Political India: Engaging America

Deep questions surrounding the quality of the investment climate in India and the access that foreign players have to domestic markets appeared to dampen some of the high-level economic talks underway between senior officials of the Indian and United States governments here.

Following a meeting between India’s Commerce and Industry Minister Anand Sharma and his U.S. counterpart, Trade Representative Ron Kirk, Mr. Kirk said that while booming bilateral trade and investment flows supported “tens of thousands” of critical jobs in both countries, “to continue and grow our successes both India and the U.S. must take concrete steps to resolve long-standing market access and investment concerns.”

There also appeared to be a push on both sides of the negotiating table to get a stagnating Bilateral Investment Treaty kick-started, with calls on the U.S. side to “re-invigorate those negotiations by holding such discussions as soon as possible, ideally before the next meeting of the U.S.-India Trade Policy Forum.”

While bilateral trade had grown to above $85 billion if both services and merchandise trade were counted, Mr. Sharma said, the discussions with Mr. Kirk also focussed on making the TPF “more focused and effective in taking forward some of the initiatives connected with the identified priority sectors.”

Talks positive

These remarks notwithstanding, Mr. Sharma described the talks on trade and investment in relatively positive terms in a briefing with media here, arguing that there was a “visible interest and enthusiasm on the part of corporate leaders of both the U.S. and India to engage more.”

He noted that the reason that he and Mr. Kirk had spoken of “fast-tracking” the BIT discussions was that there were numerous technical aspects to such a treaty and also the U.S. had to first complete its global review of all BITs more generally.

However discussions with representatives of the Indian private sector, also in Washington this week in parallel to political leaders’ meetings, suggested that there was similar concern within India on the quality of the investment climate.

Rajiv Kumar, Secretary-General of the Federation of Indian Chambers of Commerce and Industry, in another briefing highlighted the risks in the Indian economy at present, especially those stemming from the Reserve Bank of India’s policy to raise interest rates ten times in the past year, a total of 275 basis points.

Mr. Kumar, an economist who has formerly worked at the Asian Development Bank, said, “To tackle inflation, supply side constraints need to be addressed rather than reducing demand [through interest rate hikes.]”

Both he and the President of FICCI, Harsh Mariwala, indicated that the “souring of the investment climate” had gone hand in hand with greater uncertainty, a paralysis of the reform and a crisis of confidence in the country. There has been “no signal from govt that investment or growth is a priority,” Mr. Kumar said, citing stalled progress with reforms in land and education policies and for Foreign Direct Investment in the retail sector.

The apparently bumpy path to closer trade and investment ties between India and the U.S., however appeared to stand in contrast to the steady progress in resolving other outstanding issues that have threatened to spoil the bilateral bonhomie of recent months.

Firm stance on visa issuances

Mr. Sharma took a firm stance, for example, on the issue of reduced visa issuances to Indian IT company workers, arguing that the ostensibly protectionist moves by U.S. immigration authorities were in many cases “initiatives by individual Congressmen but we have taken it up with them”.

The Minister added, “Our position, which is unchanged, on that is that we feel there should not be any discriminatory steps which adversely affect operations by services sector companies, especially the IT sector, or the movement of professionals. They are also making a notable contribution to make the U.S. industries globally competitive.”

Similarly there was new cause for optimism on India’s prospects for economic growth. In a presentation made to the U.S. government, all the economists and analysts who were present were said to have been “unanimous in their view that the Indian economy would become the fastest growing economy in the world in the next few years,” according to officials here.

Discussions were also said to have touched upon the long-standing policy conundrum of the Totalisation Agreement, or the regulations that lead to Indian companies paying in excess of $1 billion per year toward U.S. social security yet do not see the benefits of it given their short-stay positions here.

“We have signed social security agreements with a large number of countries in Europe and most of those countries have agreements with the U.S. also, which we have underscored,” Mr. Sharma said.

While this week’s discussions in Washington were led by Mr. Sharma, next week Finance Minister Pranab Mukherjee will hold a series of meetings with Treasury Secretary Tim Geithner and other top administration officials, under the aegis of the U.S.-India Economic and Financial Partnership.

The talks underway are precursors to the second round of the U.S.-India Strategic Dialogue, slated for mid-July in New Delhi.