Despite
the presence of a group of high-profile chief executives and the launch
of an Indo-US CEOs Forum, strategic rather than economic issues hogged
the limelight during Indian Prime Minister Manmohan Singh’s visit
to the US. Purely economic matters, even when discussed, were more
frills to the show that occurred in the sidelines, rather than contributions
to an advance in the relationship between the two countries. The agreement
on nuclear energy cooperation subject to controversial conditionalities,
the announcement of a joint global democracy initiative that signals
a new pro-US tilt and the PM’s sceptical statements on the India-Pakistan-Iran
gas pipeline were and would remain the focus of interest. Even the
PM identified the nuclear ''breakthrough'' as being the high-point
of his visit.
The economic elements of the joint statement that the visit yielded
sound humdrum and uninspiring. They promise to:
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Revitalize the U.S.-India Economic Dialogue and launch a CEO Forum
to harness private sector energy and ideas to deepen the bilateral
economic relationship.
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Support and accelerate economic growth in both countries through
greater trade, investment, and technology collaboration.
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Promote modernization of India’s infrastructure as a prerequisite
for the continued growth of the Indian economy. As India enhances
its investment climate, opportunities for investment will increase.
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Launch a U.S.-India Knowledge Initiative on Agriculture focused
on promoting teaching, research, service and commercial linkages.
This
uninspired tone is indeed surprising since trade and investment linkages
between the two countries are not just significant but rapidly increasing.
Total bilateral trade in 2004 crossed US $21 billion, having risen by
more than 50 per cent since 2001 and doubled sine 1998. It is true that
this increased two way flow seems to benefit India more than it does
the US. At the end of calendar 2004, US exports to India stood at US$
6.09 billion and imports from India at US$ 15.56 billion. This balance
of trade in India’s favour has not only existed for over two decades,
but had increased from around $3 billion in 1994.
But trade liberalisation involving the removal of quantitative restrictions
and reductions in tariffs seem to be changing matters recently. After
stagnating at around $3.5 billion, for five years or more, US exports
to India crossed US$ 4 billion mark in 2002 and rose to touch $6.09
billion in 2004. US merchandise exports to India grew by more than 22
per cent in 2004, whereas the US merchandise exports to global markets
grew by just over 12 per cent. Moreover, India is an important destination
for US foreign investment, which makes the revenues earned by US corporations
in Indian markets far more important than the export figures suggest.
Around a fifth of foreign investment approvals into India since the
launch of accelerated ''reform'' in 1991 was proposed by US firms.
From India’s point of view, the US is obviously an important trade partner.
The US now accounts for 28 per cent of India’s trade and is the main
market for the fast growing software and IT-enabled services exports
from India. According to NASSCOM, 68 per cent of the $12.8 billion of
software and IT-enabled services exports from India was directed at
the US.
Thus, it is not because the economic relationship between the two countries
is insignificant or not expanding that it received less attention in
the course of the visit. There are clearly other reasons for the downplaying
of matters economic, which still do dominate the headlines in day-to-day
reportage. Principal among these is a post-liberalisation transformation
that has introduced an element of asymmetry into the economic relationship
between the two countries.
With India having graduated out of the aid arena because of its relatively
comfortable balance of payments position and large capital inflows through
private channels, the country no more requires direct support from the
US government’s aid budget. Government-to-government agreements are
significant only inasmuch as they promise to facilitate or regulate
private sector relationships. Hence, if India was adopting a larger
developing country perspective, it would have demanded that the US should
cutback on the support it provides to its farming community in the form
of direct support measures. The OECD estimates that the total support
provided by the US government to its farming community stood at $109
billion in 2004. Such support keeps US production of agricultural goods
at levels much higher than they would have otherwise been and both reduces
access to global markets of producers in other countries as well as
depresses the world prices of commodities exported by developing countries.
If despite this the matter did not figure in talks at the highest level,
the reason is that in the current scenario, agriculture is not India’s
principal concern. Rather it is services, especially software and IT-enabled
services, which concerns India most today.
In this area, offshoring or the outsourcing of services by US firms
to captive units or independent suppliers in India has for some time
now been a source of controversy in the US. Arguments that such offshoring
involves not just the transfer abroad of new job opportunities that
would have arisen in the developed countries, but the loss of existing
jobs in the US to offshore locations, abound. They derive their strength
from reports that specific corporations have been reducing or plan to
reduce their workforce in the US, even while expanding them in developing
countries such as India. In the event, calls for protectionist responses
that limit and roll-back the offshoring of services have increased.
Fortunately for India, the Bush administration and corporate America
have thus far resisted the pressure to turn protectionist in this area,
despite the effort in several states to pass legislation that restricts
such outsourcing. In the circumstance, India finds it more convenient
to ignore the issue of restraints on trade, rather than focus attention
on it by demanding an assurance that services exports would not be protected,
that greater freedoms would be provided for the movement of Indian IT
personnel to the US on H-1B visas and that less domestic support would
be provided to US farmers.
