India and the United States need a few “early wins” to prove that there is substance in the promises made by Prime Minister Narendra Modi during his visit to encourage American investments.
In the first public comments by senior US officials since the successful, high-visibility visit, it was clear that while Modi managed to revive interest in India in both the official and corporate worlds, the hard-nosed Americans want to see concrete steps before declaring that “happy days are here again.”
Commerce Secretary Penny Pritzker and US Trade Representative Michael Froman made an appearance at the annual “leadership” meeting of the US-India Business Council, an advocacy organization with 300 member companies. Pritzker and Froman are two key officials whose sentiments and words are important as signals. A senior defence department official and a lead person on India, Frank Kendall, was also present.
While Froman and Pritzker were moderately hopeful, Kendall was extremely enthusiastic about moving ahead with India. Kendall, who is under-secretary for defence for technology, compared the “slow progress” under the UPA government and the prompt responses by the Modi government. Nothing happened for nearly two years since the Defence Technology and Trade Initiative (DTTI) was announced, but after May this year, Kendall noticed a marked difference in attitude towards the agreement, which is expected to boost defence cooperation between the two countries.
New Delhi moved swiftly to appoint Mohan Kumar, defence secretary (production) as Kendall’s counterpart to move DTTI discussions quickly forward. Kumar then came to Washington in August with a large delegation for detailed discussions – a far cry from the pre-Modi days when pause after pause in the defence relationship made the Pentagon wonder if India was serious.
Kendall said Thursday that his department had approved two technology licenses for India, which had stalled in his bureaucracy to show American commitment to the partnership.
By contrast, Froman used the occasion to remind New Delhi of all that remains to be done. Modi’s decision to block the Trade Facilitation Agreement under the WTO until the developed countries give him satisfaction on the question of food subsidies continues to rattle the Americans.
Froman, whose opinion on India has soured over the years, said the US was willing to “provide reassurances” and create a win-win agreement for India. But he was blunt in signaling that if the two countries can’t work through this, then they won’t be able to resolve their bigger differences.
Differences on India’s intellectual property laws remain and both sides have decided to create a working group to thrash out differences. Here is where US pharma lobby’s demand to remove Section 3 (d) from India’s Patent Law will come up against the government’s obligation to keep medicines affordable. Section 3 (d) protects against “evergreening” or the pharma companies’ habit of re-releasing the same drug after shifting the molecules around and demanding a new patent.
New Delhi already has pushed back through delegation-level talks before Modi’s visit. Froman’s comments on Thursday indicated that the pushback might have worked. He said the two governments were “on the same page” on affordability of medicines.
While Froman praised Modi for “effectively portraying his vision” of a modern India, he said the expectations of the US government and the business community were “quite high.” He also hinted that unless India gets its act together, it can’t become a part of the “global supply chain.”
This is code for faster opening up of the Indian economy and “incentives” for investments and removal of “local content requirements” which are designed to encourage local manufacturing. Predictability about India’s tax laws would be one of the first indicators to restore confidence, given the Vodafone case.
The Bombay High Court’s ruling on Friday in favor of Vodafone in its tax dispute with the Indian government for $490 million should go a long way to calm nerves in the American corporate world. Vodafone is contesting another $2 billion in taxes demanded by Indian tax authorities.
The Modi government will have to decide whether it wants to give a free reign to foreign companies that often use “transfer pricing” – the value at which multinational companies trade their products and assets between their units in different countries – as a way to avoid paying taxes anywhere. President Barack Obama himself has come down hard on US companies using innovative methods to avoid US taxes.
India needs investments right now and it will have to strike a fine balance between attracting investment dollars and losing tax dollars.
Prtizker said it was necessary to have some “early wins” or successes to signal an improved business climate in India. It would also help “build confidence” in India again, she said, clearly indicating that talk-talk must result in walk-walk.
US corporations would look at how easy it is to open and close businesses in India, how easy it is to acquire land or to get financing. “Financing is an impediment because some American investors have been burnt in India,” Pritzker told the audience.
In this connection, the Infrastructure Collaboration Platform announced after Modi held official talks with President Barack Obama, could play the important role of flagging the new opportunities for US companies. Modi’s message that government must be a “facilitator” of business has registered but the feeling is that unless some of the laws are scrapped it won’t help much.
Pritzker also pointed out that India-US trade has been “pretty flat” for some time and must grow to the target of $500 billion a year as envisioned by Vice President Joseph Biden.
Ajay Banga, USIBC chairman and CEO of Mastercard, tried to strike a balanced note in his address, and praised Modi for reassuring the corporate sector. He mentioned the positives: the raising of FDI caps, no retroactive taxation and the Prime Minister’s statement that the government should be a “facilitator” of business.
“The direction is clear,” Banga said, but added that there was a need to pass the insurance bill and deepen India’s financial markets. “It is a defining moment in a defining relationship.”
The views expressed in the above article are of Ms.Seema Sirohi, a senior journalist based in Washington D.C.
By Seema Sirohi
—-ANI