INDIA-USA ECONOMIC RELATIONS

The Next Decade

June 2009

Confederation of Indian Industry

India-US Economic Relations : The Next Decade

INDIA-US ECONOMIC RELATIONS The Next Decade

TABLE OF CONTENTS
Executive Summary Brief History of Bilateral Engagement Strategic Partnership Global Economic Crisis Overview of India-US Economic Relations Trade in Goods
Trends Composition Impediments to Merchandise Trade Recommendations

1 3 4 4 5 7
7 9 9 10

Trade in Services Investments Technology Energy and Climate Change Knowledge India-US Economic Relations : The Next Decade Conclusion Select References

12 16 21 22 24 26 28 30

India-US Economic Relations : The Next Decade

India-US Economic Relations : The Next Decade

EXECUTIVE SUMMARY
As the historic civilian nuclear agreement between India and the United States moves forward, a new era dawns in the relationship between the worlds largest and oldest democracies. The agreement cements the emerging multi-dimensional partnership of the two nations, and can be the springboard for a new trajectory of bilateral economic engagement. This paper explores the current dimensions of economic relations between India and the US, and lays out a vision for the next ten years. Through most of Independent Indias economic history, the US remained its foremost trading partner, a primary source of investment, the first resort for technology acquisition, and significant in funds and aid support. Since 2000, India-US economic relations have moved into a new phase of intensive interaction. The global economic crisis, which has hit the US hard, creates a new opportunity for both sides to not only leverage each others advantages, but also provide mutually support. While the US seeks markets for its industry products, India needs technology and expertise for faster development and global integration. In the medium term, protectionist measures must be avoided. Over the longer term of ten years, India and the US can become much more significant economic partners. A new vision for a leap in economic engagement would cover the following areas: Strategic shift from high-technology trade to frontier technology: create ecosystem for cooperation in cutting edge areas, enable rapid technology transfers. Robust trade in mass-market and niche products: envisage a target of $320 billion by 2018 through the Comprehensive Economic Cooperation Agreement. High interface in services trade: move beyond outsourcing, open up sectors. Preferred investment destinations: quantum leap in mutual investments to leverage competitive advantages. Collaboration on clean energy and climate change: leverage nuclear energy, codevelop new products, cooperate in spreading clean energy. Seamless cross-continental cooperation in knowledge economy sectors: partners in biotechnology, nano-technology with strong IPR protection regime. Strong cooperation in education and academia: science, research and development, higher education cooperation. Building Infrastructure in India: leverage opportunities for US private sector in Indias need for capacity building in infrastructure. Collaboration in healthcare: build partnerships in providing healthcare services, building healthcare infrastructure and developing related technologies.

India-US Economic Relations : The Next Decade

To actualize these synergies both governments need to address internal barriers to trade and investment. India needs to undertake pending reforms to open up sectors of interest to US businesses and improve the investment climate. Similarly, the US must work towards reducing barriers for trade and investments from India and facilitate freer movement of professionals between the countries. The US must view India as a strategic partner and rank it high in its economic priorities.

Key Recommendations

A Comprehensive Economic Cooperation Agreement to cover goods and services A Bilateral Investment Treaty Opening up of key sectors such as retail and higher education in India to FDI Freer movement of people under H1-B visa scheme

While internal reforms will help economic ties, there is much that can be done within current constraints.

The private sectors of both sides must be an integral part of the new engagement. Industry associations on both sides must take the lead in overcoming the information barrier, building brand relevance, and forging new business ventures. Cooperation must shift to interaction between regions, industry sectors, and enterprises of all sizes.

India and the US must continue to work together to build mutual trust and confidence. Following 50 years of distant engagement, both countries must work towards further strengthening commercial ties and relations. Not only words, but specific actions will aid this process which can be taken forward, step by step. If the two countries diligently towards this goal, achieving a bilateral trade target of $320 billion over the next decade (i.e. doubling bilateral trade every three years), could be a reality.

India-US Economic Relations : The Next Decade

INDIA-US ECONOMIC RELATIONS The Next Decade

BRIEF HISTORY OF BILATERAL ENGAGEMENT
Through most of Independent Indias economic history, the US remained its foremost trading partner, a primary source of investments, the first resort for technology acquisition, and significant in funds and aid support. Since 2000, India-US economic relations have moved into a new phase of intensive interaction. Mutual respect and close intellectual linkages were maintained between the two countries as India gained Independence in 1947. India was much influenced by American ideas of human freedom and democracy in drafting its Constitution, while in turn the ideals of Gandhi impacted the American civil rights movement. However, divergent foreign policy views led to somewhat of an estrangement during the Cold War. Indias first nuclear test in 1974 became the defining point for bilateral relations, dominating other issues till the end of the century. Despite this, USA was Indias largest trading partner in 1975 and second largest investor after UK. India also received timely assistance from US for wheat imports when drought forced a ship-to-mouth existence in the 1960s. USA worked closely with India in the Green Revolution that transformed Indias agriculture sector. Thus, in this period India received technology and capital from the US. The 1980s brought a gradual liberalisation of the socialist economic policies that India had in place, especially since the young and dynamic Rajiv Gandhi became Prime Minister in 1984. His visit to the US in 1988 was a landmark, eliciting widespread enthusiasm and acclaim. His emphasis on modern industries laid the foundation for Indias knowledge economy, and reinstated the US as a preferred economic partner. In 1985, Texas Instruments arrived in India to set up an R&D facility in Bangalore, changing perceptions about India. Indias sweeping economic reforms in 1991, together with the collapse of the Soviet Union, and a new desire for strengthening relations between two of the worlds strongest advocates of democracy, set the stage for a new paradigm in economic interaction. American companies were attracted by Indias large consumer markets, but their progress was slow. Again, the nuclear test conducted in 1998 led to a set-back in economic relations, but this was short-lived. During the visit of President Clinton in 2000, a vision document was signed to institutionalize dialogue through dedicated platforms and regular summit-level meetings, with high priority to economic relations. The sanctions ended in September 2001. President Bush built on this for close engagement with India, culminating in the nuclear energy agreement.

India-US Economic Relations : The Next Decade

STRATEGIC PARTNERSHIP
The new US administration under President Barack Obama proposes greater interaction with Pakistan and Afghanistan for security reasons. This need not divert focus from further strengthening of the special relationship of the US and India forged since 2000. India is a large emerging economy, a key driver of the global economy, and a major player in Asia. It is deeply engaged in the reconstruction of Afghanistan. It has been active in global negotiations on trade, climate change and economic crisis, and articulates the views of many developing countries. It is therefore important that going forward, the strategic partnership of India and the US be strongly reiterated, and the two countries develop mechanisms for working together on emerging global challenges, as India would be a key part of global response. This would also balance US increasingly Sino-centric approach to Asian affairs. The US can play a role in facilitating greater economic exchanges between India and its neighbors by helping develop gateways or trade infrastructure. This may have to be sequenced in a manner that builds confidence and takes into consideration on-the-ground security and political situation.

