In discussions with American companies during the course of their two-day visit to India, officials from a visiting United States Trade Representative (USTR) delegation are learnt to have nudged these companies to follow an “America First” strategy. They were also urged to direct a substantive part of their investments in sectors such as technology and artificial intelligence to the US and focus on creating meaningful jobs, rather than outsourcing those to foreign workers.
A US trade team led by Deputy US Trade Representative Rick Switzer and Brendan Lynch, the US chief negotiator for the trade deal with India, was in Delhi earlier this week to iron out differences in the long-pending bilateral trade agreement (BTA) between the two countries.
During two meetings with American tech companies and their associates on Wednesday and Thursday, the USTR officials are understood to have particularly highlighted investments in AI infrastructure, and how US companies should prioritise the American markets for capex investments in the space on hardware and energy, according to three persons aware of the discussions.
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Investments in other countries, while encouraged, should not exceed the commitments of these companies in the US, they said, adding that they were told to focus on creating meaningful jobs, rather than outsourcing these jobs elsewhere, the three persons said.
Members from the US-India Business Council (USIBC), and the US-India Strategic Partnership Forum (USISPF) are among those who are learnt to have attended these meetings.
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Much of this stems from the US administration’s point of view that high-value jobs and big-ticket investments should not move out of the US, particularly in emerging and cutting-edge segments like AI. The US is also planning to leverage recent investments in AI data centres in India by American companies like Google and Microsoft because it believes that India’s AI stack – both at the front-end for end-consumers and on the backend in terms of servers and data centres – will need American participation.
In October, Google announced that it will invest $15 billion to set up an AI data centre in Andhra Pradesh over five years, but it has also announced that it would invest $40 billion in three new data centres in Texas.
“The USTR representatives said that despite the trade upheavals that have taken place globally, the US remains to be the dominant consumption economy, and governments around the world should understand that they should, therefore, protect the interests of American companies, because doing business with the US was inevitable,” a senior industry source said.
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The understanding within the American business industry is that the additional 25 per cent tariff imposed by the US on India over its Russian oil purchases could be revoked sometime in the first quarter of next year. However, the much-anticipated trade deal between the US and India could take longer, until at least the first half of next year.
Several manufacturing sector representatives have also been told by India’s Commerce and Industry Ministry that the additional tariffs will be removed and that the talks now are broadly focused on the trade deal. This comes as US sanctions have resulted in a decline in Russian oil exports. At the same time, India has stepped up crude oil imports and agreed to purchase 10 per cent of its LPG from the US in a deal signed last month.
The US is also understood to have red-flagged some regulations in India, which they believe might be discriminatory towards American companies. Particularly, two laws – the Digital Personal Data Protection Act, 2023 and the Information Technology Rules, 2021 – are understood to have drawn scrutiny from Washington.
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In the DPDP Act, a data localisation provision, which requires entities to localise some types of data within India, is said to be a cause of concern within the US administration, as American companies have sounded the alarm. The IT Rules require companies to appoint India-specific nodal officers, and also includes potential jail terms for some of them for non-compliance. Elon Musk, owner of social media platform X, has raised this issue in the past.
During the negotiations earlier this year, Washington had proposed that India should not reintroduce equalisation levy-style taxes, such as the ‘Google tax’, in the future. Legal advisors to the Commerce Ministry had suggested Indian negotiators should not accept Washington’s proposal, as the provisions drafted by the US did not state that both parties should refrain from applying digital taxes on each other. Rather, they sought a legal commitment only from the Indian side and this was seen as a “unilaterally framed obligation”.
Another concern raised with the government was that agreeing to such unilateral provisions could set a risky precedent for future trade negotiations, where similar demands could be made by other trading partners during talks with Delhi, thereby complicating future negotiations with the European Union, among other trade partners.
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India dropped the so-called Google tax even before the India-US trade negotiations formally began earlier this year, in a bid to swiftly sign the trade deal. However, India remains among the large countries without a trade deal with the US and with one of the steepest tariffs globally.
US tariffs have resulted in consecutive months of exports decline to the US in September and October. However, investments are the most impacted, resulting in significant depreciation in the domestic currency. A Bank of America (BoFA) research note released earlier this week said that the currency and investment weakness may persist in the near term, given the “latent uncertainty of the US-India trade deal”, and pressure on capital flows, which “can and will” impact various macroeconomic variables in India if it persists.
Queries sent to the US Embassy in India and the Commerce and Industry Ministry, the USIBC and the USISPF remained unanswered until publication.
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