‘A lot of the action has to happen with Indian state governments. One thing I’d love to see is a more robust
engagement between our sub-national (states) leaders’, says Richard M. Rossow.
Trade and business are on the upswing, only that India and US both have to break some barriers that will cement a thriving business partnership. While India needs to remove the logistics and policy impediments, the United States needs to recognise that some of the jobs will have to be created in India, says Richard M. Rossow, a top India-US trade analyst and Senior Adviser in Center for International and Strategic Studies (CSIS). Days before President Joe Biden and Prime Minister Narendra Modi raise the toast for a strong diplomatic relationship, Rossow spoke with The Sunday Guardian about the blueprint for a robust business relationship between the two nations. Excerpts:
Q: What do you think will be top of the agenda for talks on trade and business?
A: The agenda I think for these leader level summits is focused a lot on commerce, which have the strategic overlay areas. These commercial areas of bilateral trade are because of Covid-19, supply chain disruptions or concerns about over reliance on China, as a developer and supplier of advanced technologies. I think a lot of the commercial stuff you’re going to see next week will be in defence, commercial space, communications, 5G, 6G, and semi-conductors. I don’t think general consumer issues will be featured quite as much. But the commercial areas that have strategic overlay will get most of the attention. A lot of private firms right now are launching rockets into space putting satellites up in space, using geospatial intelligence for different things. These areas are ripe for a potential collaboration. I suspect these will feature in the trade talks more. Our startups can do some good business together, I hope.
Q: What is the current state of the trade volume in the US dollar? What potential opportunities and barriers in India-US trade you antcipate?
A: The trade relationship is moving on two different fronts. One, between governments, where they really haven’t had a lot of opportunity for success in breaking through some of the policy impediments. In India, when the Modi government came in, a lot of protectionist steps too came out of the gates in increased customs duties, imposed mandatory local production regulations, etc., which were in response to the big trade deficit and the need to create jobs and a lot of that caused consternation by American companies that felt they’re going to lose market access. The United States, especially during the Trump administration, retaliated directly. The US revoked India’s trade preferences under the Generalized System Preferences. It announced globally 232 tariffs as we call it retaliatory tariffs on steel and aluminum that hit India pretty hard, even though they’re more global in nature. India retaliated with its own tariffs after the 232 steel and aluminum tariffs. It wasn’t that long ago that both sides were slinging a lot of mud. During the Biden administration, the tension I think is less palpable. You don’t hear President Biden getting the microphone and talking about Harley Davidson tariffs. But the upside is that the trade is still booming.
We’ve got a relatively decent year-on-year spike, and India climbed into eighth place. Hopefully they’ll hold it as our eighth largest goods trading partner. So even though kind of those policy headwinds that companies point to which are quite real, but the opportunities in both ways are so large and growing so fast, that companies are still making the decision to expand commercial relations, even despite some of these policy headwinds.
Q: And how healthy is the investment? Are both countries getting benefited?
A: The US companies would love to experience part of that growth that we’ve seen from India recently and expect to see in the future. I think the Modi government took a lot of initial steps early on to remove some of the existing foreign investment impediments, moving almost 40 foreign direct investment caps. The pace of those changes is dramatically slowed. In the second term, you’ve only seen a couple of FDI cap changes, but those are sensitive areas, making it easier for foreign investors in defence, telecom and insurance to invest. So, they may be taking fewer steps, but the areas they moved in are certainly quite sensitive. At the end of the day, the investment environment in India is going to be driven a lot more by her state governments than it is by the national government. So, we can talk about removing FDI impediments. In manufacturing, India desperately strives or has been open to 100% FDI for decades, but we still don’t see quite so many US companies flocking there, as we saw in China in the heyday and maybe Vietnam and Malaysia and other places more recently. I think, for India to really kind of hit the mark on pulling in the kind of foreign investment that competing countries have gotten in recent years…you got to see a few more state governments more actively approaching that resolving local disputes, making electricity access easier. And cheaper, things like that. That’s a much bigger agenda, one that certainly the Modi government tried to do by a competitive cooperative federalism, but a lot more work needs to be done.
On the upside, you do see also a lot of Indian investment coming towards the US. And that’s a bit of the untold story. Fact is that all 50 states and territories have Indian firms that are investing here and it’s diversifying… it’s not just IT services, it’s pharmaceuticals and automotives and other areas of technology. It’s becoming a two-way street. And, therefore I think there is a lot of bilateral utility out of it for our companies and for our workers.
Q: What is that India should be now working to minimize the critical barriers and do you think logistics is a key hurdle?
A: I think, logistics. You’ve got the World Bank and Indian government officials talking about the cost and price of logistics in India. It just costs a lot of money to move stuff from point A to point B in India versus competing markets. The low-quality trucking takes more time than it does in competing markets and ports in India aren’t terribly efficient. The high cost and relatively poor access to electric power, as well as water, including sanitation and effluent treatment are other concerns. These are the kinds of things that countries that are really hungry for industrial investment…they’ve got terrific world class plug-and-play infrastructure. That’s a rarity to find in India.
The infrastructure challenges and logistical challenges need to be addressed. State governments owe a lot responsibility to set it right. Foreign companies are also concerned when we talk about policy, the vast change in policy, particularly what happens in India when state governments change over and that changes the direction of policymaking. At times, companies that put substantial investments under one regime, they suddenly find it gone. And what’s the recourse? The third block of issues is the courts. Companies constantly talk about how difficult it is to get adjudication on basic business disputes. You get stuck in a queue for years or decades. So, logistics and infrastructure, including energy is a big one. Besides, policy change and getting the courts to work a little bit faster are some on any investors’ wish list.
Q: Your expertise is in critical and emerging technologies. Both the NSAs had a string of meetings last week. How can the US-India partnership in iCET open more business opportunities?
A: The realistic answer, and one I think probably the Indian government doesn’t want to hear, is that India already is the backbone for a lot of the research and engineering the design that goes into high end product. But you know, really the threshold for you to be successful in manufacturing, that stuff remains kind of fired again, we talk about failing power grids, the inability to get reliable electric power, you got to build your own power project. Impediments are many: You’re buying from the grid, you pay a lot for poor quality electric power, labour regulations, and land acquisition. Moving into the front line on actually manufacturing is tough. I think if I was to say like a realistic high-end partnership that can be done today, then accelerate India’s back-end design and engineering of high-tech goods, manufacturing in the United States or partner countries. But I know that’s not the way the world works. India wants to do both and the United States realizing how important it is to cement this relationship will look to bridge that gap we’ve been trying to do in defence for a decade now when we’ve been trying to offer joint production of advanced technologies. There are Indian companies that are ready to take on board, anything close to a 50-50 partnership. But one good thing that the Modi government’s been doing is unlocking startups, really in defence in particular, unlocking the private sector, something impossible 15 years ago.
Q: What are your final tips on how this business partnership will get more strengthened?
A: On the business side, one thing I think the United States needs to be a bit more responsive to India’s concerns. I know the political hurdles to doing things on immigration, things like that are extremely high. But a lot of the action again has to happen with Indian state governments. One thing I’d love to see is a more robust engagement between our sub-national (states) leaders. They might be the decision makers, proof points of the relationship in the future. The United States has got to be willing to recognize that some of the jobs will be created by our partnership are going to be in India, and that can be a bitter pill to swallow but you have seen the Biden administration, in some priority areas like climate change, where they announced $500 million for solar to build solar in India. You have seen some examples where the United States has been willing to say we will support jobs in India to kind of our greater initiatives. I think the sky’s the limit.