GLOBAL ECONOMIC CRISIS

India has minimal exposure to toxic assets arising from securitization in the West. Nevertheless, it has been hit hard due to shock transmission via financial sector, real sector and confidence. Industrial production and exports have plunged and jobs have been lost. However, the situation is not alarmingly dire so far due to high savings and investment rates, consistent internal demand, low exports in relation to GDP, and strong measures to counteract the crisis. Recovery in India is expected to be faster and steeper than the global norm. In the US, mitigation and containment is the immediate urgency. Indicators are expected to show positive signs from the third quarter of 2009. A crisis of demand, following on the heels of financial and confidence seizure, will be the key factor to be resolved, going forward. Within this scenario, US companies may consider it profitable to examine opportunities in Indias infrastructure and consumer durables sectors. It is important that US and India do not indulge in protectionist measures and lower each others market access. Proposals that limit H1-B visas, create non-tariff barriers to trade, mandate use of local products, etc should not dominate for a protracted period. Business should be left unfettered to re-energize respective economies.

India-US Economic Relations : The Next Decade

OVERVIEW OF INDIA-US ECONOMIC RELATIONS

Economic relations are just one aspect of the overall multi-dimensional bilateral cooperation between India and the US. As such, although accorded significance, they do not carry primary status and for many years, did not receive deserved policy impetus. Thus, the level of economic engagement, although closer in recent years, is far lower than the potential and the aspiration, given institutional commonalities such as democracy, diversity, language, etc. There are differences in the trade and investment statistics of the two countries. According to figures from the US Bureau of Economic Analysis, total economic cooperation, as measured by aggregate trade in goods and services and direct investments, has increased from $19.3 billion in 2000 to $66 billion in 2007. However, this does not reflect the complete picture of rapidly-intensifying engagement as significant proportions of trade may be routed through third countries. Similarly, FDI from one country to the other also passes through other countries. A key factor impeding economic engagement may be the information gap. Grassroots knowledge of doing business in the countries, both of which are large and diverse, is still incomplete, complicated by federal government systems in both countries. To overcome this, an institutional arrangement for promoting trade was established following the Vision Statement of 2000 and includes both government and business participation.

Indo-US Economic Dialogue:

The Indo-US Economic Dialogue is chaired by Deputy Chairman Planning on the Indian side and by Deputy National Security Advisor on the US side. It includes a financial and economic forum, commercial dialogue and a working group on trade.

India-US Financial and Economic Forum:

The Forum looks at issues pertaining to financial sector developments, investment and macroeconomic policies. The Forum has annual Cabinet level meetings at Finance Minister/ US Treasury Secretary level and sub-cabinet level discussions. The 2008 Work Plans under the India-US Commercial Dialogue include Entrepreneurship Work Plan and US-India Standards Programme.

India-US Commercial Dialogue:

Indo-US CEOs Forum: The Indo-US CEOs forum was formed in 2006 to provide the
two Governments with private sector inputs for revitalizing the economic partnership. The Indo-US CEOs forum has submitted its second set of recommendations in April 2008 to both the Governments. Both Governments have prepared a list of feasible items based on the recommendations, which are being acted upon.

Trade Policy Forum: The India-US Trade Policy Forum set up in 2005 meets at the Ministerial and Senior Official level. A range of issues have been discussed including the Social Security Agreement and Bilateral Investment Treaty between the two countries and providing market access for items of interest to both sides. India is only one of three countries with which the United States has such a cabinet-level chaired trade forum. It seeks to double bilateral trade in three years and includes five focus groups on trade in
5

India-US Economic Relations : The Next Decade

agricultural products, tariff and non-tariff barriers to trade, services, investment, and innovation and creativity. This was set up in April 2007 for the private sector perspective on the Trade Policy Forum. PSAG has identified the following intermediate targets for the two governments: 1. Negotiate a mutually agreeable bilateral investment treaty by the end of 2008. 2. Continue to promote sectoral openings. 3. Promote regulatory cooperation. 4. Cooperate on all aspects of protection of intellectual property and promotion of technology transfer.

Private Sector Advisory Group:

India-US High Technology Cooperation Group: The HTCG works on the broad agenda of high technology commerce and strategic trade. Focus is on information technology, nanotechnology, biotechnology and defense technology through awareness, interaction and identifying regulatory issues. Defense Procurement and Production Group:
The DPPG has held industry roundtables, with recommendations on technical assistance agreements, procurement procedures, export control, and co-development. Since the Indian defense industry is now open to FDI and defense procurement has substantially gone up, this is a large area of potential engagement. The Initiative was launched in 2005 with a three-year financial commitment to link universities, technical institutions, and businesses to support agriculture education, joint research, and capacity building projects including in biotechnology. It seeks to promote technology transfer, investment, and policy reforms that will lead to greater agricultural productivity. Other high-level dialogue platforms including aviation, energy, health, agriculture, defence, etc also have business components. Industry associations CII and FICCI as well as USIBC are actively engaged in these dialogues. It may be reiterated that substantial increase in economic engagement would require intensive policy measures on both sides. More particularly, India would need to progress much faster on overall trade and economic liberalization and reforms to facilitate greater participation of overseas businesses in its economy. Areas that need to be addressed include agriculture, infrastructure, direct and indirect taxes, investment facilitation, administrative procedures, financial sector, services including retail trade, mining, etc.

Agriculture Knowledge Initiative:

India-US Economic Relations : The Next Decade

TRADE IN GOODS
Trends
USA was Indias largest trading partner in 2000. It accounted for over 10% of Indias non-oil imports, and about 20% of its exports. India ranked 21 among USAs import sources, and accounted for less than 1% of its global trade in 2000. Indias exports to USA doubled between 2000 and 2007-08 to $20.7 billion. Imports from USA rocketed up from $3.7 billion in 2000 to $21 billion in 2007-08. Total trade nearly tripled from $14.3 billion in 2000 to $41.7 billion in 2007-08. In 2006, USA continued to be Indias premier destination for exports, with 17.4% share of Indias exports. However, its share in Indias exports declined to below 12% by Dec 2008 as India diversifies its trade destinations. USAs position in Indias imports came down to fourth by Dec 2008. However, this may not take into account large purchases concluded in Q4 2008-09. Imports rose sharply in Q4 2007-08 due to purchase of aircraft. It is also noteworthy that during Apr - Dec 2008, when the US economy experienced high fallout from the global economic crisis, India increased imports from USA by 38%, proving to be a resilient and strong trade partner for US goods. India accounted for 1.2% of US imports and 1% of its exports in 2006. India continues to be USAs 21st largest export market and 17th largest import supplier. The average annual growth of Indias exports to US from 2002 - 2007 is 15 %. The average annual growth of the imports from US over the same period is 28 %. The balance of trade, which was in favor of India for years, turned in favor of USA in 2007-08 due to Indias purchase of aircraft. To gauge the potential of India-US merchandise trade, it is illustrative to examine their trade with China, a country which has expanded its trade relations with the rest of the world proactively. US exports to China went up from $16.3 billion in 2000 to $65.2 billion in 2007, while its imports from China expanded from $71.2 billion to $321.5 billion. In comparison, Indias total trade with China expanded from less than $3 billion in 2000 to $10.8 billion of exports and $27 billion of imports in 2007-08. China is now Indias largest trade partner, displacing US. Thus, both countries trade with China has been growing rapidly, indicating that India and USA have unexplored potential in their trade. India US Trade 1993-2000
16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Year
India's Exports India's Imports Turnover Balance

Source: Indian Embassy, Washington DC

$ millions

India-US Economic Relations : The Next Decade

India US Trade 2002-03 to 2007-08

45,000.00 40,000.00 35,000.00 30,000.00 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 0.00 -5,000.00

