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Indo-US defense deal may aid Obama's job plan

By Binod Singh (chinadaily.com.cn)
Updated: 2010-10-25 10:46

Every time an American president visits South Asia it smells of a grand design. US President Obama's scheduled visit to India in November is also suited in the same tradition. His visit is designed to address America's foreign policy interests and also its domestic concerns, where they are losing jobs and the legitimacy of the ruling party is under question. It is also taking place at a crucial juncture, when the US is on the verge of losing its longest-ever war in history, i.e., the war in Afghanistan.

Obama is visiting India when there is a rethinking going on among Americans about the credibility of Obama's domestic economic restructuring and foreign policy. When Obama took office in 2009, it was already clear that the economic upheavals that characterized 2008—and showed few signs of abating—would pose one of the great challenges to his administration. Now the "Tea Party" supporters are at an all-time high against Obama and his party. His stimulus plan has failed, and the US economy isn't recovering fast enough to create more jobs, and the trade deficit with China is still at an all-time high. As Beijing has been unrelenting on the reevaluation of the yuan, Obama advisors are naturally looking toward India, "the second fastest-growing liberal market economy" in the world.

What does Obama expect from India during his coming trip? If economics may be a marriage of convenience, as the two countries need each other, then we can expect a bunch of deals to be signed between the two countries. At the top of the agenda will be a defense deal. After concluding a $60 billion defense deal with Saudi Arabia, team Obama is expected to sign a defense deal worth more than $3.5 billion with New Delhi, which is supposed to generate 35,000 new jobs back home. United States is all set to revive its defense industry and then go for an aggressive export of arms and ammunitions around the world. Defense deals are on Obama's agenda because in order to maintain its global leadership, USA is left with no other alternatives.

India and the US may also enter into some type of financial cooperation as the two countries are market-based economies. The signal was clear when earlier this year the governor of Indian Reserve Bank openly endorsed the war against the RMB along with USA and Japan. It is perceived by some economists that a reduction in the yuan will be a gain for the rupee. But the export data does not justify this perception as Chinese exports have been growing at a comfortable rate. But monetary policy makers in India will take extra precautions not to give any further signal of launching a currency war on China.

What India expects from Obama's visit is not very clear as of now. For more than a decade the US has been the largest export market for Indian IT-enabled services. Now the ban on outsourcing of business by the state of Ohio and other protectionist actions are causing major concern in the Indo-US lobby groups. H-1B visas for Indian software engineers has been cut down to a new low, and the IT lobby in India will try to push this onto the list of top concerns of the Indian side. The government of India earns about $60 billion from exports of IT products and services. Hence, New Delhi has no choice but to show some gesture for continued economic engagement between the two economies.

But why India has chosen this time for the deal is no longer a mystery. The country is trying to renew its defense system in order to match the rising power of its largest neighbor. Traditionally, Russia has been the largest defense equipment supplier to India (it made up 70 percent of Indian defense imports in 2009) but now it seems US is poaching on its market share.

South Asia may be a lost cause when we judge from the spectacles of human development indicators. But its importance in maintaining the geopolitical balance has never gone down. On one hand, the region is one of the poorest in the world, but on the other hand, it continues investing a huge amount of its national wealth in arms imports.

President Obama is expected to convince India of being natural allies on many issues, as the two are the oldest and the largest democracies, respectively. Recently, India was elected a non-permanent member of the United Nations Security Council (UNSC) after a gap of 20 years with a record number of votes. If this prompts the Obama administration to declare US support for a permanent UNSC seat for India, he may win the hearts of the majority of Indians. But New Delhi will still be cautious about forming a strategic alliance with the US or accept any bigger American role in the region except in some technological cooperation and trade deals.

As far as China is concerned, the country's policy toward the region has seen a major shift in the last decade. It has become assertive in the region and has emerged as the major source of development aid for countries such as Pakistan, Bangladesh and Sri Lanka. China is helping South Asian countries to upgrade their infrastructure and economic development. China is creating a rail network connecting Myanmar, Bangladesh, Nepal and Pakistan. Although it is supposed to play a constructive role in the region, it has been alleged to encroach on what is referred to as "India's sphere of influence". Therefore the Mandarins in Beijing as well as South Asian think tanks are expected to follow closely Obama's sojourn to South Asia.

The US may wish China to limit its role to economic development in the region. But in the last decade China has raised its stakes to such an extent that it will have a major role in maintaining the regional balance of power. It will not be bullied by US pressure, as one American blogger rightly said about the Chinese foreign policy-making mantra: "Ni yao ni shuo (You say what you want), Wo yao wo zuo (I do what I want)." However, New Delhi will fight tooth and nail both Chinese and American influence in the region.

The writer is a PhD scholar at Peking University and teaches at Beijing Foreign Studies University. He can be contacted at binod@126.com