2024 Lok Sabha Elections and U.S.-India Economic Ties

A senior colleague in the state legislature of Virginia once said, “Never confuse getting elected to office with actually serving.” Thus, campaign rhetoric should always be taken with a proverbial grain of salt. Nevertheless, campaigns and elections do have consequences. Since economic ties are among the strongest forces binding the United States and India together, it is important to discern the possible impacts of the 2024 general lower-house (Lok Sabha) elections on U.S.-India economic engagement. The countries’ stances on protectionism and China will be key defining factors.

Protectionism in India

In India, as in the United States, political tides are running strongly in favor of protectionism. A staple of Prime Minister Narendra Modi’s campaign speeches is his Atmanirbhar Bharat (“Self-Reliant India”) plan. This plan, along with Modi’s “Make in India” plan, plays to India’s ambition to be a manufacturing hub displacing rival China. The election opposition parties—when not infighting—echo the calls to protect Indian jobs.

Of course, protectionism is nothing new for India. Both tariff and non-tariff barriers have long been a mainstay of Indian politics and policy. As a report by the Office of the U.S. Trade Representative recently pointed out, “India’s average Most-Favored-Nation (MFN) applied tariff rate was 18.3 percent in 2021 (latest data available), which was the highest of any major world economy, with an average applied tariff rate of 14.9 percent for non-agricultural goods and 39.2 percent for agricultural goods.”

U.S.-India Economic Engagement

However, underneath the rhetoric, the Modi government is exhibiting a willingness to economically engage other nations. Remarkably for an election year, this year’s budget did not have the politically motivated laundry list of tariff increases that has been common in the past. Although India continues to sit out the trade pillar of the U.S.-sponsored Indo-Pacific Economic Framework for Prosperity, it resolved all of its remaining World Trade Organization disputes with the United States in 2023. Additionally, India recently signed a Trade and Economic Partnership Agreement with four non-EU European countries and has been negotiating a free trade agreement with the United Kingdom. This augurs well for the United States and India to resume the search for economic cooperation after the elections in both countries.

Among policymakers in India, there is a strong recognition of the importance of U.S.-India trade and investment. In 2022, the United States replaced China as India’s most important trade partner. This trade relationship strongly favors India, with Indian exports outranking Indian imports from the United States by a margin of two to one. Despite the “self-reliant” rhetoric, India desperately needs foreign direct investment, a chief source of which is the United States.

India and the United States have a common strategic concern with China, and India would like to displace China. However, China does about five times more trade with the United States than India. The concept of “friend-shoring” seems to have increased saliency in the United States, so India’s hopes to displace China are credible if it does not revert to more extreme protectionism or seriously alter the nature of its democratic system.

Key Sectors

While the 2024 Indian elections are unlikely to have a major impact on U.S.-Indian economic ties, there are several sectors worth watching:

• Chip Manufacturing: Both the United States and India have announced major initiatives in chip manufacturing. Whether these initiatives will be competitive or cooperative remains to be seen. In her trip to India last year, U.S. secretary of commerce Gina Raimondo signed a memorandum of understanding and held high-level talks on making these initiatives compatible. However, election pressures to ramp up Indian self-reliance and to manufacture in India could affect these efforts at U.S.-India cooperation.
• Defense Trade: Modi is attempting to meld international relations with domestic politics to cast India and himself as a vishwaguru (“world leader”). To be a world leader and to protect its own security, India needs robust military capability. Traditionally, this has been buttressed by defense trade with the Soviet Union and now Russia. However, after the U.S.-India civil nuclear deal and now under the Modi vishwaguru policy, India has turned increasingly to the United States and the West. This engagement may be given an extra boost by the Indian elections and pressure from China.
• Agriculture: Forty-three percent of the Indian population makes its living from farming. Thus, farmers are an important voting demographic. India has traditionally favored farmers with protectionist measures and subsidies. Since the United States is the world’s leading agricultural exporter, these protections and subsidies have fallen heavily on U.S. agricultural trade with India. The Modi government has had significant problems with farmers. Thus, it is likely to continue to bend over backward to secure the farm vote. This could result in even more impediments to U.S. agricultural exports to India.
• Energy: The price of fuel and electricity is always a salient issue in a democracy. Although fuel and electricity prices are largely administered in India, in an election year the government is likely to double down on its policy of buying distressed oil from Russia and producing electricity from domestic coal. This could impact U.S. hopes for greater ties with India in the export of fuels and clean energy technologies as well as the broader questions of cooperation on strategic and climate change issues.

U.S.-India economic ties are deeply impacted by domestic politics on both sides—after all, political and economic ties are components of the same reality. The good news is that in both India and the United States there is a wellspring of goodwill for the relationship to continue on a steep upward path. However, if the 2024 campaign in India should result in a strong rightward shift with increased communal and religious conflict, this would no doubt have an impact on U.S.-India ties across the board, including economic engagement. Likewise, the U.S. 2024 elections could have an even more significant impact on economic ties if the United States shifts from the “all in” Indian policies of the Biden administration to a more transactional approach under a second Trump presidency.

Raymond Vickery, Jr., is a senior associate (non-resident) with the Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies in Washington, D.C.