$ millions

Year
EXPORT IMPORT TOTAL TRADE TRADE BALANCE

Source: Export Import Data Bank, India

Indias trade with USA 2002-03 to 2007-08 US$ millions

Year EXPORT %Growth India's Total Export %Growth %Share IMPORT %Growth India's Total Import %Growth %Share TOTAL TRADE %Growth India's Total Trade %Growth %Share TRADE BALANCE India's Trade Balance 13.44 6,452.19 7.24 15,339.34 61,412.13 20.67 4,443.58 52,719.43 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 10,895.76 11,490.03 5.45 63,842.55 21.10 18.00 5,034.83 13.31 27.25 6.44 16,524.86 7.73 24.41 11.64 6,455.21 13,765.75 19.81 30.85 16.48 7,001.35 39.06 42.70 6.28 20,767.10 25.67 37.37 10.65 6,764.39 17,353.06 26.06 23.41 16.83 9,454.74 35.04 33.76 6.34 26,807.81 29.09 29.33 10.63 7,898.32 18,851.42 8.63 22.48 14.93 11,726.96 24.03 24.43 6.32 30,578.38 14.07 23.63 9.80 7,124.47 2007-08 20,712.03 9.87 29.02 12.71 21,019.29 79.24 35.47 8.36 41,731.32 36.47 32.86 10.07 -307.26

83,535.95 103,090.54 126,262.67 162,904.16

78,149.11 111,517.44 149,165.73 185,604.10 251,439.17

114,131.56 141,991.66 195,053.38 252,256.27 311,866.78 414,343.33

-8,692.70 -14,306.56 -27,981.49 -46,075.20 -59,341.43 -88,535.01

Note: The country's total imports since 2000-2001 does not include import of Petroleum Products (27100093) and Crude Oil (27090000) Source: Export Import Data Bank, Ministry of Commerce and Industry, India

India-US Economic Relations : The Next Decade

Composition
In 2000, Indias exports to the USA consisted primarily of cut and polished non-industrial diamonds, jewelry, textiles and clothing, carpets, and shrimp and other marine products. These items constituted over 70% of Indias export basket to USA. Imports in 2000 included machinery, fertilizers, aircraft and aeronautical equipment, medical equipment and organic chemicals. In Jan-July 2008, the top exports of India to USA were: diamonds and precious stones (22%), textiles (22.4%), pharmaceutical products (6.7%), organic chemicals (5.6%), machinery (5.4%), and electrical machinery (4.8%). The export profile has shifted markedly towards more value added goods and engineering products. The top imports from USA were: aviation and aircraft (20.8%), engineering goods and machinery (19.8%), precious stones and metals (11.9%), organic chemicals (3.7%), and optical instruments and equipment (4.8%). Import composition has not seen much change over the period, although the ranking of items has changed. Examining trade with China, US top traded items with China are by far electrical machinery and power generation equipment. It also imports large volumes of toys and games, apparel and furniture from China, and exports air and spacecraft, oil seeds and oleaginous fruits, and plastics. Indias imports from China are dominated by electrical machinery and equipment, machinery and mechanical appliances, organic chemicals and mineral fuels and products. Thus, it appears that the two countries are not concentrating on their most-traded items for increasing bilateral trade.

Impediments to Merchandise Trade

The CRS paper on India USA Economic Relations August 2007 identifies several sectors where trade impediments are operative. In the agricultural sector, unfair Indian SPS norms, cultural beliefs in importing beef, and high tariffs on produce are cited as hampering US exports. Similarly, Indian agricultural exports to USA also attract SPS norms. In the clothing and textile sector, it suggests that rupee appreciation and lower demand in USA might have affected exports from India despite the end of the WTO textile trading regime. A CII paper on high-technology trade between the two countries comments that lack of transparency and information on US Exports Control Regime, which controls trade in sensitive items and subjects them to licensing, may be acting as a deterrent. On the Indian side, high tariffs, complex customs and administrative procedures, and incomplete protection to intellectual property rights, act against increasing exports. Other factors are lack of infrastructure, governance, lack of sanctity of contracts, etc.

India-US Economic Relations : The Next Decade

Recommendations
Considering that India, a country with a GDP of around $1 trillion, accounts for a mere 1.3% of US trade, there is substantial potential to increase bilateral trade. The two countries should set a target of doubling bilateral trade every three years, which would mean a trade level of $320 billion by 2018, an eight-time increase over nine years. It is also recommended to set in place a Comprehensive Economic Cooperation Agreement covering both goods and services India and the US stood at opposite ends in the recently-concluded and inconclusive WTO Doha Round negotiations. Therefore there are many issues to overcome before the two countries can build an atmosphere for free and fair trade. The India-US CEOs Forum has made many specific recommendations that would expand trade, including reducing tariffs, greater cooperation between industry associations, visa facilitation, bank branch expansion, etc. These should be rapidly addressed by both governments. In the meantime, trade in areas where there is sufficient market access should be rapidly escalated.
Demand-led trade: Indias manufacturing exports prowess has not been as impressive

as its services exports. For example, its exports of electronic machinery and equipment constitute less than 0.4% of world imports.

India and USA need to identify items of mass demand in each others markets, and attempt to meet these demands. Indias top exports to the US generally consist of value-added products. However, USA imports large volumes of items such as mineral fuels and products, vehicle parts, machinery, electrical equipment, etc. and Indias exports in these products can be significantly ratcheted up. Among items that USA can export to India are high-technology products such as computer hardware, semiconductors, telecommunications equipment, etc. Also, India has high need for defense products, power and construction equipment, aviation, and electrical products which can boost bilateral trade. There is a major need in India to upgrade civil aviation capabilities and the US is best placed to assist and collaborate in this regard. While the scope in aviation is tremendous, one concrete, actionable item on the agenda should be to conclude a Bilateral Aviation Safety Agreement (BASA). workforce and a competitive economy offers an excellent platform for investments for the export market. However, the country lacks the capital and managerial expertise for large-scale manufacturing projects. American companies could fill the investment gap, addressing Asian markets from India, and fitting India into the overall global value chain. American companies need to explore India as a manufacturing hub for export goods, and invest accordingly. While manufacturing has become a sector of choice for American investments, it is chiefly in order to address the domestic markets rather than export markets.
10

Investment-led trade: India as a stable democracy with a high proportion of young

India-US Economic Relations : The Next Decade

There are several sectors where India has already demonstrated high capability in exports, including textiles and clothing, organic chemicals, pharmaceutical products, auto components and automotives, and some electronic products. Some products that were earlier reserved for production in the small-scale sector in India have now been dereserved, opening up to foreign investments as per overall sectoral norms. The new export-promotion strategy of Special Economic Zones reduces administrative procedures, tariffs and taxes, and infrastructure gaps to export-oriented factories. Singapore is setting up its own SEZ of Singaporean companies. Japan is partnering with India for a dedicated rail freight corridor and an investment corridor alongside. The corridor is expected to attract $90 billion of investments and Japan has inked a $4.6 billion loan package for tied development. American companies could also consider such a strategy.
Technology-led trade: Indias import of high-technology items from the USA has doubled from 2001-02 to 2006-07, but from the rest of the world, it has multiplied sixfold. The India US High Technology Cooperation Group was set up to address the information gap, promote high-technology commerce, and examine tariff and non-tariff barriers. HTCG has identified four industries for special focus, viz, information technology, nanotechnology, biotechnology and defense.

