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Between Walls and Bridges of Business

Vaishali Basu was Research Assistant at the Institute for Defence Studies and Analyses, New Delhi.
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  • February 28, 2006

    President George W. Bush will be on his first official trip to India from March 1 to 3. India has travelled the road from natural partner to strategic partner to a global partner of the US in merely a few years. The new equation between India and the United States depends to a large extent on the manner in which business and trade ties progress in the future. This simple fact has been appreciated by both governments and the choice of Hyderabad as the other city besides New Delhi, which President Bush is scheduled to visit, by itself firmly establishes the fact that untapped financial opportunities in India are a prime concern for the American administration in pursuing the bilateral relationship. It is noteworthy that during his one-day Hyderabad trip President Bush will visit the Indian School of Business to meet with a selection of top young Indian entrepreneurs.

    It is interesting to note that coinciding with President Bush's India trip the United States-India Business Council (USIBC) is launching a mission with CEOs and senior industry. The USIBC is a business advocacy organization representing US companies, established in 1975 with the aim of broadening commercial ties with India. Bush's own entourage will comprise of top CEOs from the United States. This goes to demonstrate that the administration while attaching importance to the nuclear deal does not consider it to be the lynchpin of up-and-coming Indo-US relations.

    India and the United States will have to address the problem of low bilateral trade flows and adopt tangible measures to provide them a fillip. Despite a robust 11 per cent annual average growth rate recorded in the past decade, Indo-US trade remains far below potential. Last year Indian Commerce minister Kamal Nath and US Trade Representative Rob Portman had set a goal of doubling bilateral trade, taking it up to $40 billion in the next three years. During President Bush's trip the two sides should re-emphasise the need to increase bilateral trade from the current level of $21 billion. There are several accompanying trade related issues that need to be concentrated on. Like the lack of diversification in the trade basket, followed by the expansion of diversified trade into merchandise products. In the services sector this diversification is already taking place. Today, accounting firms in India are preparing American Internal Revenue Services (IRS) tax returns. In 2005 an estimated 400,000 tax returns were prepared in India.

    One chief constraint that has hindered expansion of bilateral trade is India's high tariffs in the agricultural sector. India has an average tariff rate of nearly 20 per cent in particular for agricultural products and petrochemicals. The issue has been a sore point between the two governments and is highly emotive for most Indians. Indian exporters also have their own set of complaints; the US offers heavy protection to some of its industries like agro products, food processing and textiles, which restrict market access to Indian exporters. Hopefully, President Bush's visit will help address some of these trade distortive practices that have prevented Indo-US economic relations from reaching the maximum potential.

    In the WTO India is engaging in multilateral negotiations in Mode 1, which involves cross border trade in services including BPO, and in Mode 4 which involves the movement of natural persons. During President Bush's visit the Indian leadership should seek a commitment from the US for granting India preferential market access in the United States. This is a critical problem for Indian professionals who even now have to deal with delays in visa and work permits. There are also concerns about discriminatory treatment and non-recognition of professional qualifications of Indians. With the case of Indian nuclear scientists being denied US visa still fresh in our minds, now is the opportunity for the Indian leadership to demand that intellectual equality be recognized and implemented for further expansion of commercial ties.

    There are some steps that India needs to take to guarantee the continued expansion of commercial relations between the two great democracies. To attract greater flows of FDI, India will have to ensure further liberalization of the insurance sector in addition to allowing a bigger opening of the retail sector and deregulation of the media sector. None of these issues are easy to resolve, as the Indian government has to deal with a large and divisive electorate, the majority of which finds India's emerging financial alliance with the US a psychologically emotive issue.

    On a more optimistic note, the institutional mechanisms to facilitate the progress of an Indo-US Economic Dialogue (ED) are already in place. The Economic Dialogue (ED) was launched in 2000, was revised in 2001 and realigned in 2005 to accommodate a separate Energy Dialogue. The Economic Dialogue (ED) within itself has four separate tracks for discussion. These are the Trade Policy Forum, the Financial and Economic Forum, the Environment Dialogue and the Commercial Dialogue. In addition, there is the CEOs forum, which is a high-level private sector forum to exchange business community views on key economic priorities that was launched in July 2005 during PM Manmohan Singh's visit to the US. On March 2, Ratan Tata and William Harrison, CEO of JPMorgan Chase will together present a report in Mumbai showcasing how India and the US can go about improving the "enabling environment" for international business between the two countries. Consequently, in conjunction with sustained dialogue, the two governments need to concentrate essentially on arriving at reasonable solutions and take substantive action to resolve glitches in bilateral economic relations.

    It is hoped that the visit of President Bush will help in curing the respective business communities of some of the psychological drags that have prevented greater investment in India. This is a unique instance in time to harness the inherent complementarities of the two economies in terms of human and natural resources by building strong bridges of business instead of erecting more protectionist walls.