This does not, however, mean that the US has a similar attitude. It
would after all be interested in a set of assurances and/or actions
on the part of the Indian government that help improve the trade and
investment environment in a way that reduces its trade deficit with
India. For example, in a speech at a recent luncheon meeting hosted
by the Federation of Indian Chambers of Commerce and Industry and the
American Chamber of Commerce, U.S. Ambassador David C. Mulford said:
"India's prosperity lies in trading more with the world, not less.
I applaud what India has done so far to lower tariffs and taxes. I hope
the next generation of reforms will offer more progress, both on tariffs
and on the non-tariff barriers that are so frustrating and time consuming
for economic agents to navigate, negotiate and resolve.''
The reason why this interest did not explicitly figure in the statement
that emerged from the PM’s visit was because much had already been done
in the run up to the visit to meet US demands in this area. This was
clear from the PM's opening statement at US National Press Club at Washington
D.C. on July 20, 2005. He said: ''Our track record on cooperation with
the United States, even within the last year that our Government has
been in office, clearly conveys a determination to raise its quality,
content and scope. We have completed the next steps in strategic partnership.
We have established Energy and Economic Dialogues at the very high cabinet
levels, put in place an Intellectual Property Rights regime and investment
policies that encourage business. We have addressed the long standing
disputes about American direct investments in the famous Dabhol project.
We have recently concluded with the United States an Open Skies Agreement.
We have expanded our defence cooperation with a new framework and worked
very closely with the US on tsunami relief operations last year. These
achievements give us the confidence to now tackle the more ambitious
agenda that we have before us.''
The controversial nature of some of these strategic ''next steps'' hardly
needs emphasising. According to the NGO Prayas Energy Group (Economic
and Political Weekly, June 18, 2005), the finances needed to buy out
foreign investors and institutions in the Dabhol project amounts to
around $761 million or Rs.3300 crore. In its view, by arriving at an
agreement, ''the government of India is making settlement of one of
the largest international claims on India. But while doing this, it
has not bothered to follow the basic norms of checking the claimed figures.
It has not checked whether the claims of equity invested by these multinationals
are correct. Neither has it audited the expenditure of US $3 billion
claimed by DPC.'' It is still unclear whether and how the government
has carried out an independent evaluation of the claims by GE and Bechtel
regarding their past dues and the cost of restarting the project.
There are other concessions that the US seems to have won for corporate
America as well. At the end of April, Air India announced that it would
order 50 aircrafts from the Boeing Company in a deal worth $6.9 billion.
The deal included eight B777-200 LR (more than 250 seats) medium capacity
ultra long-range aircrafts, 15 B777-300 ER medium capacity long-range
350-seater aircrafts and 27 B787 medium capacity long-range 250-seater
aircrafts. The announcement of the deal generated a miffed and angry
response from a spokesman of Airbus Industries, who said: "We are
disappointed at the decision of Air India especially when we offered
a better solution for more competitiveness." In fact, according
to the New York Times of April 27: ''While both Boeing and Airbus outdid
each other with financial and technical offers to clinch the Air India
deal, intense lobbying between governments may have finally swung the
deal to Boeing. President Bush spoke recently to India's Prime Minister
Manmohan Singh, about the purchase, and the American transportation
secretary, Norman Y. Mineta, last week lobbied Aviation Minister Praful
Patel.''
Boeing’s India foray does not stop here. It has now joined the race
to supply fighter jets to the Indian Air Force weeks after the United
States and India signed a strategic defence pact. Reportedly in response
to a request from the Indian government, Boeing made a presentation
of its latest multipurpose jet—the F/A-18 Super Hornet—to defence officials
last fortnight. The Super Hornet is the U.S. Navy's newest strike fighter
which is a multi-role combat plane. The language was all right. ''We
are pleased to have the opportunity to provide India with a premier
aircraft that will help guarantee the security of India and its people,''
said Chris Chadwick, Boeing vice president for F/A-18 programs. Indian
Prime Minister Manmohan Singh’s visit to Washington had made the environment
more favorable for U.S.-based defence contractors wanting to do business
with India, he added.
In sum, the US has got and continues to get what it wants from India
on the economic front. On the other hand, India is not making too many
economic demands, but would like the status quo to continue and the
situation to improve in areas like the services trade. So economics,
while important, is not the publicly declared flavour of the season
in Indo-US relations. But it is clear that India is providing a range
of economic concessions to the US in the hope of strategic gains. One
is a change in the treatment it receives relative to Pakistan from the
US. The second is support for a permanent seat in the UN Security Council.
And the third is access to nuclear fuel for civilian energy purposes.
It seems that some gains have been made on the first and none on the
second. Only time will tell whether India has actually won anything
with respect to the third and, if it has, whether it has given or promised
to give far too much in return.
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