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Expert: Obama Should Follow Bush's, Not Democrats', Path With India

The U.S. economy sits at a turning point with the world's third-largest economy, India, which has just reelected its free-market prime minister, Manmohan Singh.

The United States is well -positioned to enjoy the fruits of its relationship with the Indian Tiger if President Obama builds on the market-based relationship between India and the Bush administration, said Jagdish Bhagwati, Columbia University professor of economics and author of numerous free-market, pro-globalization books on India and the broader economy.

However, if the White House reverts to traditional Democratic trade levers, such as protectionism, then the U.S. could easily slip into a trade war with India "that leaves both nations behind the curve," Bhagwati wrote in an e-mail interview with The Ticker earlier today.

"There has been a feeling in Indian circles that the Democrats are self-righteous, as when they seek to impose labor standards on other countries for protectionist reasons, i.e. to increase foreign cost of production and thus to moderate competition, while pretending that they are doing so for altruistic reasons," Bhagwati wrote.

Bhagwati has been friends with Singh since the two were undergrads at Cambridge. Bhagwati is an enthusiastic proponent of market reforms in his home country and is happy that Singh, who had to govern with a powerful coalition of Communists during his first term, will be "unshackled" this time, because the Communists received far fewer votes this time.

(India is, remember, the world's largest democracy, with 700 million voters. It is also has the second-largest population, with a staggering 30 percent under 15 years old.)

A liberalization of India's economy should lead to greater trade with the United States if Obama can build on "gains in India-U.S. friendship and collaborations that were made under the Bush administration," Bhagwati wrote.

India will want to purchase nuclear plants, airplanes and banking and insurance services from the U.S. (think of all those new customers). The U.S., in addition to receiving a steady stream of intellectual capital from India, might begin importing autos, such as the $2,500 Tata Nano, a micro-sized fuel-sipper that might be ready for its star-turn in an increasingly green U.S.

However, Bhagwati warned, if the U.S. enforces "Buy American" provisions and excludes India from bidding for government contracts, India will buy its jets and nuclear plants from France rather than from Boeing and General Electric.

Singh is the first prime minister to win reelection after serving a full term since 1961. The Indian stock market soared so highly so quickly following his reelection that automatic stops kicked in to prevent it from going higher.

India's economy has been growing at a rate of 9 percent and has slowed to "only" 6 percent growth in GDP thanks to the global recession. Now, a centrist economist helms the nation, free of the burdens of satisfying the extreme branches of his government.

In many ways, this is India's moment. We will see whether Obama agrees.

-- Frank Ahrens
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By Frank Ahrens  |  May 18, 2009; 3:51 PM ET
Categories:  The Ticker  | Tags: India, Jagdish Bhagwati, Manmohan Singh, Obama  
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