us-uae-israel-and-india-7628233/

[xxiii] Rahul Singh, “India, Israel to work on 10-year roadmap for defence cooperation” October 29, 2021, Hindustan Times, https://www.hindustantimes.com/india-news/india-israel-to-work-on-10-year-roadmap-for-defence-cooperation-101635521274759.html

[xxiv] Bruce Riedel, “India- US Counterterrorism Cooperation” in “The Modi-Obama Summit: A Leadership for India and the United States”, Brookings Institution, September 2014, https://www.brookings.edu/wp-content/uploads/2016/06/23-india-us-counterterrorism-cooperation-riedel.pdf

[xxv] “Joint Statement on US – India Counter Terrorism Joint Working Group and Designation Dialogue”, US Department of State, October 28, 2021, https://www.state.gov/joint-statement-on-u-s-india-counter-terrorism-joint-working-group-and-designations-dialogue/

[xxvi] Sujay Mehdudia, “India regrets military action against Libya”, The Hindu, March 20, 2011, https://www.thehindu.com/news/national/India-regrets-military-action-against-Libya/article14955278.ece

[xxvii] Kritika Sharma, “First, Pakistan boycotts Biden’s summit. Now, Imran Khan calls for strengthening ties with US”, The Print, December 12, 2021, https://theprint.in/go-to-pakistan/first-pakistan-boycotts-bidens-summit-now-imran-khan-calls-for-strengthening-ties-with-us/780420/

[xxviii] Aaron Y. Zelin, “Return of the Islamic Emirate of Afghanistan: Jihadist State of Play”, The Washington Institute for Near East Policy, August 18, 2021, https://www.washingtoninstitute.org/policy-analysis/return-islamic-emirate-afghanistan-jihadist-state-play

[xxix] “Street hawker shot dead by terrorists in J-K’s Srinagar”, LiveMint, October 5, 2021, https://www.livemint.com/news/india/street-hawker-shot-dead-by-terrorists-in-j-k-s-srinagar-11633450532288.html and Kabir Taneja, “Under the Taliban bonnet: Al Qaeda- ISKP rivalry and its security implications for India”, Observer Research Foundation, October 16, 2021, https://www.orfonline.org/expert-speak/under-the-taliban-bonnet/

[xxx] Arvind Ojha, “R&AW, Delhi Police conducted joint operation with CIA in 2016 to bust ISIS-K camps in Afghanistan: Sources”, India Today, September 18, 2021, https://www.indiatoday.in/india/story/raw-delhi-police-joint-operation-cia-2016-isis-k-camps-afghanistan-sources-1854319-2021-09-18

[xxxi] Eric Schmitt, “US military focusing on ISIS cell behind attack at Kabul airport”, The New York Times, January 1, 2022, https://www.nytimes.com/2022/01/01/us/politics/afghan-war-isis-attack.html?smid=tw-share

[xxxii] Eric Schmitt, “U.S. Military Focusing on ISIS Cell Behind Attack at Kabul Airport,” The New York Times, January 01, 2022, https://www.nytimes.com/2022/01/01/us/politics/afghan-war-isis-attack.html

[xxxiii] Nikita Malik, “Terror in the Dark,” The Henry Jackson Society, 2018, https://henryjacksonsociety.org/wp-content/uploads/2018/04/Terror-in-the-Dark.pdf

[xxxiv] Ministry of Commerce, Government of India, Export - Import Data Bank, Apr to Nov 2021,

[xxxv]Department for Promotion of Investment and Internal Trade, Goverment of India https://dpiit.gov.in/sites/default/files/FDI_Factsheet_Spetember-21.pdf

[xxxvi] Qiang, Christine Zhenwei; Liu, Yan; and Steenbergen, Victor,  An Investment Perspective on Global Value Chains. (Washington, DC: World Bank, 2021) https://openknowledge.worldbank.org/handle/10986/35526

[xxxvii] Domenico Lombardi and Hongying Wang, ed., Enter the Dragon: China in the International Financial System  (Centre for International Governance Innovation, 2015)

[xxxviii] Qiang et al, An Investment Perspective on Global Value Chains

[xxxix] Ministry of Defence, Government of India, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1770443

[xl] U.S. International Development Finance Corporation, https://www.dfc.gov/media/press-releases/dfc-announces-approval-provide-500-million-debt-financing-first-solars

[xli] U.S. International Development Finance Corporation, https://www.dfc.gov/media/press-releases/dfc-and-biological-e-limited-finalize-financing-arrangement-expand-covid-19

[xlii] Susan Lund et al., Risk, resilience, and rebalancing in global value chains (McKinsey Global Institute, 2020) https://www.mckinsey.com/business-functions/operations/our-insights/risk-resilience-and-rebalancing-in-global-value-chains

[xliii]KPMG India, Supply Chains Post COVID-19, (KPMG Presentation, November 2020 https://assets.kpmg/content/dam/kpmg/in/pdf/2020/11/supply-chains-post-covid-19.pdf

[xliv] Neelkanth Mishra, “Good news before budget”, Times of India, January 30, 2022 https://tessellatum.in/?p=405

[xlv] Ministry of Commerce and Industry, Government of India, https://www.pib.gov.in/PressReleasePage.aspx?PRID=1710134