Though it has recently entered stormy waters, the US-India economic
relationship has the potential to be one of the globe's most dynamic and
broad-based.
Overall, trade and economic ties have steadily grown: over the past 20 years, the two countries have moved from mistrust and mere millions in trade to a strategic partnership approaching $100 billion in two-way trade.
Twenty years ago, it was inconceivable that the two economies would become as intertwined as rapidly as they have.
In order for this upward trajectory to continue, investment barriers in India and legislation proposed in US immigration reform — provisions relating to H-1B dependent companies, which are largely headquartered in India— must be addressed. The governments ought to be facilitating greater economic interaction, not complicating it.
As national elections approach, much-needed structural reform often takes a back seat to pressing concerns facing local communities — a scenario the US understands well. However, both countries should pursue growing bilateral trade and investment, as it stimulates innovation, economic growth and job creation in both countries.
While addressing current difficulties, it is essential for American and Indian policymakers to further enable the full potential of the economic relations.
Overall, trade and economic ties have steadily grown: over the past 20 years, the two countries have moved from mistrust and mere millions in trade to a strategic partnership approaching $100 billion in two-way trade.
Closer business ties have generated a fivefold increase in bilateral
trade since 2000, and as US Vice-President Joe Biden remarked, there is
no reason that trade cannot increase another five times.
But in order for economics to move from potential to reality, as Biden noted, it "requires us to be candid with each other about the obstacles that exist when it comes to a business environment: protection of intellectual property; requirements that companies buy local content; limits on foreign direct investment (FDI); inconsistent tax treatment; barriers to market access".
There is no doubt that these barriers have caused tough problems. But in working through these disputes, neither country's leadership should lose perspective of the rapid expansion and future trajectory of the full bilateral trade and investment relationship. The goal should be to facilitate this key pillar of the deepening US-India partnership.
BIT Needed
While Indian authorities must tackle the mounting concerns of international investors in their country, American policymakers should encourage Indian-based companies to continue to invest in the US, as these investments contribute to the growth and vibrancy of the US economy. India is now the third-fastest-growing source of FDI in the US, and the US is among India's top five preferred FDI destinations.
US investors recognise India's economic potential and are ready to increase their investments. In 2011, US exports to India were up nearly 500% from 2000 and accounted for 1.5% of overall US exports that year.
Coca-Cola recently committed to invest $5 billion in India by 2020. GE India announced an investment of about $50 million for a multidisciplinary and R&D technology centre in Bangalore and $43 million for the development of hydropower projects in the Northeast.
Google has launched a $10 million programme to help 10,000 new businesses get off the ground. In recent years, California's farm exports to India have grown enormously, exceeding $350 million in 2011.
For all the good news, many investors have stayed at bay, confused by India's complex economic bureaucracy and regulatory environment. Structural reforms like land acquisition, labour laws and consistent fiscal policy merit special attention.
Just recently, two major global steelmakers scrapped projects in India, citing inordinate delays related to land acquisition. Systemic problems continue to deter US investors and prevent both countries from further developing their economic potential.
This is one of the reasons that investors look forward to the conclusion of a bilateral investment treaty (BIT) — it provides a level of certainty and predictability, and establishes clear "rules of the road" for both countries. Finance Minister Chidambaram has taken commendable steps to liberalise the economy. Through a series of reforms, the government raised investment limits in the insurance and telecommunications sectors, as well as for certain "stateof-the-art technologies" in the defence sector. Regulations in insurance, petroleum, power exchange, and single-brand retail sectors have been eased, and multi-brand retail is also in the process of being implemented at the state level.
These changes represent important steps, but in order to make strides
in the bilateral economic partnership, India should take a holistic
approach to address lingering investor uncertainty.But in order for economics to move from potential to reality, as Biden noted, it "requires us to be candid with each other about the obstacles that exist when it comes to a business environment: protection of intellectual property; requirements that companies buy local content; limits on foreign direct investment (FDI); inconsistent tax treatment; barriers to market access".
There is no doubt that these barriers have caused tough problems. But in working through these disputes, neither country's leadership should lose perspective of the rapid expansion and future trajectory of the full bilateral trade and investment relationship. The goal should be to facilitate this key pillar of the deepening US-India partnership.
BIT Needed
While Indian authorities must tackle the mounting concerns of international investors in their country, American policymakers should encourage Indian-based companies to continue to invest in the US, as these investments contribute to the growth and vibrancy of the US economy. India is now the third-fastest-growing source of FDI in the US, and the US is among India's top five preferred FDI destinations.
US investors recognise India's economic potential and are ready to increase their investments. In 2011, US exports to India were up nearly 500% from 2000 and accounted for 1.5% of overall US exports that year.
Coca-Cola recently committed to invest $5 billion in India by 2020. GE India announced an investment of about $50 million for a multidisciplinary and R&D technology centre in Bangalore and $43 million for the development of hydropower projects in the Northeast.
Google has launched a $10 million programme to help 10,000 new businesses get off the ground. In recent years, California's farm exports to India have grown enormously, exceeding $350 million in 2011.
For all the good news, many investors have stayed at bay, confused by India's complex economic bureaucracy and regulatory environment. Structural reforms like land acquisition, labour laws and consistent fiscal policy merit special attention.
Just recently, two major global steelmakers scrapped projects in India, citing inordinate delays related to land acquisition. Systemic problems continue to deter US investors and prevent both countries from further developing their economic potential.
This is one of the reasons that investors look forward to the conclusion of a bilateral investment treaty (BIT) — it provides a level of certainty and predictability, and establishes clear "rules of the road" for both countries. Finance Minister Chidambaram has taken commendable steps to liberalise the economy. Through a series of reforms, the government raised investment limits in the insurance and telecommunications sectors, as well as for certain "stateof-the-art technologies" in the defence sector. Regulations in insurance, petroleum, power exchange, and single-brand retail sectors have been eased, and multi-brand retail is also in the process of being implemented at the state level.
Twenty years ago, it was inconceivable that the two economies would become as intertwined as rapidly as they have.
In order for this upward trajectory to continue, investment barriers in India and legislation proposed in US immigration reform — provisions relating to H-1B dependent companies, which are largely headquartered in India— must be addressed. The governments ought to be facilitating greater economic interaction, not complicating it.
As national elections approach, much-needed structural reform often takes a back seat to pressing concerns facing local communities — a scenario the US understands well. However, both countries should pursue growing bilateral trade and investment, as it stimulates innovation, economic growth and job creation in both countries.
While addressing current difficulties, it is essential for American and Indian policymakers to further enable the full potential of the economic relations.