MAINS Current Affairs includes India–US Strategic Partnership and Global Influence & India at a “1991 Moment”: The Need for Structural Economic Reforms

INTERNATIONAL

1. India–US Strategic Partnership and Global Influence

Context: Marco Rubio arrived in India on his first official visit as the US Secretary of State.

About the Visit

• During the initial phase of his visit, Marco Rubio held high-level meetings with the Prime Minister and External Affairs Minister of India. He is also expected to participate in the Quad Foreign Ministers’ Meeting scheduled in New Delhi.
• The visit comes amid speculation about tensions in India–US relations. However, the United States clarified that there was no requirement to “restore” ties, as the partnership between the two nations already remains strong and stable.

Overview of India–US Bilateral Relations

• Since India’s independence, relations between India and the United States have experienced phases of mistrust, especially during the Cold War and over India’s nuclear programme. In recent decades, however, cooperation has expanded significantly across economic, political, strategic, and technological sectors.

Key Areas of Cooperation

Bilateral Trade

• India and the US have launched “Mission 500,” aiming to increase bilateral trade to $500 billion by 2030.
• Trade between the two countries grew by nearly 72% between 2017–18 and 2022–23. The United States is currently India’s largest trading partner, followed by China.

Defence and Security Cooperation

• India and the US have signed three major foundational defence agreements:
• Logistics Exchange Memorandum of Agreement (LEMOA) – 2016,
• Communications Compatibility and Security Agreement (COMCASA) – 2018,
• Basic Exchange and Cooperation Agreement (BECA) – 2020.
• In 2016, the United States designated India as a “Major Defense Partner.”

Space Cooperation

• India signed the Artemis Accords, establishing a shared vision for peaceful and cooperative space exploration for humanity’s benefit.

Multilateral Cooperation

• India and the US cooperate closely in international institutions such as:
• the United Nations,
• G20,
• International Monetary Fund,
• World Bank,
• World Trade Organization.
• Together with Australia and Japan, both countries also participate in the Quad to promote a free and open Indo-Pacific region.

Nuclear Cooperation

• The India–US Civil Nuclear Deal was signed in 2005. Under this agreement:
• India agreed to separate civilian and military nuclear facilities and place civilian facilities under safeguards of the International Atomic Energy Agency,
• the US committed to enabling full civilian nuclear cooperation with India.

New Strategic Initiatives

• Several recent initiatives have further strengthened ties, including:
• the GE-HAL agreement for manufacturing jet engines in India,
• the Initiative on Critical and Emerging Technology (iCET), aimed at deepening technological cooperation between the two countries.

Areas of Concern in India–US Relations

Trade and Economic Disagreements

• Differences persist over:
• tariffs,
• market access,
• agriculture,
• dairy products,
• medical devices,
• digital services.
• The US has frequently criticised India’s protectionist policies and high import duties on some goods.

India’s Strategic Autonomy and Russia Ties

• India’s long-standing strategic partnership with Russia remains a sensitive issue for the US.
• India’s purchase of the S-400 air defence system raised concerns under the US CAATSA law. While the US expects stronger alignment against Russia, India continues to follow a policy of strategic autonomy and multi-alignment.

Divergence on Global Geopolitical Issues

• India has often adopted a balanced position on global conflicts, including the Russia–Ukraine war.
• Differences also occasionally emerge regarding:
• West Asia policy,
• sanctions on Iran,
• energy security concerns.
• India prioritises independent decision-making, whereas the US often favours alliance-based coordination.

Immigration and Visa Issues

• Stricter H-1B visa rules affect Indian IT professionals.
• Visa processing delays also impact:
• students,
• workers,
• Frequent changes in US immigration policies create uncertainty for the Indian diaspora and technology sector.

Defence Technology Transfer Issues

• India has concerns regarding:
• restrictions on transfer of advanced defence technologies,
• reliability of long-term military supplies during geopolitical crises.

Concerns Related to Pakistan

• Although US–Pakistan relations have weakened compared to earlier decades, India remains cautious regarding continued US military assistance to Pakistan.

Uncertainty in US Foreign Policy

• Frequent shifts in American foreign policy, including changes in trade measures, sanctions, and international agreements, create uncertainty for India’s strategic planning.

Conclusion

• India–US relations are characterised by both deep cooperation and continuing differences.
• While the partnership has expanded significantly in:
• defence,
• technology,
• trade,
• Indo-Pacific cooperation,
• certain challenges continue due to differing strategic priorities, economic interests, and geopolitical approaches.
• Sustained dialogue, institutional cooperation, and mutual respect for each other’s strategic concerns will remain essential for maintaining long-term stability and growth in bilateral relations.

