06/13/2014 05:53 pm ET Updated Aug 13, 2014

India and the U.S.: Rebooting economic relations

Last December, when the Devyani Khobragade row caused significant turbulence in India-U.S. ties, a striking range of opinions came bursting forth from both sides. In India, the reaction on the "unfortunate and avoidable standoff" was extraordinarily passionate, and public opinion--which has traditionally been favourable towards the US--suddenly witnessed a tectonic shift. Many expressed a sense of deep angst and hurt over the diplomat's arrest, and concerns were raised over the perceived loss of energy and momentum in the bilateral relationship. The feeling in the U.S., on the other hand, was that New Delhi was overreacting to what was basically a "law and order" issue.

The political and diplomatic embers sparked by this standoff were stoked further when the Narendra Modi-led Bharatiya Janata Party swept the Indian elections on May 16. Almost immediately, the media went abuzz with questions: Would the U.S. react favourably to Prime Minister Modi? Would India-U.S. economic relations take a positive shape under the new Indian government? Would Modi--who had previously faced criticism in the U.S. over the 2002 Gujarat riots and even been denied a visa by Washington in 2005--be willing to improve business relations?

The answer to these concerns, so far, has been a resounding yes. Modi has affirmed he is willing to put issues of the past on the backburner. In his inaugural address to the Parliament last week, Indian President Pranab Mukherjee stated, "India and the United States have made significant progress in developing strategic partnership over the years. My government will bring a renewed vigour to our engagement and intensify it in all areas, including trade, investment, science and technology, energy and education." Prime Minister Modi and the U.S. President Barack Obama are all set to meet in September, before which the two nations will carry out other high-level political engagements as well.

Further, buoyed by what many media reports have termed as the "Modi rally," the Indian stock markets have witnessed a steady rise in the last few weeks; the rupee has strengthened from 68 in September 2013 to 59.74 today; and a section of financial analysts expects foreign investment in India to double in the near future.

India is expected to emerge as the world's third largest economy by 2050 and a global powerhouse. With a 1.2 billion strong population, it remains a lucrative market for the U.S. to invest in. However, ever since the Indian economic slowdown of 2009, there appears to have been a "cooling of enthusiasm" in the US on the trade front. Bilateral business was the original cornerstone India-U.S. ties were built on. Yet, the decline in India's economic growth and the impasse over the nuclear liability law put off several U.S. and Indian companies.

It cannot be denied that economic and commercial pillars are the vital links that binds the two countries. Both India and the U.S. have a vested interest in each other's economies. The argument by experts on both sides has long been that India and the U.S. cannot be satisfied with a $100 billion trade partnership and need to go way beyond that.

And the scenario to reboot relations is positive: India's new government and the Prime Minister have clinched a decisive mandate, and powered by the political change, the Indian economy is expected to cross 5% growth this year. On the other hand, US economy is resilient and bouncing back from the effects of the 2009 recession. Renewable energy production in India is growing at a fast pace, especially in solar, wind and biomass areas. Energy cooperation is a big area that can be further enhanced between the US and India. Nearly $2 billion has been mobilized from the US alone under the PACE initiative, and bilateral development of technologies in energy storage is another big ticket item that can be explored further. The US-India nuclear deal, which had the potential of revolutionizing the sector, is also something that needs to be relooked by resolving the row over the nuclear liability clause. A fresh look may offer new perspectives and ideas without compromising on nuclear safety.

There is also a need of at least a trillion dollar worth bilateral investment in infrastructure development. The US-India Infrastructure Debt Fund could be a good first step. An exhaustive bilateral dialogue on manufacturing to discuss collective objectives in advancing cooperation in the realm is also forthcoming.

However, it is imperative to first allay concerns among investors. The perception of a stagnating investment climate in India has been the larger issue. In recent years, U.S. and India have locked horns on issues revolving around IPR protection, taxation, retail trade, non-passage of insurance bill, nuclear liability legislation, and painfully slow movement of BIT.

Undoubtedly, reciprocity and compromise in boosting bilateral trade ties are critical. Both India and the U.S. need a fresh kickstart to give an economic ballast to the relationship. It has been observed that if the economic ties between India and the U.S. begins to wither, all other components of the relationship begin crumbling.

Definitely, India-U.S. economic cooperation needs a lot more energy to grow and nurture. It also needs greater synergy between stakeholders on the two sides. A renewed commitment from both government in strengthening the long term bilateral partnership is the need of the hour--and the time for change is now.

(Samarth Pathak is an advocacy expert associated with a prominent New Delhi-based think tank. Views expressed are personal.)