View from India: The US may be India’s largest trade partner

A diversified economy, increasing foreign investments, trade, productivity gains and the growing consumption in the domestic market could be responsible for India’s growth. As an economy, India may be at a global vantage point. When we look at US-India investments, India has received around US$84bn in FY22 as FDI (foreign direct investment) across sectors. The US has been India’s second largest investor since FY21; India had received 811 industrial investment proposals to the tune of $43bn up to August 2022. In FY23, the US-India bilateral trade could reach $191bn; with this, the US may be India’s largest trade partner.

Other factors unfold, like the recent US-India agreement. The US. has proposed a stronger US-India collaboration through iCET 2023. iCET 2023, the United States-India initiative on Critical and Emerging Technologies (iCET), was officially launched in January 2023. iCET 2023 is also expected to deepen the partnership on developing a secured technology ecosystem. iCET 2023 will focus on developing innovative defence technology, resilient semiconductor supply chains and strengthening bilateral commercial space partnership facilitated through talent and research exchanges. Further impetus could come from the 2023 partnership between the National Science Foundation of the US and the government of India. This collaboration will focus on AI, semiconductor, clean energy, quantum, cyber security, biotechnology and defence.

What makes India ‘the destination’ for US companies to do business? First things first, the Indian government has opened out channels for simplifying business procedures. Over 39,000 compliances have been reduced and over 3,400 legal provisions decriminalised. The government has various economic and comprehensive packages including Make in India, Credit Guarantee Scheme, Mega Investment Textiles Parks, National Hydrogen Energy Mission and Digital India. The country is seeing increasing confidence among domestic and foreign investors. The unique value proposition could come from the rapid internet penetration and 5G adoption, and attractive investment policies. As of 2022, there are about 5,068 foreign companies registered in India (Registrar of Companies). Policy makers in India have started emphasising on skill creation to make about 90 million people employable by 2030. Most of the jobs are expected to be created in the manufacturing and construction sectors. A US-based technology company is developing a digital learning platform aligned with the government’s Skills India initiative for imparting coaching in digital technologies and other professional skills.

With about half a billion internet users, India has a growing market for digital services, platforms, applications and solutions. There has also been a huge increase in digital payments, at a compounded annual growth rate of 39 per cent from FY20 to FY22. This growth will be further expanded with the joint efforts being made by various US and global firms, including a multi-million-dollar investment plan from a US-based fintech firm to expand its operations and research and development capabilities in the country. With over 77,000 start-ups across the country as of August 2022, India is the third largest start-up ecosystem globally. Many US-based multinational enterprises (MNEs) have invested in the robust tech start-up ecosystem. This could make up for 8 per cent of mergers and acquisitions deals as of 2021.

India has emerged as a large producer and exporter in the electronics segment. It is the world’s second largest manufacturer of mobile phones and will be the biggest consumer by 2025. Factors that can help the US players grow in India include benefits through electronic manufacturing clusters in lowering logistics cost, contract manufacturing using third parties for R&D, and production and technical expertise in semiconductor design and manufacturing.

India’s Foreign Trade Policy 2023 aims to make the country an export hub with $2tn of exports targeted by 2030. It is, then, understandable that India is increasingly becoming a preferred global R&D hotspot. A skilled workforce and domestic demand could be market drivers. Hence, several US-based companies focusing on healthcare, semiconductors and technology have chosen India as their largest R&D base outside of America.

The International Monetary Fund has projected India to be the fastest-growing economy in Asia and one of the fastest in the world with a forecasted growth rate is of 5.9 per cent in FY24 and 6.3 per cent in FY25. The Indian government has rolled out measures to drive sustained economic growth. These include an increase in capex (capital expenditure), improving ease of doing business, introduction of green bonds, setting up of digital banks in districts and Emergency Credit Line Guarantee Scheme to MSMEs (Micro, Small and Medium Enterprises) as announced in the Union Budget.

The Production Linked Incentive (PLI) scheme is a thrust to domestic manufacturing as well as a bid to drive job creation. The market is growing. No surprise that cloud service providers (CSPs) in the US are investing in India to create localised data centres. A US-based CSP announced a multi-billion-dollar investment towards developing India as one of its cloud regions. Leading technology companies have announced plans to ramp up smartphone production in India, and test industrial use-cases of 5G within the Indian market.

India is the fastest-growing drone market and it is expected to reach $6.69bn by 2025. A growing drone market, along with favourable government initiatives such as PLI schemes, introduction of multiple grants, Unmanned Aircraft System Traffic Management policy framework, and the release of Drone Rules 2021, all facilitate ease of doing business in this space. “[The] US-India relationship today is bigger, bolder, and better than ever before. With economic partnership now beginning to mirror the trajectory in defence, security and strategic domains, there are newer avenues to trade, invest and grow, especially across deep tech, supply chain, global captives, among others. US industry will play a critical role in driving competitiveness, innovation and gainful employment across sectors, as India embarks on the journey of becoming the third largest economy by the turn of this decade,” said Naveen Aggarwal, office managing partner – Delhi NCR and US-India Corridor leader, KPMG in India. 

The US-India relationship is built on the two countries’ interest to expand trade, collaborate on technology and build trust. Both countries have been cooperating on areas like defence, IT, logistics, AI, space exploration and cyber security, among others. US companies are increasingly looking at India as an alternate supply chain destination as they look to build diversification and resilience in their value chains. This could result in an increase in investments across sectors, enable opportunities for domestic manufacturing in India, strengthen supply chains, elevate technology partnerships and create livelihoods in the process.

The way forward? Well, the US-India partnership can perhaps leverage technical expertise in India and design technologies at a competitive price; this could be across sectors like pharma, aerospace, drones and patented drugs.

All this has been encapsulated in 'The India edge: US industries catalysing the growth trajectory', a perspective brought out by KPMG in India in collaboration with AMCHAM India.