While security considerations and export control regimes hamper trade in strategic items, there is a large segment of high-technology products that may not be under their purview. Indias technology-adaptation in manufacturing sectors is low, and it needs high transfusion of technology to upgrade and modernize production in many areas. It needs strong assistance from USA through exports of machinery and equipment to do this.
SME involvement: Both countries have large and vibrant SME segments that contribute significantly to exports of manufactured goods. However, these sectors have not fully explored each others potential as suppliers.

In India, liberalization has recently opened up the SME sector for FDI. The lack of information and clarity has deterred overseas companies from investing in Indian SME or in sectors earlier reserved for small units. A special platform for increasing SME engagement needs to be instituted to overcome the information gap. Angel and venture funds should be encouraged to invest in Indian SME for export markets. Many Indian SME companies are at the forefront of technology adaptation, while many others have yet to become IT-ready. There are tremendous opportunities in partnering both kinds of SMEs for maximum benefit. the sensitivities of each country. For instance, agricultural produce remained a major sticking point in the Doha round negotiations. Trade facilitation measures would need to be jointly instituted. USA should also examine developing quality and standards institutes in India on a large scale to enable Indian businesses to meet rigorous SPS and other norms. US assistance in setting up a system to match its requirements would be invaluable.
Trade facilitation Tariff and non-tariff barriers need to be addressed keeping in mind

11

India-US Economic Relations : The Next Decade

operating at the macro country level, and have not yet reached adequately into the hinterland. Thus, the major cities are targeted, but cooperation at the regional level is insufficient. While large US companies have India-strategies, and most Indian companies have high operations in US, the tier 2 and 3 entities in smaller towns are barely aware of the opportunities arising from economic engagement. Trade promotion activities at the government level cannot conduct matchmaking for businesses in regions. More support needs to be accorded to interaction between national and local level industry associations on both sides. Clear schemes and mechanisms for intensifying connectivity between such associations are necessary. State governments on both sides should also actively engage with each other, after carrying out exercises to determine sectors of opportunity.

Regional engagement Trade promotional efforts from both sides are currently

TRADE IN SERVICES
Indias progress in trade in services over the last decade has truly been remarkable. A good part of this success has come from increase in software services exports to USA. This has been instrumental in bringing about a sea-change in the way USA, and the world in general, perceives India, and in building a very positive brand image of a globalizing India at the forefront of the emerging knowledge economy. On the other hand, the tremendous success in software exports has detracted attention from other forms of service exports. In 2000-2001, Indias total services exports were $16.3 billion, two-fifths of which came from software exports. In 2007-08, services exports stood at $87.7 billion, and the share of software had increased to 46%. Exports to USA accounted for 61% of the software exports in 2006-07, according to RBI. Business services, travel and transportation contribute the bulk of other services exports from India. USA is by far the leading service exporter of the world, aggregating $497 billion in 2007. Its imports of services are also the largest in the world at $378 billion in 2007. Its main services trade partners are other developed countries such as EU, Canada and Japan. Top sectors of US service imports are infrastructure services imports such as financial services, telecommunications, and transportation; travel; and business, professional and technical services. Indias business, professional and technical services are its largest export category. According to Bureau of Economic Analysis, USA, services trade between India and USA stood at $20.0 billion in 2007. US exports to India stood at $9.4 billion, while Indian exports to USA were at $9.6 billion. Total trade in 2007 was almost double the figure in 2005 ($10.2 billion). Service trade balance was in favor of USA in 1999-2004. However, it turned in Indias favor in 2006. In 2007, India had a slight edge as its exports picked up.

12

India-US Economic Relations : The Next Decade

There are major discrepancies between Indian and USA data in services trade due to differences in definitions. These should be resolved in order to get the correct picture. Services Trade 2002-2007
12000 10000 8000 6000 4000 2000 0 2000 2001 2002 2003 2004 Year
Exports to USA Imports from USA

9350

$ millions

6822 5173 4465 2546 3012 3253 3775

2005

2006

2007

Source: US Bureau of Economic Analysis

Imports of Services from USA 2007

Royalties and license fees 10%

Education 24% Business, prof essional and technical services 14%

Travel, passen ger and transport 45%

Other 46% Others 7%

Travel, passenger and transport Royalties and license fees Education Business, professional and technical services Others

Source: US Bureau of Economic Analysis

13

India-US Economic Relations : The Next Decade

Exports of Services to USA 2007

Royalties and license fees 1% Other 73%

Computer and information services 43%

Travel, passen ger and transport 27%

Others 29%

Travel, passenger and transport Computer and information services

Royalties and license fees Others

Source: US Bureau of Economic Analysis

In imports from USA, the major share was constituted by travel, passenger fares and other transport category of $4.1 billion. Educational services formed almost a quarter of the imports at $2.3 billion. Business, professional and technical services added up to $1.3 billion. India also pays close to $1 billion to USA for purchase of intellectual property in the form of royalties and license fees. Exports of services to USA are dominated by computer and information services of over $4 billion. USA imported $14.8 billion of these services from all countries; therefore over 27% of its computer and software requirements come from India, its largest source. India ranks 10th in all countries as a source of services for USA; in the category of other private services, which includes business, professional and technical services, India ranks 6th at $6.9 billion. A key consideration in expanding services trade with India has been its relatively slow pace of reform in many sectors. For example, retail trade in the large multi-brand supermarket format is still not open to foreign investment due to considerations about livelihood of small traders, who are the largest segment of Indias workforce after the agricultural workers. Single-brand retail is also not fully open to FDI. Similarly, the financial services sector is also relatively closed. Foreign banks expansion plans are restricted by central bank regulations. Insurance, pension and other financial markets are severely regulated, while development of sophisticated financial instruments has been slow. Capital convertibility is still incomplete. Visa restrictions in both countries are an impediment to movement of workers for service provision. Mutual recognition of professional degrees is lacking, requiring re-certification. Market access issues for lawyers, accountants, and financial services are being discussed under the Trade Policy Forum. Notwithstanding the issues of contention, there are several areas where services trade does not require government intervention. Dialog on these matters must be accelerated and intensified.

14

India-US Economic Relations : The Next Decade

Recommendations
Identify sectors of cooperation: As in the merchandise sector, areas where trade in services is relatively easier need to be identified, and stepped up. For instance, tourism

between the two countries could be significantly stepped up provided US visas were easier to obtain, and the Indian tourist infrastructure could be vastly upgraded. Similarly, the logistics sector in India is opening up [DHL is Indias largest express delivery and logistics provider]. Indias telecom sector is the worlds fastest-growing telecom market. Healthcare can be a sector of cooperation as India can supply drugs, undertake clinical trials, and engage in medical tourism, all at lower costs. The financial sector can be an area of great potential if the Indian side was more liberal, and can be stressed in policy discussions. Finally, after the success of Slumdog Millionnaire, entertainment, animation and related industries can benefit from Indias competitive technical capabilities. complex rules and regulations. To navigate these, institutional platforms are needed. Industry associations such as CII can help by hand-holding in each country.
Build the Serviced from India brand: Institutionalize facilitative platforms: The service sectors in both countries have

Brand development exercises need to be carried out in USA to position India as a valuable service provider. Service outsourcing has drawn greater attention than manufacturing outsourcing which has been a practice for decades. Thus, India is being perceived adversely as a threat to US jobs. However, outsourcing has helped US firms deliver quality services at lower costs and has increased overall benefits to the US consumer.

