Recent Indian E-commerce Diktat Last Straw For Trump, Cancels $5.6 Billion In Trade Concessions

IT likely to be impacted by US vs. China trade wars The latest batch of tariffs from President Trump's trade war on China is likely going to affect the IT sector.

If you're ever in India, it's hard to evade the ubiquitous mug of India Prime Minister Narendar Modi beaming down at you from pretty much any elevated vantage point: Billboards, check-in screens at airports, or moving buses. 

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While this isn't anything new in the India over the past five years, Modi's need to be 'top of mind' may become a little more urgent considering that US President Donald Trump just a few days ago revoked a preferential trade agreement between the two countries worth $5.6 billion. The move will ultimately impact manufacturers of things like auto spare parts and casings for wires that are too low on the value chain for US manufacturers to bother making stateside.

There's a recent history to this decision. In December, the Hindu nationalist Modi government decided to force, almost overnight, the adoption of restrictive e-commerce rules for foreign players that were updated in 2016 but not enforced. The government also insisted that payments firms such as Visa and MasterCard house their data on domestic servers or suffer market-access-related consequences. 

President Trump clearly decided that he had had enough. His action brings to an end trade concessions enshrined in the Generalized System of Preferences (GSP) program that had allowed Indian goods worth $5.6 billion a duty-free entry into the US. In a letter to Congress, Trump declared that he was doing so "because, after intensive engagement between the US and the government of India, I have determined that India has not assured the US that it will provide equitable and reasonable access to the markets of India." India has been the largest beneficiary of this program to date.

For its part, India responded by observing through its trade official Anup Wadhawan that the actual benefit of the program was only $250 million a year and therefore not such a big blow to the country after all.

Clipping the wings of e-commerce companies like Walmart's Flipkart and Amazon by capping their equity stake in suppliers as well as limiting their procurement of goods from any one e-commerce entity to under 25 percent of the total were collectively the last straw that upended an otherwise amiable relationship between the two countries. But there were also other incidents that had previously piqued the Trump presidency.

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India's tariffs, especially on imported electronic products, smartphones, and motorcycles in wake of its 'Make in India' program was one. "India is a very high tariff nation. They charge us a lot," Trump said. "When we send a motorcycle to India, it's a 100 percent tariff. They charge 100 percent. When India sends a motorcycle to us, we brilliantly charge them nothing," he added.

But the thing that really got the US President's goat was the country's price cap on two kinds of medical devices, namely knee implants and cardiac stents, which are both treated as 'essential medicines' in India. The US has long desired these caps to be lifted so they can profit enormously from the gigantic market that India offers.

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So, where does this leave India and Modi? In a normal world, the $5.6 billion may not be such a mortal blow for India. After all, the goods trade surplus with the US was a healthy $22.9 billion in 2017. However, employment growth, especially in manufacturing, has remained flat or declined although the government is trying to contest this. The country is still suffering from Modi's impulsive and poorly executed regeneration of currency notes. There is a lot of debate as to whether the newly introduced GST tax regime has been good for the country. And exports, shockingly, have been largely flat over Modi's tenure in real terms.  With close to 12 million youth joining the work force every year, this is not the kind of record that a relentlessly self-promoting Prime Minister who offered himself up as a saviour of the Indian economy needs.

In other words, while the scuppered trade concessions may not be an economic disaster for India, the optics of it may have come at a pretty bad time for a leader who is about to go the polls and already has the albatrosses of communal conflagration, inept economic policy making, and a non-victory in a military skirmish with its arch rival next door around his neck.

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