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India, US talk
business
By Siddharth
Srivastava
NEW DELHI - Though issues
related to foreign policy, the nuclear pact, UN
reforms and defense supplies hogged the limelight
during Indian Prime Minister Manmohan Singh's
visit to the US, the two sides quietly made great
strides in business cooperation as well.
Voicing a strong case for the Indian
economy, Singh said India's growth and prosperity
is in America's interest. "Our rate of growth has
increased steadily. We hope to raise our growth
rate to 8% or so over the next two years," said
Manmohan while addressing the joint session of the
US Congress, adding that expanded US investments
would go a long way in achieving that growth
target. Inviting US corporates to invest in India,
the economist-turned statesman said: "American
investments in India, especially in new technology
areas, will help US companies to reduce costs and
become more competitive globally. US firms are
already leading the foreign investment drive in
India. I believe 400 of the Fortune 500 are
already in India."
Among the significant
initiatives that were unveiled at the meeting
between Singh and US President George W Bush has
been the launch of a high-level bilateral CEO
forum. The forum is intended to provide effective
private sector participation in the economic
dialogues between India and the US. The CEO forum
brings together 10 top businessmen each from India
and the US to promote Indo-US economic cooperation
in the coming years. Not conceived as a pressure
group on the two governments, the forum has been
designed to provide a practical and hands-on body
influencing economic policymaking in both
countries.
"Extending beyond trade, which
is rapidly growing, the intensifying and
increasingly complex economic links being forged
between our two countries are having a profound
impact on our joint and respective economic
outlook in the 21st century," said the State
Department announcing the forum. "Both our
governments have agreed that we should create a
high-level private sector forum to exchange
business community views on key economic
priorities. Input from the business community is
an integral component of a successful bilateral
economic dialogue."
The Indian CEOs in the
forum are Ratan Tata (Tata group), Mukhesh Ambani
(Reliance), Nandan Nilekani (Infosys), Yogesh
Deveshwar (ITC), Dr Pratap Reddy (Apollo
Hospitals), Baba N Kalyani (Bharat Forge), Kiran
Mazumdar-Shaw (Biocon India), Deepak Parekh
(HDFC), Ashok Ganguly (ICICI) and Analjit Singh
(Max India). Those in the American team are
Charles Prince (Citigroup), Warren Stanley
(Cargill), Steven Reinemund (Pepsi), David Cote
(Honeywell), Paul Hanrahan (AES Corporation),
William Harrison Jr (JP MorganChase), Harold
McGraw III (McGraw-Hill Companies), Thomas J
O'Neill (Parsons Brinckerhoff), Christopher
Rodrigues (Visa International) and Anne M Mulcahy
(Xerox).
The US is India's biggest trading
partner and its largest investor. Foreign Direct
Investment (FDI) totaled over US$4 billion in
2004, more than double the figure in 1998. Trade
in merchandise stood at $21.7 billion last year.
But these figures are still puny compared to the
trade and investment figures between China and the
US. "Our focus remains on instituting policies of
high growth aimed at encouraging investment flows
and expanding trade. We are currently receiving
about $6 billion annually as foreign investment.
We need several times this amount," Singh said.
Thus, it's FDI around which India's needs
primarily revolve. "India needs massive direct
foreign investment, especially in modernizing our
infrastructure,'' Manmohan told the US Congress.
"I hope American companies will participate in the
opportunities we are creating." The Singh
government has firmed up a regulatory framework
for infrastructure investment to create the
necessary environment to attract $150 billion to
build power plants, expand highways and the rail
network, and modernize the country's ports for
achieving the targeted 7-8 % growth.
There
is intense competition among China, India and
Southeast Asian countries to attract FDI, with
China leading the pack by a huge margin. China
aggressively seeks FDI as the engine of high
growth, attracting over $50 billion every year,
while India hopes to touch the $15 billion mark by
2006. China's remarkable success in a period of 20
years has been due to substantial tax concessions,
leasing of land and property, government
guarantees for investment and special arrangements
regarding retention and repatriation of foreign
exchange.
