India and the United States signed an agreement in Washington yesterday, regarding the rules and regulations for trade and investment between the two countries. India was represented by Commerce Minister Anand Sharma, while the US Trade Representative Ron Kirk inked the deal on behalf of the US.

The world’s largest economy and emerging economy will try to lift the remaining barriers in their bilateral trade and investment during the meeting of officials to be scheduled in the near future. The trade between the two countries started improving after the civil nuclear pact of 2008, which permitted US companies to sell nuclear technology and fuel in India.

The present deal named ‘Framework for Cooperation on Trade and Investment’ is aimed at small to medium businesses and clean energy technologies will be given more emphasis. While India would be utilizing this opportunity to propel its growth rate to double digit figures, the US would use this to increase its exports and to generate more jobs in the US. The US President Obama has pledged to double exports in the next five years and the growing economy of India is ideal to achieve this target.

Both sides agreed that the possibilities are immense. Kirk said, “There is almost limitless potential for growth in trade between our two countries.” Sharma agreed that the trade prospects between the two countries ‘have not been tapped fully as yet’.

According to Indian Commerce ministry, the trade between the two countries almost doubled over the last five years. The FDI flow into India from the US increased to $1.8bn this year, while the US investments in India during the last decade had been $7.9bn.

That India has gained in confidence is evident in its dealing with world nations and its readiness to play a crucial role in the region. On Tuesday, Foreign Secretary Nirupama Rao ruled out scaling down of Indian operations in Afghanistan despite facing opposition in the country.

She said, “We are not scaling down our operations in Afghanistan, we are taking all necessary security measures to safeguard Indian lives there.” Ms. Rao is on a visit to Afghanistan in the wake of the 26 February attack on Indians.

India is on a friendly mission in Afghanistan to build infrastructure on request. Recently new initiatives in agricultural sector and institutional capacity building were announced. Ms. Rao clarified, “Our assistance is provided in a transparent and fully accountable manner, and has underscored our commitment to Afghan democracy and inclusive development.”

Meanwhile, a pentagon report said that India will emerge as a dominant player in South Asia and the Middle East in the next 25 years due to its strategic location and military traditions. The report said that the US is likely to encourage the growth of India as a regional as well as a global power.

Pentagon is estimating that Indian armed forces would receive significant upgrades in the coming decades and its wealth is expected to quadruple in the same period. This, the report said, would help in its elevation as a regional power.

However, the report said the growing divide between the rich and the poor would continue and this would have serious implications on the country’s economic growth and national security.

It would be a wise move for India to learn from China’s mistakes and go in for inclusive growth rather than focus only on economic growth.

India’s imports and exports posted considerable growth for the month of January compared to January last. December had set the trend for growth, signaling the end of recessive times for world economies.

India imported $24.7 billion worth of goods compared to $18.22 billion during January 2009. This is a whopping 35.5% increase. However, the country’s exports did not do as well as imports, but still managed to grow by 11.5% during the same period. India exported $14.34 billion worth of merchandise in January, while the figure was $12.86 for January 2009.

The November and December growth figures for export was 18.2% and 9.3%; this coming after negative growth for the previous thirteen months. Import growth rate got out of the red in December after a long gap of 11 months.

The amazing growth in imports and above-average growth in exports has further widened the chasm of trade deficit. According to official data released yesterday, the YoY trade deficit figures have doubled. While the trade deficit stood at $5.3 billion in January 2009, it almost doubled to $10.36 billion in January 2010.

However, experts are not overly worried about the ballooning trade deficit. A. Sakthivel, President of the Federation of India Export Organizations said, “The figures are clearly reflecting that the exports are coming on the track.”

FIEO director general Ajay Sahai also is optimistic. He said, “The trade data shows that import growth is in tandem with the performance of our manufacturing sector which is growing at 15%-16%.”

The sudden jump in imports is mostly due to the import of raw materials and capital goods for power projects. Among exports, vegetables, fruits, marine products and tobacco did exceptionally well.

Through its Foreign Trade Policy (FTP), India has attempted to adopt a middle approach between total conservatism and completely free economy. The prime focus has been to support domestic trade, integration with the global economy, adapt with the changing scenarios, and provide growth impetus to the Indian economy as a whole.

The process of liberalisation began in the 1990s, which relieved the economy of many of its woes, like prevalent tariffs that exceeded 200%, trade restrictions, rigid licensing policies, and import restrictions, to mention some. Currently, India has various bilateral and preferential trade agreements, some of which are operational, while the others are in the different stages of finalisation. These agreements are spread across Southeast Asian nations, Afghanistan, Chile, Brazil, Argentina, and so on.

India’s continuing FTP provides various duty (e.g. import duty on key inputs) exemptions to the export oriented units (EOUs), pre-shipping credits, tax holidays for EOUs, etc. On August 27, 2009, India announced its Foreign Trade Policy 2009-14. Agriculture, handicraft, gems & jewellery, handlooms, and leather sectors will receive special incentives as focus areas to help India double its percentage in global trade in the next five years. It will also aid in creating more employment opportunities. Export target for 2010-11 is slated at USD 200 billion. The new FTP also includes 26 new regions under the Focus Market Scheme. However, experts argue that the FTP should become more FDI-savvy (Foreign Direct Investments) as an effective measure to boost Indian export capabilities. The country should learn from China, where FDI led units have been its major exports drivers.