The process of reverse outsourcing has begun as Indian companies hand out multimillion dollar contracts to US companies. Also, Indian companies have been acquiring US companies in trouble, thereby preserving jobs. The Tata Group has invested $3 billion in USA, employing 19,000 people. Indian companies employ some 30,000 in manufacturing and services businesses across the US. These developments need to be highlighted.
Greater connectivity: More information sources need to be created between Indian and USA companies to avail of the services opportunity. Events and conferences can help the process. Road shows and services trade missions need to be considered. A Comprehensive Economic Cooperation Agreement (CECA): This agreement would

address all the issues related to trade in goods as well as services. It would help in achieving a trade level of $320 billion by 2018, an eight- fold increase over the next decade.

15

India-US Economic Relations : The Next Decade

INVESTMENTS
US Investments in India
India, which has been considered as one of the top three global investment destinations on A T Kearneys attractiveness rankings since 2004, is now firmly placed on the global FDI map. The country has received $87 billion of overseas funds since April 2000, of which $23.3 billion was received in April-November 2008. 2007-08 witnessed FDI worth $25 billion. The top source of investments is Mauritius, through which over two-fifths of Indias total FDI is routed. Bilateral investment has stepped up considerably since 2000 and more particularly in 2006 and 2007. The policy encouragement on the Indian side to facilitate overseas investments by Indian companies in particular has transformed the operating landscape as the corporate sector has rushed to avail of business opportunities in the US. At the same time, business interest from US in India has intensified and a robust flow of funds is now taking place in both directions. USA was the foremost source for Indias FDI after Mauritius until 2007-08, when it was displaced by Singapore as the Comprehensive Economic Partnership Agreement between India and Singapore came into effect. Information on how much investment from US companies is actually making its way to India is not available due to complex routing of funds through various means. As per data from BEA, investment by USA in India in 1999 was $270 million, but this went up sharply to $3.7 billion in 2007. Cumulative investment by US into India was $ 9 billion in 2000-2007.
Bilateral Investments 2000-2007
4000 3500 3000 $ millions 2500 2000 1500 919 1000 214 500 6 0 2000 2001 2002 2003 2004 Year
US Investments in India Indian investments in USA

3726

1815 1523 1138 355 277 162 16 125 868 443 2006 2007 721

92

2005

Source: US Bureau of Economic Analysis

16

India-US Economic Relations : The Next Decade

One indication of the worth of US investments in India is the level of direct investment receipts, which has gone up to $3.2 billion in 2008. The key takeaway is that mutual interest in investments has intensified considerably. The American Chamber of Commerce in India, set up in 1992, now has 550 members. US companies have invested in the sectors of manufacturing, financial and non-financial services, including IT, and agriculture. Some large investments announced recently: GM will expand its $1 billion auto investment by another $500 million to manufacture a small car and grab greater market share. Ford also plans a similar investment for its car manufacture operations. Chip-maker AMD already has four production facilities and plans a total investment of $3 billion. Intel and Indian IT companies will invest together for Indias healthcare sector. Coca Cola plans to invest $250 million in equipment and marketing. PepsiCos plans in India are to triple its business with $500 million of investments in the next three years GE Healthcare will invest $200 million in diagnostics and equipment. Reliance Entertainment has tied up with Dreamworks for co-production of films.

The chief impediments to expanding investments into India for US investors are:

Constraints on FDI in many sectors: Sectors such as banking, retail, and financial services are not open to FDI, while in others there are caps on FDI permissible. Poor infrastructure: Roads, ports, airports, power, urban infrastructure, tourism infrastructure, etc. place high transaction cost burden. Lengthy bureaucratic procedures: Administrative clearances to projects take too long and are too cumbersome. Dispute resolution mechanisms: Court procedures and arbitration are difficult. Labour and other policies: Retrenchment and bankruptcy rules deter investors. Tariff and non-tariff barriers to trade: Trade facilitation is incomplete, hence it is difficult to make India a manufacturing hub for exports. Intellectual property rights: Laws are inadequate and enforcement is poor Corruption: Economic atmosphere is illiberal

17

India-US Economic Relations : The Next Decade

These have been consistently taken up by the US Government over the years, which has been stressing the importance of economic reform and liberalisation. However, the above factors should not be allowed to dominate other considerations such as rapid economic growth, large consumer market, skilled workforce, etc. The key factor is unfamiliarity with means of doing business in India. Companies which have been operating in India have found it to be tough but profitable. The need is to percolate the India message beyond large companies. Carpet-bombing measures are required to push the India investment story forcefully among US investors. Industry associations with government aid will best be able to carry this out.

Recommendations
India should be a destination of choice for US companies in high-technology manufacturing, infrastructure, services, supply chain and logistics, etc. The country has huge unmet demands down the supply chain from producers to consumers. Traversing Indias business landscape needs assistance from institutions and sources in the country: An Investment Facilitation Desk in each state would be of immense help to investors. These could provide information on opportunities, regulations, and partners, and also guide and hand-hold investors. Industry associations can intervene in business matchmaking. Association-toassociation networking should be stepped up. CII has conducted roadshows in smaller cities of USA over several years, and organises annual high-level CEOs missions to US. These have proved very productive with real outcomes. Such business-to-business connectivities must be considerably stepped up to explore and exploit opportunities. Brand-building and information platforms need to be strengthened. Trade and investment offices in each others main cities with industry participation can be established to expand points of contact. Institutionalised investment forums for particular sectors should be set up with government aid. India is fortunate to have a vast reservoir of highly qualified and talented community of overseas Indians, which can be tapped to aid foreign businesses. Finally, the proposed Bilateral Investment Treaty should be expedited. The difficult global investment climate is likely to give pause to overseas investments. But India will continue to be a safe and secure haven, given its relatively well-regulated and well-capitalised financial system and still-expanding consumer markets. Its growing appetite for infrastructure will also continue to make it a domestic investment- and demand-led economy.

18

India-US Economic Relations : The Next Decade

Infrastructure Investments
India faces a huge infrastructure deficit that is a roadblock to providing a better life for its citizens and claiming economic efficiencies. Indias Planning Commission has estimated that within the next five years, an investment of $492 billion can be absorbed by the country in sectors from electricity to roads, irrigation and telecom. US with its construction capabilities and managerial expertise as well as industries of machines, tools and construction equipment must partner Indias quest for infrastructure construction. US companies, with or without Indian partners, should prepare detailed project reports to create a shelf of viable bankable projects, bid for projects, and engage widely in their construction. Both large and small projects can be undertaken. India needs the technology and techniques that US companies can supply. On its part, India must simplify and hasten administrative procedures and clearances so that potential investors have a hassle-free experience. Considering Indias compulsion for infrastructure spending as a fiscal stimulus, this can be expedited within 2009.

Required Investments in Infrastructure

700 600 500 400 300 200 100 0 Electricity Irrigation Roads Ports Railways Telecom Water&sanitation Airports Storage Gas

$ billion

Private Public

Sector

Source: Committee on Infrastructure, Planning Commission, India

Diaspora Investment from USA into India

Almost 2 million people of Indian origin are living in USA. Their participation in the Indian economy has been largely confined to remitting money or investing in equity and bank deposits rather than into more productive investments due to high transaction costs, lack of trade facilitation and barriers to entry. About half of startups in Silicon Valley in 1995-2005 were from immigrants, and Indians were the largest group among these. In the same period, research has shown that immigrants were key founders in one of every four US engineering and technology firms, with overseas Indians involved in 26% of these. People of Indian origin also dominate the motel industry in USA.