The Indian prime minister has
been taking a personal interest in ensuring that
India pulls off a China-like leap in its exports
to the lucrative US market as well drawing FDI
from the country. In April, US-based Boeing won a
$6.9 billion order for 50 aircraft from Air India,
India's public sector airline. Boeing faced stiff
competition from France's Airbus, but a personal
intervention by Bush sealed the deal. News reports
this week quoted Pentagon officials as saying that
the US expected India to start purchasing as much
as $5 billion worth of conventional military
equipment as a result of the nuclear deal, if
approved by Congress. India would clearly want its
pound of flesh for all the money it's spending.
Earlier this year, a newly constituted
trade and economic relations committee (TERC),
chaired by Singh, in its first meeting discussed
the outline of a medium-term strategy to enhance
trade with America. The committee's aim is to
double India's share in the US market from the
present 1% to 2% in the next five years. India's
exports are targeted to reach $30 billion by 2010
from $13.2 billion in fiscal 2005. In addition,
trade in services and investment flows will be the
focus areas of India's US strategy. At the TERC
meeting, Singh endorsed this assessment and
emphasized that India must increase the level of
economic interaction with the US. "China's
economic engagement with the US is 10 times that
of India. There is vast potential for increased
trade and investment relations with the US. We
must consider how we can realize this potential,"
he said.
Outsourcing from the US remains a
money-spinner for India, even without much
government intervention. A McKinsey report on the
information technology enabled sector (ITES) has
revised the previous figure of India's outsourcing
industry from $17 billion to $21-24 billion by
2008. India is slated to garner 25% of the
offshore market, with the US remaining the largest
source, providing 60% of the business. India's
export of software services already exceeds $12
billion.
US companies want the Indian
government to allow freer investments in areas
such as banking and insurance, and open up the
retail sector. India's retail market is valued at
over $180 billion, and several foreign players are
urging the country to open the sector. Earlier
this year, the world's largest retailer, Wal-Mart,
made a pitch to the Indian government when the
group's international president John Menzer met
Singh and Commerce Minister Kamal Nath. US
retailers like Wal-Mart, Gap and Chico's FAS are
increasingly buying more inexpensive jewelry and
clothing from India as they brace for rising costs
from China, their biggest overseas supplier. Goods
from China would be more expensive if China
revalues its currency, as the US is
demanding.
Agriculture was another focus
area. Singh said he and Bush would soon activate a
second "green revolution" along the lines of the
successful one launched in the 1960s that helped
India to become self-sufficient in food grains. In
his Congress speech, Singh said: "I am very happy
to say that President Bush and I have decided to
launch a second generation of India-US
collaboration in agriculture. The new initiative
will focus on basic and strategic research for
sustainable development of agriculture to meet the
challenge of raising productivity in conditions of
water stress. The bulk of our population still
depends upon agriculture for a living. The US was
an early partner in this area, helping to
establish agricultural universities and research
institutions in India in the 1960s. It was an
American, Nobel Laureate Norman Borlaug, supported
by a grant from the Rockfeller Foundation, who
developed high-yielding varieties of wheat in
Mexico, which were then adapted to Indian
conditions in the agricultural universities you
helped establish... [the second revolution] will
help Indian farmers participate more fully in
global agricultural trade."
To the credit
of the Singh government, it has managed to push
through reforms in the civil aviation, telecom as
well as construction sectors, but a lot remains to
be done. A key area remains administrative
reforms. A recent study by the Confederation of
Indian Industry said a typical trade transaction
into India goes through 30 separate parties,
requires 257 signatures and 118 copies of the same
document. Then there is politics. The left
parties, key coalition partners of the ruling
Congress-led United Progressive Alliance (UPA)
government, have been giving a tough time to the
government on its economic reforms agenda,
including relations with the US. While the left is
known for its anti-US stance, the virulence and
fury with which it is attacking the government on
relations with the US has caught many by surprise.
Prior to his US visit, Singh had to in fact
declare that he would not compromise India's
interests.
Siddharth Srivastava
is a New Delhi-based journalist.
(Copyright 2005 Asia Times Online Ltd. All
rights reserved. Please contact us for information
on sales, syndication and republishing.) |
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