Bloomberg: Modi’s Win Raises Hopes for Better U.S.-India Trade Ties


Modi’s Win Raises Hopes for Better U.S.-India Trade Ties

May 16, 2014

By Gopal Ratnam and Brian Wingfield

Narendra Modi’s sweeping victory inIndia’s elections may translate into revitalized U.S.-India bilateral trade that’s been hobbled by delayed decisions and disputes over intellectual-property rights.

“You’re going to have an Indian government for the first time in a long time that is not held back by really fractious coalition politics,” said Vikram Singh, vice president for national security and international policy at the Center for American Progress. “I think his priorities are going to be the economy, economy, economy, and that suggests he’ll make progress on reforms” that are “pretty high priorities for the U.S. and India’s regional partners.”

Strategic relations between the U.S. and India, underscored by a series of bilateral military exercises, are likely to remain strong because “our interests line up very well,” said Singh, who was the U.S. deputy assistant secretary of defense for South and Southeast Asia.

As of last night, Modi’s Bharatiya Janata Party was leading in 282 of the 543 parliamentary seats up for grabs — more than the 272 needed for a majority. Along with its coalition partners, the party was set to win as many as 340 seats, the largest win in 30 years.

U.S. trade groups and policy analysts are hoping that when Modi, 63, takes office, his government will loosen restrictions on foreign direct investment by U.S. defense companies and improve the protection of intellectual-property rights. Modi campaigned on a pledge to boost economic growth, which has slowed to 4.9 percent for the year ending March — the slowest in a decade.

Growing Economy 

India, which International Monetary Fund economists last month predicted will become the world’s seventh-largest economy in 2019, is an attractive target for U.S. businesses.

Now, said Linda Dempsey, vice president of international economic affairs at the National Association of Manufacturers, Modi’s victory “really creates a new opportunity to work together.”

While it’s too early to know what sectors might benefit immediately, the areas in which the U.S. and India could work together more closely include information technology and environmental goods, she said.

U.S. business groups say they consider India a potential key market for industries that rely on intellectual property protection, including pharmaceuticals and information technology. India is an “outlier” on intellectual property issues, according to a 2013 report by the U.S. Chamber of Commerce’s Global Intellectual Property Center, which said the nation’s policies have deterred foreign investment.

Import Barriers

“U.S. exporters continue to encounter tariff and non-tariff barriers that impeded imports of U.S. products into India,” the U.S. Trade Representative said in aMarch 31 annual report on global trade barriers. It listed India’s patchwork of government procurement policies, restrictions on foreign investment in the banking sector and complex customs procedures among the deterrents to trade.

The U.S. last year exported goods valued at about $22 billion to India, about 1 percent lower than the previous year, according to Commerce Department data. Major exports include transportation equipment and chemicals.

U.S. companies also hope the Modi government will lift caps on investment in India’s defense industry, said Richard Rossow, a senior fellow focusing on India policy issues at the Center for Strategic and International Studies, a Washington research group. The BJP’s manifesto says it will allow foreign direct investment in a variety of sectors except multi-brand retailing to support job creation and infrastructure building.

‘Fresh Look’

“The BJP has talked pretty openly about taking a fresh look at the foreign direct investment cap in the defense sector,” Rossow said. The current 26 percent limit is a disincentive for U.S. defense contractors to provide high-end technology to their Indian counterparts, Rossow said. Lifting the cap “will allow more U.S. companies to enter the country and make them comfortable” in sharing technology, he said

India’s investment in its defense sector last year shrank to the lowest level in 50 years because of the overall economic downturn, said G. Parthasarathy, India’s former high commissioner in Pakistan.

Investment in the defense sector “can only go up,” with the Modi government winning a clear mandate, Parthasarathy said. “There will be increased spending on defense manufacturing and a greater emphasis on foreign direct investment in defense.”

Nuclear Rivals

One danger is that increased Indian investment in defense could increase tensions with rival nuclear power Pakistan, but Singh, the former Pentagon official said there’s little danger that Modi would resort to a display of power similar to India’s last nuclear tests in 1998, when a BJP-led government was in power. Those led Pakistan to carry out its own set of tests.

“With India being comfortably a strong power, I don’t see any reason he’d see the need to flex muscles that are seen as aggressive or destabilizing,” Singh said. “In order to dwell on the economy, having good relationships with all your trading partners would be important.”

Although he’s not accustomed to the global stage, Modi’s focus on economics bodes well for U.S.-India political relations, said a U.S. official with experience in the region.

Modi, once shunned by the U.S. and the U.K. for his role in anti-Muslim riots in 2002 in the state of Gujarat, where he’s governed since 2001, was quickly congratulated by U.S. President Barack Obama and U.K. Prime Minister David Cameron.

Strained Relations

Obama invited Modi to visit Washington, according to a White House statement, and Modi already has agreed to visit the U.K., according to a statement from Cameron’s office.

In 2005, the U.S. denied Modi a visa after human rights groups accused him of not moving to halt the carnage. Modi has denied the accusations repeatedly, and a Supreme Court-appointed panel found no evidence he gave orders that prevented assistance from reaching the victims.

Modi, too, said the U.S. official, has tried to put 2002 behind him, but U.S.-India ties suffered another setback late last year with the arrest inNew York of Devyani Khobragade, an Indian diplomat who was accused of lying on a visa application about what she was paying her babysitter.

The arrest triggered outrage in India, prompting protests, demands for a ban on American goods and Indian government retaliation against U.S. diplomats, including the removal of security barriers around the U.S. Embassy in New Delhi.