INDIAN ECONOMY

2. India at a “1991 Moment”: The Need for Structural Economic Reforms

Context: Rising global energy prices, pressure on the Indian rupee, widening fiscal deficits, increasing subsidy burdens, and slowing economic growth have revived discussions about the need for major structural economic reforms similar to those introduced in 1991.

Why is India Experiencing Economic Pressure?

Rising Global Energy Prices

• The ongoing crisis in West Asia has led to a sharp increase in international crude oil and fertiliser prices.
• Higher import costs are putting pressure on India’s:
• trade balance,
• current account deficit,
• overall macroeconomic stability.
• Increasing energy prices are also raising transportation and production costs across multiple sectors of the economy.

Depreciation of the Indian Rupee

• The Indian rupee has continued to weaken against the US dollar, touching record lows of nearly ₹96.9–97 due to external uncertainties and capital outflows.
• A weaker rupee makes imports such as:
• crude oil,
• fertilisers,
• essential commodities
• more expensive, thereby worsening inflationary pressures.

Weak Investment Sentiment

• Foreign Portfolio Investors (FPIs) are withdrawing funds because of global uncertainty and increased risk aversion.
• Domestic investors are also adopting a cautious approach due to:
• rising inflation,
• slowing economic growth,
• uncertain market conditions.

Inflationary Pressures

• Increasing prices of fuel, food, and fertilisers are adding to inflation in the economy.
• If inflation exceeds the tolerance range of the Reserve Bank of India (RBI), the central bank may be compelled to raise repo rates. Higher interest rates increase borrowing costs for businesses and consumers, which may further slow economic activity.

Climate-Related Concerns

• Forecasts of a strong El Niño have raised fears of inadequate rainfall and reduced agricultural productivity.
• Weak agricultural output could:
• lower rural incomes,
• increase food inflation,
• negatively affect overall economic demand.

Why are Subsidies Becoming a Major Issue?

Rising Fertiliser Subsidy Burden

• India imports nearly one-fourth of its urea requirement from international markets. Imported urea is sold to farmers at highly subsidised prices, creating a large fiscal burden on the government.
• Heavy subsidies on urea also encourage:
• diversion of fertilisers,
• black marketing,
• inefficient usage patterns.

Imbalanced Fertiliser Use

• Excessive subsidy on urea promotes overuse of nitrogen-based fertilisers. This imbalance adversely affects:
• soil fertility,
• agricultural productivity,
• long-term sustainability.

Increasing Food Subsidy Expenditure

• The government continues to provide free or highly subsidised foodgrains to more than 800 million people under food security programmes.
• Large food subsidy spending reduces the government’s fiscal space for:
• infrastructure investment,
• healthcare,
• education,
• employment generation.

Reforms Required for Economic Stability

Fertiliser Subsidy Reforms

• The government can move toward Direct Benefit Transfer (DBT) of fertiliser subsidies directly to farmers.
• Subsidies may also be:
• linked to landholding size,
• integrated with the PM-Kisan database.
• Additionally, urea can be brought under the Nutrient-Based Subsidy (NBS) scheme to encourage balanced fertiliser consumption.

Food Subsidy Reforms

• The number of beneficiaries under food security programmes can be rationalised to ensure benefits reach genuinely vulnerable groups.
• Better targeting can reduce unnecessary fiscal pressure while protecting the poor.

Fiscal Consolidation

• Rationalisation of subsidies can help:
• reduce fiscal deficits,
• improve macroeconomic stability,
• restore investor confidence.
• Savings generated through reforms can be redirected toward:
• infrastructure development,
• healthcare,
• education,
• employment creation.

Challenges in Implementing Reforms

Political Resistance

• Subsidies and welfare programmes are politically sensitive. Any effort to reduce or rationalise subsidies may face opposition from:
• political groups,
• farmers’ organisations,
• various interest groups.

Social Concerns

• Sudden withdrawal of subsidies could increase hardship for poor and marginalised households. Therefore, reforms must be implemented gradually and carefully.

Administrative Difficulties

• DBT-based reforms require:
• accurate land records,
• reliable beneficiary databases,
• strong digital infrastructure.
• Tenant farmers and informal cultivators may be excluded if reforms are not designed inclusively.

Conclusion

• India’s current economic challenges underline the need to balance welfare objectives with long-term fiscal sustainability.
• Structural reforms in:
• subsidy systems,
• fiscal management,
• resource allocation
• can strengthen economic resilience and improve investor confidence.
• However, such reforms must be implemented cautiously to protect vulnerable populations while ensuring durable macroeconomic stability and sustainable growth.

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