India and Pakistan aren’t getting re-hyphenated

Don't let him distract us from larger strategic goals.

Imagine a cricket match where one team has enforced the follow-on and is about to inflict an innings defeat. Then suddenly the umpire declares the match over. Then, much to the fury of the team that was on the verge of victory the 'umpire' makes remarks equating the two sides and framing the outcome as an honourable draw rather than a one-sided affair.

The fictional cricket match is a reasonably accurate depiction of the emotions of 1.4 billion Indians in the aftermath of the ceasefire declared on Saturday. In numerous tweets and statements, US President Donald Trump has suggested that the threat of suspending trade deals had coerced the two countries to reach a ceasefire.

If the clashes stopped both sides would get trade deals with the US, Trump said. His first tweet on Saturday, May 10, announcing a ‘ceasefire’ suggested that he would mediate the "Kashmir dispute' which in his formulation had gone on for 1,000 years.

More alarmingly, a tweet from Secretary of State Marco Rubio later that day suggested that the two countries would negotiate at a 'neutral venue' though that formulation has not been repeated since.

Trump doubled down on the mediation claims --- in particular the claim that prospective trade deals had been used as leverage--- during a speech in Saudi Arabia on Tuesday and a subsequent interview to Fox News.

His remarks have understandably caused consternation in India as they could be interpreted as a re-hyphenation of India and Pakistan. Further, while the US, and most major countries, have condemned, the terror attack in Pahalgam, they have not specifically called up Pakistan as a state sponsor of terror,

More than his claims of mediation it is Trump's subsequent expression of displeasure at Apple ramping up its production in India ought to be of concern. The markets have so far not taken Trump's remarks on Apple, made on May 15 in Doha that seriously. Instead, they appear to have seized upon another segment of his remarks, in the same appearance, where he said that India had agreed to zero tariffs. The Nifty rose as much as 395 points (the Sensex rose 1,200 points) on Thursday, fuelled by optimism about a trade deal with the US. It fell slightly on Friday.

Coming up Trumps in the China+1 game

The broader picture is that India will have to be level-headed and strategic in dealing with a volatile US administration, perhaps drawing inspiration from Deng Xiaoping's famous dictum to "hide your strength and bide your time", in which he advised China to keep its head down in international affairs and concentrate on the economy. That is somewhat ironic in this context because one area where India will have to exhibit strategic patience ---and not, for instance get provoked by every pronouncement from the top honchos of the US administration--- is to ensure that it emerges as the obvious choice as the ‘+1’ part of the China +1 strategy of MNCs.

As per a survey of fund managers by Bank of America published on May 13, 42% of the 109 fund managers surveyed said they were overweight India, followed by 39% who preferred Japan. Only 6% picked China, as per a Bloomberg article.

The optimism about India was largely on account of belief that more and more MNCs would choose the world's fifth largest economy as an alternative to China when it comes to locating manufacturing facilities or what the survey referred to as “supply chain realignment”.

This is even though tariffs on China are likely to decline because of ongoing US-China negotiations. Having reached a level of 145% in the aftermath of ‘Liberation Day’, they are currently at 30%. They are likely to fall further, depending on the outcome of the talks. So will the tariffs on India's exports, currently at 10%, as the 'Liberation Day’ reciprocal tariff of 26% stands suspended. The final tariff depends on the outcome of the India-US trade agreement. But regardless of where tariffs eventually end up, Apple seems to have made a call to build up India as a long-term alternative to China. India needs to intensively woo other MNCs to encourage them to make the same decision.

AI access

The other area where India needs to maintain relentless focus while navigating its alliance with the US it is to ensure access to the latest AI technologies. The Biden administration had put in place so-called ‘diffusion rules’ which restricted access to the most advanced chips from the likes of Nvdia and AMD to only 18 countries. In May this year the ‘diffusion rules’ were rescinded by the Trump administration. A new framework is bring put in place and India should ensure that it has access to the latest chips and models.

During his recent trip to Saudi Arabia, Qatar and the UAE, Trump signed deals with these countries allowing them access to top-of-the-line AI technologies. As per a NYT report the three countries could potentially end up with more data centre capacity and access to AI technologies than the US in a few years, sparking concern among some sections of the administration. The Middle East is a great place to locate the increasingly gargantuan data centres needed to support AI because of the abundance of energy.

India will have to  strive hard for similar treatment using all its strategic levers, the main ones being the size of the market and the depth of its entrepreneurial base which would enable it to emerge as an alternative to China in a wide variety of sectors.

A matter of macro numbers

As far as the apparent re-hyphenating India has little to fear.

Sometime this fiscal, as per the IMF, India will overtake Japan as the world's fourth largest economy. The headlines that will accompany this rather important upcoming event will demonstrate the ludicrousness of any so-called re-hyphenating. As per the IMF's April 2025 World Economic Outlook the Indian economy is projected to grow 6.2% in 2025 and 6.3%, retaining in status as the world's fastest growing major economy.

Pakistan's GDP growth is projected to be 2.6%, a surprisingly low rate of growth given that country's modest per capita income. Both countries are modest levels when it comes to per capita income, India is ranked number 144 and Pakistan is at 162 in nominal US dollars. At these modest levels both countries should grow at a rapid clip, but only one is doing so.

But comparison with Pakistan is hardly a national aspiration. Instead, India needs to emerge as an economic superpower with mastery over frontier fields. That requires not getting overly agitated over the latest Trumpian pronouncements. Only then can the military triumph of Operation Sindoor become a wider strategic victory.

(Views are personal and do not represent the stance of this publication.)