Narendra Modi: Trade deficit can’t be a determinant of Indo-US relations, says top think-tank


Prime Minister Modi and President Trump have begun the year on a right note to take the Indo-US relations to a higher level but with a pinch of salt, according to leading Indian think-tank CUTS international working in the area of international trade including Indo-US trade.

“Trade deficit cannot be a determinant of this relationship”, said Pradeep S. Mehta, Secretary General of CUTS International.

“Too much of emphasis on bilateral trade deficit can spoil the game. Our relationship should focus on bilateral and plurilateral cooperation in the Indo-Pacific region in areas such as infrastructure development, maritime security. That will help India to achieve the objectives of its Act East Policy and for the US those of its recently enacted Asia Reassurance Initiative Act. Raising our bilateral trade volume to US$500bn by 2025 should be one of the most important pillars to achieve these objectives,” Mehta added.

According to a CUTS research conducted last year, the US trade deficit with India was not as large as it appeared. “In 2016, in terms of goods trade, the US trade deficit with India was US$22bn – a mere 2.7 per cent of total US trade deficit of US$798bn with the world that year. However, trade deficit has to be seen in a scientific manner. In 2011 – as per the latest data of OECD-WTO Trade in Value Added database – in value added term, this deficit was only US$4.8bn, which was less than one-third of its trade deficit with India in that year in terms of gross value of trade.” (

According to another research by Robert Lawrence of the Washington-based Peterson Institute for International Economics (Five Reasons Why the Focus on Trade Deficit is Misleading): “More than 60 per cent of United States merchandise imports are capital goods or components and parts rather than finished goods. The current perspective of the Trump Administration on trade deficit is fundamentally flawed as it fails to recognise the reality of value chain led trade in which imports are critical for the growth of exports.”

“Trade (current account) deficit has to be looked at along with capital account surplus because at the end of the day the balance of payments account must offset each other. A manageable and sustainable current account deficit helps countries to attract foreign capital. This is what is happening in India as well as in the United States and many other countries,” added Bipul Chatterjee, Executive Director of CUTS International.

CUTS is a leading think- and action-tank on trade and regulatory issues, having its presence in Washington DC, among other global capitals. Mehta is also a member of the Government of India’s Board of Trade.

CUTS argues that the underlying logic to this bilateral trade relationship goes beyond what is reflected in gross trade figures. The United States must consider that its efforts to improve the power equilibrium in the Indo-Pacific region as well as to shape a new global economic and political order cannot be fulfilled without a significant role for India.

Similarly, India should also recognise that its economy stands at a potentially transformative threshold and requires the United States as a trusted partner, which is an important source of capital, a host of skilled workforce, a source of technology and strategic support, and a growing market.


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