19

India-US Economic Relations : The Next Decade

It may also be noted that investments of large multinational companies, including US companies, are being driven and led largely by overseas Indians. Most India heads of multinational companies are either Indian or of Indian origin. Involving diaspora in investment opportunities for better returns would mean addressing issues such as de-reservation of products in small scale sector, lowering transaction costs, simplifying administrative procedures, opening up the retail sector, etc.

Indian Investments in USA

As Indian companies have matured, their global aspirations have become more pronounced. Interestingly, their overseas business operations have taken them to more developed and competitive economies, such as US and UK. A combination of considerations is involved in this decision: enlarging the consumer base, proximity to markets, quest for technology, and branding, among others. The number of approvals for Indian foreign investment has gone up from 714 valued at $1.4 billion in 2000-01 to 2261 worth $23 billion in 2007-08. Thus FDI outflow from India is almost comparable to inflow of $25 billion. A large proportion of this is in the form of mergers and acquisitions, with 322 deals in developed countries since 2003. North America, primarily US, accounted for almost one-third of Indian investments overseas in 1995-2006. Announced Indian investments in US in 2007 totaled $13 billion. Some large Indian companies with substantial operations in USA: JSW Steels acquired three US companies for $940 million The Tata Group derives about 31% of its international revenues from more than a dozen companies in the USA. Mahindra USA is among the top tractor players in USA. Ranbaxy, which has since been acquired by a Japanese company, gets 38% of its sales or $380 million from USA. Infosys was the first Indian company to be listed on the NASDAQ and the first to be included in NASDAQs 100 composite index. Six Indian companies with a market cap of $35 billion in August were listed on NASDAQ.

Indian companies add to production and employment in USA, and are able to cope with the fiercely competitive US markets. Their unique management styles combine modern practices with family traditions, and they are able to handle diverse workforces for maximum productivity. It is estimated that Indian investments in USA could touch $10 billion within a few years.

20

India-US Economic Relations : The Next Decade

TECHNOLOGY
US exported advanced technology products of $273.4 billion in 2007. Its imports stood at $326.9 billion. The products listed by US under Advanced Technology Products are in the categories of advanced materials, aerospace, biotechnology, electronics, flexible manufacturing, information and communication, life sciences, nuclear technology, optoelectronics, and weapons. In 2007, US exported $8.1 billion of ATP to India and imported $709 million. The main item of export from US was civilian aircraft of which $5.8 billion were bought by India in 2007, sending the bilateral trade figure soaring. The other principal export item was Information and Communications at $1.1 billion. Indias largest export to US in ATP was Life Sciences products at $381 million, followed by Information and Communications at $193 million. US-India Advanced Technology Trade
9000 8000 7000 $ millions 6000 5000 4000 3000 2000 1000 0 1255 199 1328 253 1507 319 2054 456 693 709 3251 8058

Year
US Exports US Imports

Source: US Census Bureau, Foreign Trade Statistics

The low level of exchange in technology products is below expectation. US trade with China in ATP is $128 billion, where imports aggregate $88 billion. With other countries such as Indonesia, Malaysia, and Philippines, its ATP trade is far higher than with India, especially in imports. It is to be noted that these countries have been able to successfully overcome hurdles to trade with USA. Indias exports of less than $1 billion are far below the potential. More than 99% of bilateral high technology trade is now independent of export licenses. The HTCG has suggested that an environment of trust should be constructively built to take high-technology trade to the next level.

21

India-US Economic Relations : The Next Decade

Recommendations
Capacity building: Regulatory capacity building and harmonization in the life sciences space is required, and the US can help India in appropriate ways. Indias biotechnology industry is expected to attain $5 billion revenues by 2010. Improving business environment: Expediting approvals and other procedural issues as well as addressing intellectual property rights are required. Taxation and visa problems need to be examined. Regulatory and harmonization issues: Technical and quality standards should be appropriate and should not act as non-tariff barriers. Consultation with private industry is needed on formulation of new laws. Defense trade: Defense is an area of tremendous potential for high-technology trade.

Dialogue on this is examining the issues of concern, and various suggestions have already been made. Given that the sector is now open to foreign investments, the process should be moved more rapidly, with greater private sector participation, especially with a role for SME.

Technology trade is crucial for both countries. India needs to expand its access to high technology, and modernize and upgrade its manufacturing processes; USA is seeking markets, and also more competitive high-quality products. The potential for synergy is immense and is now being explored under the HTCG process. The private sectors of both countries need to get more deeply involved in the dialogue process. The India USA High Technology Cooperation Group has had substantive meetings with private sector participation. The focus is on promotional events, generating awareness and understanding of market opportunities and regulatory environment, facilitating businessbusiness interaction, and identifying regulatory issues that need to be addressed. Various issues hindering bilateral relations have been discussed in Defense, Information Technology and Life Sciences including Biotechnology, Medical Devices & Pharmaceuticals and Nanotechnology.

ENERGY AND CLIMATE CHANGE

About 84% of rural Indians, or over 600 million people, use wood, chips and cow dung as their primary fuel, and almost half continue to depend on kerosene for lighting. Indias per capita energy use from commercial sources was 304 kilograms oil equivalent as compared to 7840 for USA in 2003. Indias per capita metric tons of carbon emissions were 1.2 in 2004. Due to its population size, India is one of the largest carbon emitters in the world, and due to its development process, it is one of the fastest-growing. The country has voluntarily committed not to raise its per capita emissions beyond the level of OECD countries. The civilian nuclear deal means that India can now depend on nuclear energy for about 25% of its total requirements by 2050. India currently has 17 atomic reactors, but these cannot produce to their full capacity due to lack of uranium supply. In the next five years, India

22

India-US Economic Relations : The Next Decade

plans to import eight 1000-MW reactors from USA, Russia and France. For the next 11-15 years, plans are to buy 24 reactors, costing some $27 billion. In the next year alone, there are proposals to purchase $14 billion worth of equipment to start the process. Even if USA supplies two reactors to India, this will mean 3000 to 5000 new direct jobs and an additional 10000 to 15000 indirect jobs being created there. India is already in talks with some US companies for the supply of reactors, including GE and Westinghouse. India has been proactive on global climate change talks. It leads in UNs Clean Development Mechanism projects with 35% of 771 registered projects. India is also active in carbon credits trade. The Government has pledged to source 10,000 mw of power from renewable sources by 2012. Clean energy is projected to account for 25% of Indias additional energy demand in the next decade, entailing an investment of $21 billion in areas such as wind, solar, and hydro energy as well as energy efficiency. Indian companies are aware of clean energy urgency and some have taken concrete steps for green business activities. The CII Green Business Center in Hyderabad has pioneered the green building concept in India obtaining the first LEEDS certification in the country. It aims to develop green buildings and new products. CIIs Sustainable Development center helps Indian companies with energy efficiency and waste management. The Delhi Transport Corporation runs the worlds largest fleet of buses using CNG, dramatically reducing the citys pollution. Delhi Metro Rail is the worlds first rail project registered by UN under CDM. The indigenously developed Tata Nano cheap car will be more fuel efficient than larger cars, and meets emission norms. US companies are examining opportunities in wind, biomass, hydro and nuclear energy, and some companies are already active in India. Indian companies such as Suzlon are also present in renewable energy in USA. India and US are conducting discussions under four areas of the US-India Energy Dialogue. These include Energy Efficiency, R&D collaboration, renewable and renewable linked hybrid technologies.

Recommendations
Partners in energy and climate change: India and USA can be close partners in clean energy and work together to limit emissions, cooperate in reducing dependence on nonrenewable energy sources, co-develop green products and spread awareness. India can be closely associated with USAs push for renewable energy and energy efficiency.

