Modi-Biden summit: Key drivers of cooperation

Indian Prime Minister Narendra Modi made a state visit to the United States from June 21-23 at the invitation of US President Joe Biden. The summit has been organized at the initiation of both countries' national security councils.

Respective domestic messaging by both governments has focused on increasingly common strategic objectives — and the potential benefits that both countries can derive from deepening ties — while sidestepping areas of divergence, including some opposition from within the US Congress towards hosting Modi.

At least until India holds parliamentary elections and the US holds presidential elections, both in 2024, areas of mutual interest will be the primary drivers of bilateral cooperation. It is very likely that the administrations of both Biden and Modi will identify notable overlaps in their strategies to counterbalance mainland China's role, particularly in the Indo-Pacific, including through increased security cooperation, development financing and reorienting semiconductor supply chains.

Areas of divergence

The main areas of divergence include an alleged weakening of Indian democracy under the Modi government, as claimed by some members of the US Congress — claims that the Indian government denies, and regards as external interference — and the Indian government's reluctance to condemn Russia for its invasion of Ukraine, which India explains as part of its foreign policy platform of "strategic autonomy."

These issues, however, are unlikely to materially impact increasing levels of bilateral cooperation on mutual interest areas. For instance, the US will very likely continue its policy to not exert diplomatic pressure and/or punitive measures against India to reduce its oil imports from Russia, while India continues oil trade under the G7 price cap. Points of policy divergence will be more apparent in in multilateral forums like the Conference of Parties (COP), the World Trade Organization (WTO) and the United Nations Security Council (UNSC), where India's agenda especially is focused on increasing representation of emerging economies and limiting the role of advanced economies, including the US.

Military interoperability

The US government completed executive approvals for General Electric to manufacture F414 jet engines in India for Hindustan Aeronautics Limited's development of indigenous light and medium combat aircraft. The deal is the first instance of defense transfer of technology (ToT) from the US to a country with which it does not have a defense treaty. The Biden administration will need Congressional acquiescence for the ToT, with approval likely within the year. Defense procurement in India requires substantial bureaucratic approvals that are likely to delay project initiation, but this is unlikely to imply indefinite delays given the extent of political impetus.

The Indian government has expressed intent to transition its defense systems away from Soviet systems, including due to delivery delays following the Russia-Ukraine war. In addition, a combination of the US facilitating domestic manufacturing and ToT is a conducive consideration, underscoring that further defense cooperation is more likely if the US pursues a similar policy for co-development of Stryker armored fighting vehicles, long-range artillery and high-altitude long-endurance unmanned aerial vehicles. In 2022, India and the US held a multitude of joint military exercises with one another— and these will continue with an aim to facilitate military interoperability. The increasing defense and security cooperation is unlikely to influence a shift in Indian opposition to any defense arrangement requiring India to participate in potential US military operations.

Investments into strategic sectors

The cabinet of the Indian government on June 21 approved a US$2.7 billion agreement for US-based Micron to build a semiconductor testing and packaging plant in India, with pre-approved production-linked incentives of about US$1.34 billion. Besides commercial viability, the proposed project represents political alignment between India and the US to reorient semiconductor supply chains away from mainland China.

With tacit US government support, marquee US investment commitments in strategic Indian sectors such as automobiles, renewable energy and smartphone manufacturing are likely as a consequence of the Modi-Biden summit. Implementation will vary — with a risk of project delays or cancellation and trade union strikes — depending on the Indian state where the investment is targeted, and the specific state government's political relationship with the Modi government. As both central and state governments can legislate on "land acquisition" and "labor," the differentiated reform landscape will likely facilitate some projects more easily over others.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.