Jacob Funk Kirkegaard: Strengthening the people-centric US-India economic relationship

The lack of an India-US totalisation agreement is a policy emergency

The economic relationship between the world's two most populous democracies in India and the US is quite appropriately perhaps the most people-centric between any two major nations. Indian nationals have in recent years accounted for roughly half of all employment-based US green cards and 40-50 per cent of high-skilled temporary L-1 and H-1B work visas. The depth of this relationship origins with very large gross domestic product/capita differentials and India's large globally competitive, English-speaking and geographically mobile services sector workforce. It, and potentially similar future links to other large economies, represents India's probably biggest opportunity to benefit from globalisation. Labour mobility and exchange of people will invariably be the key part of any future US-India economic relationship.

Regretfully, the economic importance of bilateral India-US labour flows is generally underappreciated by policymakers often unaware of its true magnitude. At least partly, this is due to the lack of data, and the inability of traditional trade and balance of payment methodologies to adequately capture the significance of these very 21st century economic linkages. Forthcoming research results to be published shortly by the Peterson Institute provide a fuller picture. A novel estimation methodology based on mandatory and thus comprehensive US work visa data, as opposed to often spotty services trade survey results, suggests that the true economic value of temporary bilateral labour migration by Indians working in the US already exceeds that of comparable goods and services exports from India to the US.

The estimated total Indian H-1B and L-1 high-skilled temporary work visa population employed in the US rose from about 400,000 in 2002 to about 600,000 by 2012. Using conservative assumptions concerning the prevailing US wages that these temporary Indian workers must be paid and sectoral company profit margins, my results show that the total economic value of this relationship rose from $25-30 billion annually from 2002-05 to $45-50 billion by 2008-12. In comparison, recorded US cross-border imports of private services from India, despite rising rapidly over the period, amounted to just $19 billion in 2012. And recorded US goods imports from India were at $41 billion in 2012, also lower than the estimate for the economic value of the temporary worker relationship from Indian workers in the US that year.

When properly measured, the exchange of people between India and the US, therefore, already matters more than traditional trade. And this is despite ongoing legal obstructionism and politically motivated barriers to temporary workflows in the US. Imagine what the temporary high-skilled labour flows could become, if the two governments could negotiate a new economic governance framework for temporary migration and the establishment of genuine brain chains. The potential gains would, with certainty, exceed those from any conceivable traditional bilateral free trade agreement.

An important implication of the much higher true scope of the existing economic importance of temporary high-skilled Indian migration to the US is that it forces the issue of an India-US so-called totalisation agreement on to the political agenda.

A totalisation agreement generally serves two purposes. First, it eliminates dual social contributions/taxation, a situation that occurs when a worker from one country works temporarily in another country and is on the same earnings required to pay contributions to social security systems in two countries. Second, a totalisation agreement protects individual workers against pension benefit losses incurred from having divided their careers between two countries. Workers who have split their professional working life between two countries may fail to fully vest (for example, qualify for) their retirement, survivors or disability insurance benefits from one or both countries, as they may not have worked long enough to meet minimum eligibility requirements.

This unfortunate and unfair outcome is currently a certainty for Indians working on high-skilled visas in the US, as generally available US old-age pension benefits require 10 years of contributions for individuals to qualify. In other words, Indians temporarily working in the US on H-1B or L-1 visas, which have a maximum duration of six and seven years respectively, are today legally prevented from residing lawfully in the US for long enough to become eligible for the US social benefits they have contributed to.

Indian temporary high-skilled workers in the US pay a total of 7.65 per cent of their wages in old-age and health care taxes. Relying again on comprehensive US immigration data, this implies an approximate $3 billion in ultimately forfeited contributions paid annually by Indian workers to American social insurance in recent years. Compared to the roughly $150 million in corresponding annual social insurance contributions by temporary US workers in India, this yields an approximately $1-to-$20 mismatch.

Viewed in light of ongoing imbalances of this magnitude, and recalling that hundreds of thousands of individual high-skilled Indians working in the US are affected, the current lack of an India-US totalisation agreement becomes a policy emergency. Concluding an agreement will for sure be fraught with political obstacles, not least in the US, but its conclusion could be a cornerstone in a new and even deeper people-centric relationship between India and the US.

The writer is a senior fellow, Peterson Institute for International Economics