Making A Difference

Unfinished Business

Behind the scenes, it will be critical economic issues that will be thrashed out

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Unfinished Business
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  • The crux of the Bush visit is economic cooperation and "fair trade"—both areas will need some tough bargaining
  • Agribusiness giants like Cargill will push for a boost in areas like biotech. Wal-Mart will vie for opening up retail.
  • In healthcare and medicine, patent protections vs R&D vill be vital
  • Pension and insurance funds keen, but India seeks more FDI before all else

It’s only the fifth visit by a US president post-independence. But George Bush’s visit to India has generated much more buzz than his colourful predecessor in 2000, and that’s not only for the nuclear power deal and the political hullabaloo over it.

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The Left parties’ anti-US, anti-West drumbeat is drawing attention away from the quiet but rapidly progressing groundwork on stronger economic ties by business interests in the two countries. Says a senior US government official in India: "The real core of the visit is economic cooperation. A prosperous India is a big global force in the future. Condoleezza Rice said last year that we want to help India become a global power. The link in our mind is a democracy with high economic growth and prosperity."

With economic power shifting firmly eastward, what Professor Niall Ferguson of Harvard University calls "a resurgence of the Orient", and with India’s rise as a services and now manufacturing power, American CEOs have made many more trips into the country in the past two years than in the previous 50. "Our relations with the US are much better than ever before," says PM Manmohan Singh. His hugely successful US visit last year resulted in the setting up of a star-studded CEO forum chaired by Ratan Tata and made up of the powerful heads of Citigroup, AES, Visa and Xerox, among others. A Raytheon radar system was displayed at the Republic Day parade, the first such display of a US equipment.

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The reasons are obvious: to India’s humongous domestic market has been added one more draw—its amazing and proven capability, from automobiles costing $2,500 to low-frill airtrips for $50 to a long-distance call for two cents! Boeing and Lockheed Martin are just two companies which set up offices here recently. The former expects 500 aircraft to be sold in India in the next 10 years, apart from $15 billion of defence purchases in the next 15. The perennial demands for less red tape, reduction of tariffs and more areas open to FDI exist but they are just the base for building firmer ties that may even culminate in a free trade agreement with a country that accounts for 18 per cent ($16 billion) of all FDI in India.

Even as Bush has indicated the visit will be about "security, prosperity and trade", Richard Boucher, assistant secretary of state-designate for South Asia, has said some of the partnership areas are "agriculture, democracy-building, disaster relief, education and science and technology". Few details of this high-profile visit are out due to security reasons, but over 50 CEOs, including those from giants in agribusiness (Warren R. Staley of Cargill), pension and insurance, and retail will accompany the president. A big team from Wal-Mart is expected as is Ron Somers, president of the US India Business Council. In fact, the buzz is that India will announce liberal policy for the Rs 25,000-crore retail business and insurance, though commerce minister Kamal Nath, who’s scheduled to meet US trade representative Rob Portman before Bush arrives, told Outlook that "there are no giveaway proposals. Both sides have separate agendas on which there will be negotiations."

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One big area where US government and business interests will converge, according to official sources, is agriculture, where partnerships in technology, farming methods and biotechnology would be considered. An Agriculture Knowledge Initiative would be announced with a substantial investment aimed at making technology available to the farmers, as well as a large S&T Trust fund. Other points of concord are: health and medicine research, where ipr issues will rule, and organised retail. Both FICCI and CII, on the other hand, point out infrastructure, financial services, IT, telecom and energy as key sectors of long-term investment. With India encouraging private participation in build-operate-transfer projects, greenfield airports, terminals and shipping berths, US firms are eyeing a larger slice in these sectors.

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In the IT sector, where India has an obvious edge, Nasscom president Kiran Karnik is seeking a lifting of the cap on H1B visas and of the social security tax on IT professionals on short-term stay. "The cap of 65,000 H1B visas is too low and the limit must go up to a reasonable level. The tax burden is $500 million a year. While its benefits are available only after 10 years, the H1B visa is granted only for six years. This issue has to be settled at the highest levels," he says, and it probably will.

P. Prabhakhar, president, Indo-American chamber of commerce, agrees: "For Indians already contributing to their PF and pension in India, such a treaty will be helpful." He also feels that US SMEs (small and medium enterprises), whose presence here is minuscule, and aviation hold huge potential for future ties. N. Srinivasan, CII chairman, says that "the civil spinoff of the nuclear energy deal would be significant. Defence co-production will also push Indian IT and software in that area". While India seeks investment in infrastructure, in return it can offer R&D in healthcare, pharma and biotech, and capabilities in industrial design.

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Trade will be the most significant aspect of the economic talks, where many glitches need to be sorted out. Barry Bosworth, senior fellow, Brookings Institute, told Outlook: "India has a substantial trade surplus and trade is growing rapidly, but the total volume is very small. India faces a highly favourable US perception of its economic gains and little opposition to an expansion of bilateral trade." While the Americans complain of high tariffs, Indian business gripes about US regulations hindering movement of people and products ranging from mangoes to shrimps, and US reluctance to sell high-tech equipment. The US similarly wants India to remove import bans on refurbished computers and DAP fertiliser, where the largest producer is state-owned. Clearly, talks will be tough.

That’s mainly why many US experts have sought an Indo-US free trade agreement as a political and diplomatic way out of the obvious opposition to US companies entering India in a big way. Agrees Bosworth: "Because India still maintains a high average tariff, a true FTA would be attractive to US firms mainly because it would allow them to operate in a highly preferential position. But India already has unfettered access to most US markets. Also, there are serious differences over US patents and copyright policies. An FTA is unlikely to head off potential future problems in areas such as anti-dumping actions and political concerns about the offshoring of US service jobs."

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Instead, says Columbia University professor Arvind Panagariya, "we can try and make progress on Doha issues—elimination of tariff peaks in apparel footwear and other labour-intensive products, ensure no barriers to outsourcing, and higher H1B. In turn, we can deliver on further opening banking, insurance, retail and some manufacturing sectors. We don’t need to be defensive in agriculture if we can get genuine liberalisation. Our farmers are pretty competitive and will succeed in capturing their fair share."

As the US official says: "The US jet of power cannot run indefinitely to guide the world. India matches its frequency to fly by its side." Whatever its nationalistic concerns, India also understands the need to play the game as well as China. Often, setting the first foot forward can be the most difficult hurdle.

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By Paromita Shastri, Arindam Mukherjee and T.R. Vivek

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