IPEF For U.S.-India

The Indo-Pacific Economic Framework for Prosperity (IPEF) was launched in May 2022 and has the qualities to significantly strengthen U.S.-India economic partnership. IPEF holds the rare distinction of being a multilateral approach to regional economic integration that includes both the United States and India — two nations often at odds during multilateral trade talks. Divided into four pillars — Connected Economy, Resilient Economy, Clean Economy, and Fair Economy — IPEF is aimed at structural economic transformation. The 14-member country arrangement is driven by the political urgency of countering Chinese economic influence in the region. With the special negotiation meetings for IPEF in New Delhi held between February 8–11, CSIS experts provide their analyses.

Managing India’s Supply Chain Disruptions

Jayant Krishna

IPEF aspires to rewrite the rules of engagement for the twenty-first century economies and enable them to grow faster and fairer. It is surely bigger than Regional Comprehensive Economic Partnership (RCEP) in size as well as clout and continues to expand.

Like other nations with a significant industrial footprint, India also experienced serious supply chains disruptions in supply of electronic components, semiconductor devices, minerals, and other raw materials due to the Covid-19 pandemic. The worsening of trade relations among Asian countries, a logistics slowdown, and China’s economic coercion only added to its economic woes.

Supply chain resilience is one of IPEF’s four key themes. Beyond the traditional risk management frameworks deployed by the industry, India could leverage IPEF to develop an adaptive capability of its supply chain to prepare for unprecedented events, become responsive to disruptions, and maintain business continuity at an optimum level of connectivity, coordination, and command.

IPEF already accounts for 40 percent of global GDP and is likely to cross 50 percent soon. With pragmatic supply chain framework understanding expected to be operative among IPEF signatory nations, India would be far better positioned to safeguard its supply chains against the associated vulnerabilities. This would ensure that India’s industrial output does not remain compromised and the GDP continues to grow uninhibited.

Building Consensus on Cross-Border Taxation Issues

Mukesh Butani

The IPEF meeting presents a significant opportunity for India to push its key reform agenda on multilateral tax policy and trade, keeping in mind investment and inclusive economic growth. Specifically, it presents an opportunity to move forward with member states for comprehensive free trade agreements and reduction of trade barriers.

The forum will play a critical role in building global consensus on contentious cross-border tax issues, such as taxation of digital services, virtual digital assets, and indirect transfer of capital assets. Most of these are being debated at wider multilateral institutions such as Organization for Economic Cooperation and Development (OECD), International Monetary Fund, and World Bank — however, there is inertia.

The member states should reaffirm their commitment to transparency by adopting global best practices on a common framework for the exchange of information for tax purposes and crypto trades. The forum is expected to supplement efforts to improve tax administration and mutual cooperation by supporting the ongoing work on the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting Project’s Two-Pillar Solution and tax inspectors without borders.

Strengthening Leadership in Clean Energy and Improving Domestic Programs

Kartikeya Singh

At the upcoming ministerial meeting of the IPEF, leaders will gather to deliberate the next steps on the guiding pillars. India is a participant to pillar three: Clean Economy. To activate meaningful cooperation between India and the other members of this pillar, India can contribute in the following ways:

1. structuring reverse auctions for utility-scale clean energy projects to ensure lowest tariffs;

2. designing bulk procurement programs to reduce cost of energy efficiency, and e-mobility ventures;

3. promoting joint financial and technical partnerships for business transition toward clean energy verticals between state-owned enterprises, including National Thermal Power Corporation, Coal India, and Indian Oil with peer institutions in partner countries (i.e., to foster the growth of offshore wind industry); and

4. consolidating the One Sun, One World, One Grid by designing effective electricity transmission, which would dovetail with the efforts to create an Association of Southeast Asian Nations (ASEAN) super-grid or the proposed undersea interconnection between Australia and Singapore.

In exchange, given the recent line items in India’s 2023 budget where clean energy featured heavily, India should work with IPEF partner countries to add value to these efforts:

1. work with partner countries to develop a green hydrogen ecosystem, including crowding demand for products like green steel to develop an edge in low carbon production;

2. jointly create the supply chains for critical materials that are required for powering the clean energy economy, given countries like Australia, Indonesia, and others with large reserves of these materials are in the coalition, is beneficial;

3. jointly develop and improve the technologies that can dovetail with India’s biogas (GOBARdhan Scheme) to ensure its success; and

4. negotiate how countries in IPEF might create their own versions of the United States’ Inflation Reduction Act (IRA) to ensure healthy competition and joint benefit-sharing of localized job creation from enacting such incentive schemes.