USA can also collaborate on Indias National Action Plan on climate change, which has identified 8 broad areas for focused action- National Missions on Solar Energy, Enhanced Energy Efficiency, Sustainable Habitat, Water, Himalayan Ecosystem, Green India, Sustainable Agriculture and Strategic Knowledge for Climate Change. As two large democratic countries at different ends of the development spectrum, their collaboration on climate change and clean energy would be a major boost to global efforts. creative technologies and innovative solutions to address issues including energy efficiency and global warming. Exclusion of foreign entities from participation in energy related research programs, imposed in a protectionist sentiment, will significantly hamper this process.
23

Driving innovation through joint R&D: Collaboration in research will help in developing

India-US Economic Relations : The Next Decade

ventures, translating innovation into practical application, will open up new avenues of cooperation. Widespread manufacture of electric vehicles, development of applications based on solar and wind technologies are among the commercial opportunities. opportunities arising from the Civil Nuclear Agreement, the two countries must work together and address the contentious stipulations such as Liability and End User Monitoring.
Civil Nuclear Cooperation: In order to move forward rapidly in pursuing the economic

Encouraging business engagement: Encouraging the private sector to undertake joint

KNOWLEDGE
With the successful launch of the moon mission Chandrayaan, India has catapulted itself into the knowledge domain. It can now be viewed as a key partner in global efforts in expanding the frontiers of knowledge. Chandrayaan included two NASA instruments. This can set the stage for significant cooperation in remote knowledge cooperation, especially in areas such as healthcare and education. India and the US have set in motion a robust institutional framework for cooperation in science and technology, education and academia, and research and development across a wide range of sectors. The private sector has also been giving its inputs. The dialogue process and interaction, though successful, would need to be speeded up considerably. Under the Indo-US Knowledge Initiative on Agriculture Education, Research, Services and Commercial Linkages, established in 2005, four priority focus areas were identified: Education, Learning Resources, Curriculum Development and Training Food Processing, Use of Byproducts and Bio-fuels Biotechnology Water Management

The large population of overseas Indians in USA is a repository of knowledge and resources, and can serve as an effective bridge to doing business with India. The Government of India has set up the Global Indian Network for Knowledge (Global INK), envisaged as a single point of exchange for information, advice and consultancy on business and social sectors between India and its diaspora in 110 countries. Global INK was launched in January 2009, and is being managed by CII under the platform of the Overseas Indian Facilitation Center.

24

India-US Economic Relations : The Next Decade

Recommendations
Agriculture: US companies are keen to participate in technology transfer, policy reforms

and investments that will usher in Indias second Green Revolution in agriculture. This will involve supply chain investments on a large scale, as well as policy measures for greater market freedom and lowering of tariff barriers. With food security being a major concern from both the sides, collaborative efforts need to be stepped up in addressing the challenge.

promotion of science-based decision-making, environmental and biodiversity protection, safe drinking water, watershed management, natural and social sciences, agriculture, marine sciences, energy, basic space sciences, climate, HIV/AIDS, infectious and chronic diseases, health and biomedical research, telemedicine, information and communication technologies, standards and metrology, sustainable development, etc. Specific committees for each of these areas could be created as well as an overarching platform to provide direction and solutions applicable to all areas.
IPR protection, quality and safety: Intellectual property rights, their laws and enforcement are being examined by the private sector discussion groups and confidence in Indias regime is being created through greater information dissemination. Quality and safety should be the basis for all business between India and US. A key recommendation in this is for US to engage in building institutional support for meeting its standards. CII has been Indias activist for better governance, including IPR protection, and spreading the Quality movement in Indian business. Its comprehensive training and information programs in these areas should be replicated on a larger scale and reach down to all levels of enterprises.

Science and Technology: US India science and technology cooperation includes

presence and transactions in cyber space increase, the challenge of maintaining security is growing dire. Being of mutual concern, forming a joint Task Force can help frame the roadmap to address the challenge. higher education services, spending $2.2 billion in 2007 on educational imports. A significant number of Indian scientists, academicians and researchers are also based in USA. The critical recommendation is to allow FDI in higher education in India. The sector must be opened up to foreign investments to bring in not just the necessary funds, but also to give greater opportunities to Indian students, encourage greater interest in India and Indian studies, and forge research and academic partnerships. Best practices in administration, teaching and curriculum development have to be part of the Indian system and this can be hastened through participation of renowned overseas academic institutions. Their participation can make India a hub of higher education for other developing countries as well. US educational institutions, among the best in the world, must be allowed free operation in India.
Skills and training: Indian companies working in the US are already training Americans at low cost and high quality. Given that these companies are reasy to expand their role and investments in the US to address the skills shortage globally, India- managed training centers could be set up in key states in the US.
25

Cyber security: Cyber security is emerging as a major issue of current times. As

Higher education: Indian students are the largest cohort of overseas purchasers of US

India-US Economic Relations : The Next Decade

fitness, which will capture public imagination in a positive way. The hosting of the Commonwealth Games 2010 in India will also give a strong boost to sports and fitness. Possibilities of institutional collaboration for promotion of sports and other extra curricular activities should be considered. institutionalized platforms of cooperation in different sectors, such as space, polar exploration, disease-control, etc.
Other areas: There needs to be greater interaction at the functional level through

Sports: There is huge potential for collaboration in the field of sports, sports goods and

Both governments can encourage such dialogue and cooperation, while private sectors can cultivate such platforms for taking innovation to the marketplace.

INDIA US ECONOMIC RELATIONS: THE NEXT DECADE

As strong democracies rooted in diversity and common aspirations for peace, prosperity, and freedom, India and the USA agreed in the Vision Statement of March 2000 to reduce impediments to bilateral trade and investment and to expand commerce between us, especially in the emerging knowledge-based industries and high-technology areas. India-US economic relations in ten years can attain the following dimensions:

Strategic shift from high-technology trade to frontier technology - India and USA can be close partners in expanding knowledge
frontiers in science and technology, including space, robotics, nuclear energy, defense, etc. and their business applications. India can play a key role in signature multi-country projects in space, oceanography, polar exploration, etc.

Robust trade in mass-market and niche products Comprehensive

Economic Cooperation Agreement, including goods, to be set in place to take advantage of complementary competitiveness. Set a target of $320 billion in ten years, with robust bilateral investments leading the way for high volume turnover. Quality and safety would be the basis for exchange.

High interface in services trade

Strong bilateral engagement across diverse services sectors. This would involve significant liberalisation of the Indian services economy on the one hand, and easy movement of personnel across borders on the other.

Scale up mutual investments massively. An investment treaty should be rapidly negotiated. US investors should have a leading role in the economic transformation of India. US companies can emerge as key partners for Indian business.

Preferred investment destinations

26

India-US Economic Relations : The Next Decade

Building infrastructure in India

India needs over $475 billion in investments over the next 5 years to sustain a high growth rate of 8-9%. The US private sector can find a big opportunity in the next decade in Indias need for capacity building in infrastructure. Collaboration in this regard would prove to be a mutually beneficial partnership.

Collaboration on clean energy and climate change

Indias rapid development makes it one of the fastest-growing energy users and carbon emitters. US is the largest energy user and highest carbon emitter after China. Both countries can collaborate closely on energy security, emissions, efficiency, and renewable energy as well as on global discussions on mitigating climate change.

