Narendra Modi's economy managers are busy ensuring that India puts its best foot forward, like the troopers in the Republic Day parade, when Barack Obama comes calling. They have started checking and correcting every little thing that could go wrong, just about the time when the troopers started rehearsing their march.
Their biggest worry, however, is what would be on the US president's mind when he takes the Air Force One from Washington—the good impression that Secretary of State John Kerry and his team would have carried back from the Vibrant Gujarat jamboree or the bad impression that could have been created by a report submitted by the US International Trade Commission to the US senate in December.
The report, titled Trade, Investment and Industrial Policies in India: Effects on the US Economy, damns India's investment-restrictive policies. It says the share of US companies... adversely affected by restrictive Indian policies rose from 18.8 per cent to 26.1 per cent between 2007 and 2013. More than 60 per cent of the affected companies had to make strategic changes to deal with Indian policies, “most often directing fewer resources to the Indian market”.
The heartburn to US Inc was mainly caused by the Indian policies and procedures on tariffs and customs, foreign direct investment restrictions, local sourcing requirements, treatment of intellectual property, tax regulations and regulatory uncertainty. Then there were price controls, unclear legal liability, and sanitary and phytosanitary standards.
Though the report has put the economy managers on the back foot, they are putting up a brave face. “It was compiled after surveying US companies functioning in India over a period of time, and so pertains largely to the period under the previous government,” said a senior officer. They are trying to ensure that Obama goes back with a different impression. Anyway, they did impress Kerry and team in Gujarat. About a week before USITC submitted the report, Amitabh Kant, secretary at department of industrial policy and promotion, and D.V. Prasad, joint secretary, called a meeting of an inter-ministerial group with business representatives, set up after Modi's visit to the US in October.
Thirty companies sent their representatives and 25 issues were addressed. “We had meetings in December and January,” said Kant. “We have sorted out a number of issues and sent them to respective ministries. We will try to sort out as many problems as possible before President Obama's visit.” Indian operations of the e-commerce giant eBay, financial services company Morgan Stanley, food processing company Heinz and automaker Ford were the most vocal in the meeting. EBay had urged simplified procedures of e-commerce shipments.
The request has been sent to revenue secretary Shaktikanta Das. Morgan Stanley has sought approval from the Foreign Investment Promotion Board to set up a limited liability partnership for providing IT/ITES through public telecommunications resources. The request has been sent to telecom secretary Rakesh Garg. Heinz is looking for approval for its products Complan and Glucon-D and was aggrieved by the government's refusal to issue food business operator licences to manufacture these products.
The request has been sent to health secretary Lov Verma. Ford wanted to improve the road connectivity between its plant in Sanand, Gujarat, to the Pipavav port. The request has been sent to National Highways Authority of India chairman R.P. Singh.
“These inter-ministerial consultations are a huge departure from the past,” said Ajay Singha, executive director, American Chamber of Commerce in India. “The government has moved to looking at company-specific problems. Areas where quick action can make a lot of difference would be fixing customs and tariffs. There have been tremendous changes, but there is still scope to bring them at par with the best in the world.”
Doing business with the US, experts say, is different from how it is done with most other countries. “Money is not going to flow [from the US] in the same pattern as it does from Japan,” said Singha. “Financial services reforms have to be brought in if cheaper money has to be brought in from the US.”
The USITC report suggests investment would double and export increase by two-thirds if India scraps its restrictions on tariff and investment, and makes its standards of intellectual property protection comparable to those in the US and western Europe. Modi's US visit had got things moving. “Discussions which had stopped for the last three-four years have been renewed and that is a positive signal,” said Rajesh Menon, deputy director general, Confederation of Indian Industry.
The US-India CEO Forum, led by Tata Sons chairman Cyrus P. Mistry and Honeywell International chairman and CEO David Cote, will meet during Obama's visit, after a lull of four years, to discuss ways of boosting trade. A working group on intellectual property rights issues was set up during Modi's US visit, but its meeting has been put off by a year.
The government hopes that the ordinances clearing land acquisition and foreign direct investment in insurance have sent a pro-industry signal to the world. Officials say they have been focusing on improving ease of doing business in India and elevating its business-friendly rating from an embarrassing 142nd position among 189 countries to a place in the top 50 in three years. Commerce ministry mandarins have been asked to cut down on paperwork and introduce single-window clearances. “There has been investment interest coming from US companies,” said Kant.
managers expect Obama's team to raise at least 50 issues relating to trade, defence and nuclear technology, and have been preparing responses. The rate of growth in mutual trade has fallen from 26 per cent in 2009-10 to 3 per cent in the subsequent years. “Modi wants India to host a few trade missions from the US this year to boost infrastructure through technology transfer,” said a commerce ministry official.
India is likely to draw the Obama team's attention to Modi's pet programmes such as Swachh Bharat and smart cities. Though there is not much that US corporations can do about Swachh Bharat, companies like IBM and Cisco have surveyed Delhi, Ajmer, Visakhapatnam and Allahabad on the smart city initiative. Also, the US-India Business Council and National Skill Development Corporation have signed a memorandum of understanding and six US companies are willing to set up skill centres in India. The ministry of new and renewable energy is likely to announce projects under Exim Bank while US companies have shown interest in tenders for six projects in the Delhi-Mumbai Industrial Corridor.
it is likely to ask to return some favours. SelectUSA, a US investment promotion body, says India is the eighth fastest growing source of FDI into the US. Sixty-eight Indian companies have invested $17 billion in the US, creating 81,000 jobs, according to a 2013 survey. Modi may ask Obama to join his Make in India initiative. Corning, GE and Caterpillar have consulted the Make in India team to find out if they could resolve some pending issues and expand their current investment.
India Inc, too, has a wish list. Immigration problems faced by IT companies, the absence of a totalisation agreement between the countries and Foreign Account Tax Compliance Act have been sore points. For instance, said Ranjana Khanna, secretary general of Indo-American Chamber of Commerce, in the absence of a totalisation agreement, the money that Indian professionals pay to the US is $1.8 to $2 billion a year.
MUTUAL GAIN
* The bilateral trade in merchandise goods between India and the US in 2013 was $63.7 billion. From January to October 2014, it was $55.86 billion.
* India's merchandise exports to the US grew by 6.8 per cent, from $35.97 billion to $38.42 billion, during January-October 2014 compared with the same period in 2013. US exports of merchandise to India fell by 5.36 per cent, from $18.43 billion to $17.44 billion, during the period.
