Barack Obama and Narendra Modi want to increase bilateral trade by five-fold by 2025. For this, India needs to improve its business environment and the US has to ease its visa policy.
India seeks fast track to US trade
MUMBAI // India and the United States are striving to boost economic relations amid a growing realisation that trade and investment flows between the world’s two largest democracies should be much higher than their current levels.
Industry executives from American companies including Boeing and Honeywell, gathered alongside Indian business leaders and ministers at a convention in Mumbai last week to discuss how to develop economic synergies between the US and India.
“It’s for India to grab the opportunity,” Piyush Goyal, India’s energy minister, told the conference. “We are not happy” with bilateral trade levels between the US and India, he said. “We would look at ramping this up in a much more fast track manner in the days and months and years to come.”
There have been significant efforts from the top to grow trade and investment between the two countries. The US president, Barack Obama, has conducted two official visits to India, while the Indian prime minister, Narendra Modi, has made three visits to the United States.
“One point is I think we need to increase the bilateral trade between the two countries,” says Lalit Kanodia, the president of the Indo-American Chamber of Commerce, which aims at improving economic relations between the two countries.
Trade between the two countries was US$103 billion in 2014, but Mr Obama and Mr Modi have repeatedly stated that they want this figure to increase by almost five fold to $500bn by 2025, Mr Kanodia says.
“It’s a very ambitious target,” he says. “Bilateral trade holds the key to economic development. Until 1991, we were a very closed economy and we discouraged imports. It’s in our interests to increase both imports and exports from the US. Currently our exports to US exceeds our imports from the US, with a difference of $28 billion in favour of India. The US is already the largest trading partner with India and the US is also the largest investor into India.”
India is striving to boost its economic growth as it aims to create enough jobs to cater for its burgeoning population of more than 1.2 billion. It is the world’s fastest growing economy, which at $1.9 trillion is the third largest behind the US and China.
Mr Kanodia says that India traditionally exported tea and garments to the US but now one of the biggest sectors is the information technology services sector, while a growing number of small cars are being exported to the US. Pharmaceuticals is another major area of exports.
In terms of imports from the US, defence and aerospace is one of the main sectors, along with high-tech products. Energy, infrastructure development and manufacturing are other key areas where India and US can collaborate.
There are opportunities for more US companies to manufacture products in India, Mr Kanodia says, adding that it offers very similar benefits to China in terms of the costs and a large workforce. It can also become a base for exports to other markets including Africa and the rest of Asia.
“We see there is huge scope in the aviation sector,” says Dinesh Keskar, the president of Boeing India, the US plane maker. “India will need more planes.”
Nalin Jain, the president and chief executive South Asia for GE aviation and transportation, says that the US group is seeing significant scope for growth in India. GE is investing more than $200 million to set up a factory to manufacture locomotives to be supplied to Indian railways after it won a $2.6bn contract in November.
“As we speak right now, we’ve broken ground and we’re building the factory … in a very underdeveloped part of the country in Bihar,” says Mr Jain.
He says that on the aerospace side, GE has been partnering with the Indian government and airlines for years, with the company providing engines to commercial and military planes in the country.
The company has 21 factories across India. GE’s largest research and design facility outside of the US is in Bangalore.
“Enormous headroom exists to unshackle the real potential of the trade and develop and strengthen the strategic relationship between the two nations,” according to a recent report by the consultancy PwC.
“For instance, trade in the energy sector is expected to rise with India’s growing natural gas imports and the US having a surplus of shale gas.”
There are hurdles to overcome, however, PwC says.
“Some of the key challenges in achieving this goal include India’s poor record in the ease of doing business ranking and speed of decision making as well as the US government’s restrictive visa policy and restrictions on technology transfer. To overcome these challenges, Indian and US governments need to improve the business environment, provide tax incentives and simplify regulations.”
To the dismay of Indian IT companies, the US has increased fees on two types of working visas and it is feared that visas will become even more difficult to obtain should the Republican presidential candidate, Donald Trump, come to power.
With the recent announcement of a new goods and services tax (GST), which will replace the convoluted taxation system across different states with a single tax, it should become easier for foreign companies to do business in India, says Mr Goyal. China had lost its “competitive edge”, presenting an opportunity for India, he says.
He says that there are chances for US companies to invest in the renewable energy sector in particular.
Mehnaz Ansari, the United States Trade and Development Agency’s representative to India, says that she remains confident about the opportunities and growth for US companies operating in India, partly because of the amount of infrastructure development that is taking place and is required in the country. Plans to develop smart cities provide a huge opportunity for US companies, she says.
“We have been doing very well in areas of energy, civil aviation … and railways is another area that is opening up” in terms of bringing US companies to India, she says.
“We are looking at what technologies we can bring from the US into projects in India,” says Vinayak Deshpande, the managing director of Tata Projects, which is working on projects including developing freight corridors.
“Currently the infrastructure markets are so strong in India that we focus our work in India, but we look for technologies from a developed market like the United States, such as signalling and electrification.”
He says that the geographical distance between the US and India was a negative factor in developing business relations.
“I think the US business people have to be here more often and understand the market, which is a high-growth market. They need to make investments in managing the services afterwards. For example, we buy the equipment but we need good services to make it run properly and we need training and education on their equipment.”
And with the US elections approaching, business leaders are hopeful that regardless of the outcome, the progress on India and US economic relations can continue unhindered.
“I’m not too worried about Trump,” says Mr Kanodia. “I think finally he’s a businessman and he will do what is good for American business.”
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