Business Standard: India and the US: Navigating headwinds

Business Standard: India and the US: Navigating headwinds
August 17, 2013
By Hemant Krishan Signh

As prospects of meaningful economic reforms wane ahead of India’s general election, India-US ties are navigating headwinds and in danger of losing the big picture. References to a “defining partnership of this century” and the “full embrace of India’s rise” have given way to an unprecedented welter of complaints, culminating in an initiative in early August by four Congressional leaders asking the US International Trade Commission (USITC) to “investigate India’s unfair trade practices that discriminate against US exports and investment.” The strategic partnership, which led the US to end the technology denial regime for India and welcome India’s emergence as an economic power, is fast receding.

One would imagine that at a time of feeble economic recovery in the US and an increasingly gloomy economic outlook in India, the two countries should in fact be redoubling efforts to bolster economic ties. Instead, it has been a veritable summer of discontent and talking past each other. The very same US corporations which had once championed India’s cause now drive their lobbyists to paint India into a corner on a host of issues ranging from investment restrictions to taxation policy, preferential market access rules to infringement of intellectual property rights. US business chambers, Congress and the administration are all marching to this drumbeat.

India and the US have held several high-level meetings in recent weeks, but seemingly remain at cross-purposes. US leaders have shared the concerns of US industry regarding Indian policies affecting investment and innovation and have called for a “candid discussion” on what are described as “tough problems.” Indian interlocutors have contended that “business rivalries should not be brought to the political table” to unjustly target India, but have balked at clearing the way for a bilateral investment treaty which could bolster business confidence. Patience is running out on both sides.

Ironically, this scenario is unfolding at a time when bilateral trade has grown nearly five-fold since 2000 to approach $100 billion, and growing two-way investment flows are bringing benefits to both economies in the form of jobs, technology partnerships and business innovation. India-US business interactions are largely based on complementarity and not head-to-head competition, as was the case with US-Japan trade contestation in the 1980s. There is little substance to the argument that India is willing to take advantage of its strategic partnership with the US to benefit its own economy at the expense of America’s, other than to exert pressure on India to open its market in sectors of interest to US business. It is surprising that while Congressional leaders have urged the USITC to “detail policies India has in place that restrict trade and violate intellectual property rights,” China’s colossal trade surplus with the US, or its questionable business practices, are hardly receiving such attention.

To revive economic growth, Indian policymakers certainly have much to do to provide businesses, both domestic and foreign, with the reassurance of a predictable investment climate – including by easing FDI restrictions, reforming taxation policy, revisiting recent initiatives to promote manufacturing in the technology sector and strengthening the enforcement of IPRs.

However, the US can hardly urge trade and investment reforms by India while directly targeting the outplacement model of Indian IT companies and increasing their costs for transacting business in its Immigration Reform Bill. This pending legislation welcomes India’s brain drain as America’s gain through higher limits for H1-B visas and provisions for US-educated skilled workers, but disadvantages Indian businesses vis-à-vis their US competitors.

And let us be clear, India is hardly likely to emulate the excessively high-cost ($2.7 trillion), evergreening patent-driven, US healthcare model. It needs to uphold a TRIPS-compliant patents regime for pharmaceutical products while also protecting public health imperatives.

Even on preferential market access rules, India’s proposed guidelines are arguably less restrictive than the “Buy America” provision of the US American Recovery and Reconstruction Act of 2009, which accords price preferences of 25 per cent to local manufacturers.

The vast potential of bilateral economic ties lies at the heart of the India-US strategic partnership. It is time to step back and resume a more reasoned discourse on trade and investment before any further damage is done. The hiatus over trade issues has steadily widened and requires to be bridged by a serious re-engagement under the US-India Trade Policy Forum, which has not met for three years. Even where there is disagreement on contentious WTO issues, the fallout should be limited through a sustained dialogue. Apart from the bilateral context, the two sides also need to open a conversation on regional trade agreements (RTAs), such as the US-led Trans-Pacific Partnership (TPP). The eventual participation of India will enhance the TPP’s transformative potential. But for that to happen, India will have to significantly raise its ambitions on RTAs, while the US will have to remove restraints to India’s participation in Asia-Pacific economic frameworks.

Prime Minister Manmohan Singh’s meeting with President Barack Obama in late September can go a long way in putting India-US economic relations back on track. It can deliver some of the low hanging fruit on FDI reform, presuming the passage of pending legislation in the ongoing Parliament session and clarifications on conditions for multi-brand retail. Concrete progress on civil nuclear cooperation can bring the unfulfilled promise of the 2005 bilateral accord to fruition. If India can use the occasion to fast-track the launch of bilateral investment treaty negotiations, so much the better.

We can only hope that the Singh-Obama meeting will overturn recent transactional bickering and revive the strategic mindset which has driven the transformation of India-US relations over the past decade.

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