Galbraith was sympathetic to India and, as portrayed in his autobiography, tried to be accommodating to the country in the difficult days of early sixties, including the time when the Sino-Indian war broke out over the high Himalayas.

The mutual suspicion and reservations have been replaced today as US recognises that India is the rising regional power in Asia, and if US has to succeed in its Asia-pacific engagements in the 21st century, a friendly India is a sine qua non in the presence of the increasingly assertive Chinese projections.

To be sure, India’s relations with the US are multi-layered. Even if economic relations are at the heart of it, defence co-operation and mutual strategic fit are essential components of the relations.

Looking at the brass tacks of economic relations, the last round of talks between US treasury secretary, Timothy Geithner, and US Federation Reserve chairman, Ben Bernanke, with their counterparts here, had moved the game further. For sure, this was a kind of recognition of India’s punch power by the US in economic and financial matters. This was the first time that the chairman of US Fed, the central banker of world’s largest economy, had come to India to hold discussions with this counterpart, the governor of the Reserve Bank of India, Dhuvvuri Subbarao.

In the days when the west accounted for the world’s economic and financial power, the US Fed chairman used to hold confabulations with only select central bankers. FED chairman would host the governor of the Bank of England, the president of France’s central bank, the president of the Bundesbank, the German central Bank and occasionally the head of Italy’s central bank.

The change in the economic balance of power was indicated when the FED chairman had started consulting the head of Bank of China. That India had arrived at the global high table was recognised when the visiting Fed chairman began his public statement after the RBI chief by stating that India had become an increasingly important player on the G20 stage. Yes, indeed, India’s recommendations for the global economy in the aftermath of the financial meltdown in 2008 had been one of the most critical ones.

Three major issues had dominated the Indo-US talks on economic co-operation. From the Indian side, the implications of the Fed’s latest policy move of easing liquidity through what is known as its QE3, were discussed. In the light of sluggish recovery and slow growth rate of the US economy, the Fed had decided to inject fresh liquidity into the system by continuing with its policy of purchase of US long-dated securities — thus pumping in more money into the economy — which is now known as the QE3. It has also announced that the Fed will continue with its policy of low interest rate till 2014, thereby nullifying market speculations about interest rates regimes.

India had pointed out that these domestic monetary policy moves could have global implications as the continued relaxed monetary policy and infusion of liquidity is driving some funds into commodities. This development is pushing up commodity prices globally and India is getting affected through imported high commodity prices. Finance Minister, P. Chidambaram, had articulated India’s fears of global inflation and its impact on emerging economies in course of his interactions with visiting US treasury secretary, Tim Geithner. In fact, the USW had faced this criticism of its monetary policy earlier as well. Though currently US had little option in following any other course of action without seriously hurting its domestic growth prospects, the contradictions are inherent for a country that is the source of a global reserve currency. US faces this conflict between its own domestic monetary policy and its global impact.

From US point of view, the visiting policy mangers underlined the need for co-operation in deepening capital markets and strengthening financial regulations. Here as well, the interests do not always converge and there are areas of different perceptions. US had often asked for greater opening up of India’s financial markets, while India has approached with greater caution. Indeed, more regulated financial products markets had insulated Indian banks and financial entities from contagion from toxic assets in course of the run-up to the meltdown. One area of common interest in this sphere is, however, the closer co-operation and synchronisation of financial regulation for prevention of money laundering and terror funding.

The Americans had also appreciated India’s recent reforms burst. The further liberalisation of scope for foreign direct investment in insurance, aviation and retail trade and domestic reform measures for containing fiscal deficit had naturally attracted attention. What is in India’s interest is to get funds for investment in the country’s infrastructure. Some of the latest studies indicate that infrastructure alone will call for investment to the tune of $1.5 trillion in course of the 12th Plan period. India is already seeing a steep fall in investment ratio. The Prime Minister’s Economic Advisory Council had referred to the slide in investment from around 37-38 per cent of GDP to currently about 31-32 per cent of GDP. Larger American investments could be useful for India in this respect. More important than trade, what is in India’s inherent interest is to hammer out an investment agreement for attracting more funds keeping in place Indian priorities.

Admittedly, and being realistic, India must recognise that the erstwhile “India Story” is fizzling out very fast. India is no longer one of the most desired global investment destination in view of the negative stories about the country being slow, prodding and once again irritably business unfriendly. It takes ages to enforce contracts, clearances are help up, political interferences are omnipresent. These are not exactly features that would endear India to an investor. In fact, India has to embark on what is known as a fresh road show after amending some of these domestic hurdles, before attracting the large-scale investment that we require. Not even Indian industrialists are putting their money here, let alone global or American investors.

The India-US dialogue had to be viewed against the global backdrop of the worst continuing crisis since the 1930s. The European situation is still uncertain and the solvency of a series of European countries is in doubt. Any precipitous developments in the global financial markets can once again lead to a financial freeze up. This is a real threat. The future of the common currency could also become a source of instability. China, which has emerged as a major driver, is also slowing down and its latest growth count has come down to 7.4 per cent in the latest quarter against over 9 per cent in the corresponding period last year.

The criticality of Indo-US economic co-operation has to be viewed against this broad global background of deep uncertainty. If one superimposes the evolving strategic re-balancing in the world, India and US become the big balancing factors for stability. The global strategic order is undergoing a seismic change as China projects itself more and more aggressively on the global scene. The skirmishes in South China Seas, Chinese navy’s numerous incursions into the Indian Ocean, its policy of economically encircling India with bases in regional countries are all indications of future points of conflicts. India needs to cultivate its links — both economic and strategic — right away and the current contacts are only small little building blocks for an overall picture.

The similarity of policy approaches in the financial sector between India and the USA stands in contrast with the divergence in views on the possibility of investment in the nuclear power industry by the US companies in India. The discussions between the US companies and the Indian firms on the possibility of collaboration for the setting up of nuclear power plants in India have slowed down in the wake of the Indian parliament passing the Nuclear Liability Law in 2010. The US has taken the position that American nuclear energy is run by the private sector and these companies with their boards of directors look at what liabilities they would accept in taking a deal and the present Indian legislation is not favourable to them. US officials have also explained to the Indian side that the nuclear energy investments are huge and unless, the liability clause is made more savvy for the investors, there will be little investment from the US side. However, informal and formal negotiations are still on but the Indian Government as of now has found no way to meet the demands of the US companies in view of the strict vigil by the opposition over the Nuclear Liability Act and the anti-nuclear power plant movement in the country. (IPA Service)