The Ambassador expressed serious concern that despite India ranking high on the
US Administrations priorities, the systematic Indo-US economic relationship was
largely stagnant. In spite of the advances made in the political, diplomatic, military
and intelligence ties over the past several months, one area lagging behind was
that of US-India economic relations. The Ambassador was convinced that the long-term
success of the US-India bilateral transformation would hinge largely on a parallel
invigoration of bilateral economic relationship.
Speaking on India's economic reform process, the Ambassador pointed out that the
pace of reform had slowed. He informed that both United States and India depend
upon sustained economic growth and development to secure bright economic futures
for their countries. Despite India having made significant progress in market reforms
over the past decade, it urgently required to implement economic reforms in areas
like power, agricultural sectors, intellectual property rights, labor and fiscal
discipline.
On the issue of our bilateral trade, particularly US exports to India, the Ambassador
maintained that the performance was disappointing. While India's exports to the
United States had steadily expanded since the mid-1990s (from $5.7 billion in 1995
to $ 10.7 billion in 2000), the trend of US trade flows to India since 1995 had
stagnated. India consisted of a meagre 0.6% of US's global trade. There were many
reasons, both domestic and external, for such a poor performance. Some of the concerns
evinced by US business are mentioned hereunder:
At 30%, India's average tariff rate was one of the highest worldwide, and was hampering
trade between US and India. The high aggregate duties (upto 700%) on imported spirits
and wine had clearly blocked legitimate trade and so had the 115% tariff imposed
on Californian resins on imports from USA. The Indian Government had imposed non
tariff barriers in the form of labelling regulations that add to the costs of production.
Besides, import of 131 commodities had to comply with the Indian quality standards.
The requirement, that the US exporters or the manufacturers had to obtain a certificate
from the Bureau of Indian Standards before exporting their goods to India was perceived
as a counter-productive intervention.
The Ambassador felt that tariff rates on some primary and intermediate products
were the same or even higher than the duties on the finished product. This inverted
tax structure is detrimental to the foreign investor, and, calls for tariff rationalization.
Another major trade obstacle is lack of a world class WTO consistent product patent
law in India to protect innovation, promote technology transfer and safeguard public
health. Further reduction of tariff and non tariff barriers, harmonization of the
existing tariff structure and IPR protection in India could, overtime, help to boost
trade with the United States to volumes that are commensurate with the changing
relationship between the two nations.
Speaking on the scenario of Foreign Direct Investment in India, the Ambassador pointed
out that the number of man-days consumed in obtaining local, state and federal clearances
for foreign investment in India are extremely high. He informed that according to
a FICCI study, approximately 3,456 man-days were being consumed within the Indian
Government for clearances - which is almost ten years of efforts for a single person.
In some cases even after approval for investment, a power project could require
as many as hundred additional clearances. This was a matter of great concern. According
to an AMCHAM / McKinsey report on FDI in India, dual approvals for power project
cause delay and budget overruns, thereby, severely effecting the economies of a
power project. The ambassador compared the scenario of FDI in the processed foods
sector, where a new project approval requires seven steps and takes two years in
India; two steps and three months in US; and one step and seven days in Singapore.
The Ambassador further suggested that, barring defense & atomic research, most of
the investments should not require Government approvals.
He informed that his Government considered that economic ties between both the two
countries were improving progressively along the broad fronts of trade, environment,
finance and energy. Several significant developments between both the countries
were highlighted. The Ambassador informed that a policy dialogue had already been
launched between both the countries by Mr. Murasoli Maran, Indian Commerce Minister
and Mr. Robert Zoellick, US Trade Representative. They have had two subsequent meetings
so far and had very recently, successfully started video conferencing to discuss
the range of bilateral and multi-lateral trade issues. An MOU on environment had
been signed between both the countries to provide a framework for long term environmental
co-operation to include capacity building for air quality management, environmental
governance and environmental health promotion. A meeting of the US Deputy Treasury
Secretary, Mr. Kenneth Dam with the Finance Minister and Cabinet level officials
in the Indian Government, to focus on a wide range of issues including global economic
issues, economic reform, international terrorism and development assistance flows
has been scheduled shortly. Energy security and power sector issues including collaborative
work on clean energy technology were other engagements of the US side on the Energy
Dialogue.
A notable feature of the economic dialogue between both the countries has been to
give a focus to the full and pro-active participation of the private sector to facilitate
expansion of US-India economic and commercial ties and opportunities. Towards this
end, the involvement of the business community is essential.
The Ambassador spoke of some US commercial success stories in India. He cited examples
of successful enterprises like General Electric, Owens Corning, Proctor and Gamble
India, Ford India, Tecumesh Products India Ltd., Chubb Corporation, and City Bank.
For the success of US companies in India, the Ambassador advised the US investors
in India to demonstrate a high level of commitment, keep the Indian bureaucracy
focussed, fashion India specific marketing and distribution strategies, choose local
partner carefully, be environmentally sensitive and, above all, advised them to
keep realistic expectations. IT wonders in India had demonstrated an excellent example
that greater integration with the globalised economy helped in building a more competitive
domestic industry. The ambassador expressed confidence that with minimum barriers,
trade between both the countries would flourish.
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