Improving Governance Efficacy and Attracting Foreign Direct Investment

Alok Gupta

IPEF is aimed at incentivizing partner countries to contribute to stability, prosperity, development, and peace in the Indo-Pacific region. Inducing cooperation between the countries requires effective governance at the back end. This is to ensure that the commitments made by partner countries are timely and effectively implemented. Several countries in the region suffer from endemic institutional problems such as ineffective bureaucracies and corruption. Addressing these challenges will be crucial for ensuring that development efforts in the region are not in vain.

To contextualize, the United States should look at where India stands in terms of governance. Per the Worldwide Governance Indicators (WGI) 2021, published by the World Bank, India occupies 11th position out of the 14 IPEF countries on two measured metrics — government effectiveness and control of corruption. Out of a maximum score of 100, India received 62.5 on government effectiveness, as opposed to index leader Singapore, which has 100, and Philippines, which is at the bottom of the chart with 57.69. Similarly, on control of corruption, India scored 46.63. New Zealand leads the chart with a score of 99.04, and Philippines is at the bottom with 34.13. While India has improved since the previous rankings in 2016, there is a long road ahead.

Better governance and less corruption can enable a more conducive environment for commercial cooperation and technical exchanges which can increase the FDI in the country and growth in economy, thus driving to prosperity and peace. India needs to accelerate its efforts of improving governance and employ technological advances to work towards creating an efficacious environment for collaboration and cooperation. Specifically, India needs to proactively engage the United States on technological exchanges and commercial engagements to enhance trade and mutually benefit both countries.

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Jayant Krishna is currently the CEO of the Foundation for Advancing Science and Technology (FAST India), an organization dedicated to enabling transformation in India’s science and technology landscape. He was previously group CEO of the UK India Business Council (UKIBC) and led in strengthening bilateral economic ties between the United Kingdom and India. He is also a non-resident senior fellow with the Center for Strategic and International Studies in Washington, D.C., and between May 2019 and July 2020 served as executive director of public policy at the Wadhwani Foundation, a U.S. nonprofit. Mr. Krishna previously led key initiatives of the prime minister’s Skill India Mission as CEO and as executive director and chief operating officer of the National Skill Development Corporation (NSDC). He previously worked for the Tata Group, India’s largest conglomerate.

Mukesh Butani is a senior associate with the Wadhwani Chair in U.S.-India Policy Studies at CSIS and the managing partner of BMR Legal. With specialization in corporate international tax and transfer pricing, he has significant experience in advising Fortune 500 multinationals and large Indian business houses on a wide range of matters relating to foreign direct investment policy, business re-organizations, cross-border tax structuring, tax controversy, and regulatory policy across a range of sectors. Mukesh participated in the Kelkar Task Force (2002) on tax reforms and was a member of the Indian Ministry of Finance (MoF) committee on e-commerce taxation (2000). He is presently representing the International Chamber of Commerce (ICC), Paris on the MoF Standing Committee on Tax Deducted on Source and Foreign Tax Credit.

Kartikeya Singh is director of programmes at the SED Fund, where he manages the portfolio to support energy transition efforts around the world. To inform his strategies, he leverages his extensive experience being in or engaging with government, research institutions, intergovernmental organizations, civil society, and industries in the sustainable development sector. He has also traveled from the Arctic to the Antarctic exploring the challenges of energy geopolitics in a changing climate. Previously, Kartikeya was a senior fellow and deputy director at the Center for Strategic and International Studies (CSIS) where he was charged with leading the Engaging Indian States initiative.

Alok Gupta is presently the director of technology and policy at the Wadhwani Foundation in New Delhi, India. Based in Noida, Uttar Pradesh, Alok brings in over two decades of experience working in various leadership roles in the private sector, government, and policy. A computer graduate by training, Alok has implemented technology projects in the Indian government across departments and ministries. Alok specializes in strategy, opportunity analysis, solution conceptualization, developing policy frameworks, and conducting program and stakeholder management. His experience includes working in diverse sectors like IT, financial inclusion, identity, health, maternity and nutrition, education, skills, agriculture, transport, labor and employment, and food processing.