Collaboration in healthcare: US and India to collaborate in making healthcare more affordable and accessible worldwide. Healthcare market in India was nearly at $ 38 billion in 2007, expected to grow at 15% p.a., to reach $ 79 billion by 2012. Tremendous opportunities can be found in providing healthcare services, building healthcare infrastructure and developing related technologies. Seamless cross-continental cooperation in knowledge economy sectors India and USA to be anchors for global interaction in
sectors such as biotechnology, nanotechnology, drug development, renewable energy, green products, etc. R&D, innovation, and academic collaborations to be close and continuous, rooted in strong IP protection.

Strong cooperation in education and academia

Participation in each others higher education and research sectors. Centers of educational excellence should open campuses in the other country to offer students the best of education in their place of residence. This would also enable high-level continuous exchange of professors, researchers and academics, and cross-cultural educational interchange.

It is crucial to engage the private sectors of both countries in a strong partnership at all enterprise and sector levels. Governments can guide and aid private sector partnerships. The two countries can truly set a new paradigm for global economic cooperation based on mutual respect, commitment to democracy, and global prosperity and development.

27

India-US Economic Relations : The Next Decade

CONCLUSION
India and the US have much in common diversity, language, democracy, commitment to global causes, etc. Economic engagement can be the fulcrum for the evolving strategic partnership of India and USA. There is vast untapped potential for deeper economic engagement in trade, investment, and services. Each component of the current bilateral engagement has economic spin-offs, including energy, science and technology, agriculture, space cooperation, etc. A Comprehensive Economic Cooperation Agreement encompassing goods and services, as well as agreements for bilateral investment and movement of personnel would greatly cement the emerging economic partnership of the two countries. The private sectors of both countries should be closely associated with the economic engagement policy process, reaching down to all levels of enterprise, including SMEs. Greater interconnectivity of enterprises needs to be fostered through government guidance and assistance, both central and federal, to industry associations, sectoral platforms, businesses, etc. Most important, by partnering ever more closely with each other, the two countries can jointly stage a fresh paradigm for peace and prosperity for troubled parts of the world. The model of two large democracies successfully matching different development levels for the progress of both would be inspirational to the rest of the world.

28

India-US Economic Relations : The Next Decade

SELECT REFERENCES
Bennet, James, Clinton Calls Tests a 'Terrible Mistake' and Announces Sanctions against India, New York Times, May 14, 1998 Confederation of Indian Industry (CII) Background Paper, Investing in India's Future: Diasporic Linkages in Trade, Investment And Society, Pravasi Bharatiya Divas 2007, New York, 23 September 2007, prepared by Dr Jayanta Roy and Mr Pritam Banerjee Confederation of Indian Industry (CII) Connecting South Asians: The Centrality of Trade Facilitation for Regional Economic Integration, Dr Jayanta Roy and Mr Pritam Banerjee, Paper presented at the 1st South Asia Economic Summit 8 - 30 August, 2008 Colombo, Sri Lanka Congressional Report Services, India US Relations December 2001 -----, India US Economic Relations August 2007 -----, India US Relations August 2008 Economic Times One-fourth US tech firms started by Indians, other foreigners, 15 Feb 2009, http://economictimes.indiatimes.com/Onefourth_US_tech_firms_started_by_Indians/articleshow/4131930.cms accessed on 23 Feb 2009 Financial Express FDI outflow may touch $35 billion: study, June 18 2007, http://www.financialexpress.com/news/FDI-outflow-may-touch-$35-bn:-study/140558/ accessed on 23 Feb 2009 Gargan, Edward A, A Revolution Transforms India: Socialism's Out, Free Market In, New York Times, March 29, 1992 ---, India Stumbles in Rush to a Free Market Economy, New York Times, August 15, 1992 The Hindu Businessline Reverse Outsourcing: Indian Cos take the Lead, June 8, 2008 The Hindu Businessline, Asia Pacific Partnership: The Business of Clean Energy http://www.blonnet.com/2008/09/10/stories/2008091050060900.htm accessed on 11-11-08 India Brand Equity Foundation website Indian Embassy, Washington DC, website accessed on 2-10-08 http://www.indianembassy.org/indusrel/trade.htm Jaya Prakash Pradhan, Trends and Patterns of Overseas Acquisitions by Indian Multinationals ISID Working Paper 2007/10 Kamath, MV, The United States and India 1776-1976, The Embassy of India, Washington DC, 1976 KPMG, India Energy Outlook 2007

29

India-US Economic Relations : The Next Decade

Ministry of External Affairs Fact Sheet on Various Aspects of India-US Bilateral Relations, September 2008, on www.meaindia.nic.in Press Trust of India, NASDAQ Celebrates Indias Independence Day, August 15, 2008 Rai, Saritha, Executives See US Link as Crucial in Indias Growth, The New York Times, March 3, 2006 http://www.nytimes.com/2006/03/03/business/worldbusiness/03cisco.html?_r=1&oref=slogin Reserve Bank of India, Annual Report 2007-08 Talbot, Strobe, Engaging India: Diplomacy, Democracy and the Bomb, Brookings Institution Press, 2004 US Bureau of Economic Analysis Press Release September 11, 2008, and http://www.bea.gov/international/bp_web/simple.cfm?anon=81697&table_id=10&area_id=3 7 accessed on November 6, 2008 US Census Bureau, Foreign Trade Statistics, Exports, Imports and Balance of Advanced Technology Products by Technology Group and Selected Countries and Areas, http://www.census.gov/foreign-trade/statistics/product/atp/2007/12/ctryatp/atp5330.html accessed on 11-11-08 US-China Economic and Security Review Commission, Report to Congress, Nov 2007 http://www.uscc.gov/annual_report/2007/report_to_congress.pdf US China Business Council website accessed on 2-10-08 http://www.uschina.org/statistics/tradetable.html US-India CEO Forum, Report on Recommended Next Steps, April 2008 United States International Trade Commission, Recent Trends in US Services Trade, June 2008 http://hotdocs.usitc.gov/docs/pubs/332/pub4015.pdf

30

Confederation of Indian Industry

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes. CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in Indias development process. Founded over 114 years ago, it is Indias premier business association, with a direct membership of over 7800 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 385 national and regional sectoral associations. CII catalyses change by working closely with government on policy issues, enhancing efficiency, competitiveness and expanding business opportunities for industry through a range of specialised services and global linkages. It also provides a platform for sectoral consensus building and networking. Major emphasis is laid on projecting a positive image of business, assisting industry to identify and execute corporate citizenship programmes. Partnerships with over 120 NGOs across the country carry forward our initiatives in integrated and inclusive development, which include health, education, livelihood, diversity management, skill development and water, to name a few. Complementing this vision, CIIs theme for 2009-10 is India@75: Economy, Infrastructure and Governance. Within the overarching agenda to facilitate Indias transformation into an economically vital, technologically innovative, socially and ethically vibrant global leader by year 2022, CIIs focus this year is on revival of the Economy, fast tracking Infrastructure and improved Governance. With 64 offices in India, 9 overseas in Australia, Austria, China, France, Germany, Japan, Singapore, UK, and USA, and institutional partnerships with 213 counterpart organisations in 88 countries, CII serves as a reference point for Indian industry and the international business community.

Confederation of Indian Industry

The Mantosh Sondhi Centre 23, Institutional Area, Lodi Road, New Delhi 110 003 (India) Tel: +91 11 24629994-7 Fax: +91 11 24626149 Email: ciico@cii.in Website: www.cii.in