COVID-19 in India

India is slowly emerging, after suffering severe economic damage, from its anti-virus lockdown. The country’s enormous economic and strategic potential as a U.S. partner and counterweight to China now faces a range of challenges.

Situation Overview

On March 25, Prime Minister Narendra Modi imposed a complete lockdown, which Delhi began to ease in mid-May. Indian authorities have reported over 169,000 cases, roughly 90,000 of which remain active, along with over 4,800 deaths.

Even if its caseload grows, India has little choice but to ease restrictions. Manufacturing is paralyzed, demand has collapsed, and India lost over 114 million jobs in April alone. India’s biggest car manufacturers – Maruti, Mahindra, and Hyundai – recorded zero domestic sales in April. India’s economy is expected to contract by 5 percent in 2020, its worst recession since independence in 1947.

Resurrecting the economy will be difficult. Millions of migrant laborers are now hunkering down in their home villages and will be reluctant to leave until the economy recovers enough to guarantee them daily wages. This has knocked the bottom out of India’s economy.

In mid-May, the government announced a stimulus package equivalent to roughly 10 percent of GDP. Combined with land and labor reforms, India hopes this will help build a self-reliant economy and eventually position India as an alternative to China in global supply chains.

Implications

A strong U.S.-India partnership is essential for a prosperous and secure Indo-Pacific. India’s value as a like-minded economic and strategic partner has become even more apparent with China’s coronavirus-related belligerence. China politicized medical supply chains, tried to use economic coercion to thwart scientific research, and exploited the COVID-19 crisis to push its strategic agenda from the South China Sea to Hong Kong to the Chinese-Indian border.

U.S.-India relations have room to run. In mid-May, President Donald Trump praised U.S.-Indian cooperation on vaccine development, and India readily provided medical supplies and pharmaceuticals to the United States. As one U.S. official said, efforts to “de-risk” from China represent “a golden opportunity for India.”

However, several issues hinder India’s ability to become an economic and strategic counterweight to China. India desperately needs economic reform, including a simplified tax code and a more effective court system. More importantly, India must root out systemic corruption, which is stifling growth and creating strategic vulnerabilities. Additionally, the economic distress from COVID-19 has exposed India’s vulnerability to economic predation, whether in the form of “vulture cartels” or focused Chinese investment in sensitive areas such as 5G.

Militarily, India’s promiscuous defense procurement is limiting the potential for U.S.-India cooperation. Particularly problematic is India’s agreement to purchase Russia’s S-400 surface-to-air missile system, which would effectively enable Russia to surveil parts of India’s airspace. Given the close Russia-China relationship, this would leave Indian defenses vulnerable to Beijing. If India receives the S-400, it could face congressionally mandated U.S. sanctions, thereby curtailing U.S.-India high-tech cooperation.

Should India reject the S-400, it could possibly acquire the F-35 or F-16. In addition, the United States could move military production lines to India, giving manufacturing a much-needed boost while deepening U.S.-India integration at a time when China is threatening both nations. Presently, however, Delhi’s pro-Russia and pro-China lobbies are winning the day, in part by pointing out that Washington has yet to sanction Turkey for its S-400 purchase.

What to Watch for

Prime Minister Modi was elected on an anti-corruption platform. Now is the time for him to follow through. Washington can support his efforts through sanctions that target illicit finance, cooperative trade negotiations, and information sharing on corruption that serves as a drag on India’s economic growth and strategic decision making. Additionally, Washington should make clear the conditions necessary for deeper cooperation.

More immediately, the S-400 is the biggest hindrance. Washington should thus sanction Turkey for its S-400 purchase. This would send a clear message to India: What happens in Ankara could soon come to Delhi.

Cleo Paskal is a non-resident senior fellow for the Indo-Pacific at the Foundation for Defense of Democracies (FDD), where she also contributes to FDD’s Center on Military and Political Power (CMPP) and Center on Economic and Financial Power (CEFP). For more analysis from Cleo, CMPP, and CEFP, please subscribe HERE. Follow Cleo on Twitter @CleoPaskal. Follow FDD on Twitter @FDD and @FDD_CMPP and @FDD_CEFP. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.