India - Now for the big league

N.Chandra Mohan

A new era begins for Indo-US relations with America’s President-elect Barack Obama. True, these are turbulent times of global financial crises and recession in the world economy. But after decades of being ‘estranged democracies’, India and the US have finally become ‘engaged democracies’, to borrow a felicitous expression from Karl Inderfurth, former US assistant secretary of state for South Asian affairs. The bilateral relationship is bound to acquire greater depth and maturity during the Obama Presidency.

America, for its part, has indicated its strategic intent to help India become a major world power in the 21st century. This partnership will obviously be across the board, building on the considerable momentum generated during the Bush Presidency. Both nations face similar challenges in dealing with terrorism. To address this problem on a war footing, especially in the badlands of Afghanistan and the Indian Ocean, naturally, will entail stepping up bilateral military, intelligence and law enforcement cooperation.

Economic engagement remains the weakest link in the evolving Indo-US relationship. But times are a-changing with the passage of the historic deal on civil nuclear cooperation. This accord with the Americans is not just about India’s ambitions as a nuclear power. The big picture is that it will provide access to US high technology that has been denied since India conducted an atomic test in 1974.

In a letter to Manmohan Singh, Obama stated, “We should also be working hand-in-hand to tap into the creativity and dynamism of our entrepreneurs, engineers, and scientists to promote development of alternative sources of clean energy.” Imagine Indian laboratories and industry collaborating with American laboratories and industry to discover innovative solutions to today’s energy problems — that is the kind of new partnership I would like to build with India as president, he wrote.

India must take up the offer to partner the US in developing clean, environment-friendly technologies to exploit solar, wind and other renewable energy sources. Both need to address the problem of global warming. As Obama plans to spend $150 billion on green technologies, there are huge opportunities for advanced technology trade in this area between the two countries. There are similar possibilities in biotechnology, life sciences, electronics and advanced materials, in which America has global leadership.

To be sure, some bilateral advanced technology trade is already taking place. But this progress is on a small base. US advanced technology exports to India amounted to $3.6 billion during the current calendar year till August, having grown by 32.6 per cent per annum since 2003, according to the US census bureau. The bulk of it is in aerospace that has boomed by 62.5 per cent per annum and includes exports of military and civil helicopters, airplanes, turbojet aircraft engines, flight simulators, automatic pilots etc.

A major positive is that both countries realise that the bilateral economic relationship needs to gain ballast. Thanks to recent advances in technology trade, US exports to India no more remain ‘flat as a chapati’ as was argued by Robert Blackwill, former US ambassador to India. From stagnant levels of $3.6 billion per annum, especially during 1995-2001, US exports to India have spurted to $8.5 billion per annum. But these levels are well below their potential.

America’s strategy to make us a world power is not possible as long as trading flows between India and the US remain below par and US investments here amount to a negligible 0.48 per cent of its worldwide total. India must hope to join US’s top 15 trading partners and the Gang of Four trading nations of Canada, China, Mexico and Japan.

The big question is whether India will seize the moment and transform its economic relationship with the US during the Obama Presidency. Towards this end, it’s necessary to clear the stumbling blocks faced by US investors (and other foreign investors) to stake a larger profile here. They have faced uncertainties over the one-step forward, two steps backwards nature of India’s economic reforms since the early 1990s. The track record of the ruling UPA government has not been exemplary on reforms either.

With its five-year term drawing to a close, there are doubts whether the UPA can go ahead with selling equity in state-owned undertakings and liberalise foreign direct investment limits in retail trade and insurance. Financial reforms are also on the backburner due to the ongoing global financial meltdown.

Foreign investors who make long-term investment commitments in infrastructure want certainty in their operating environments. This means transparent and independent regulatory frameworks. American investors entertain doubts whether the sanctity of contracts will be honoured in India, especially after the Enron fiasco. Although this imbroglio has been resolved, it still remains the epitome of the failed promise of big-ticket American investments in India’s power, ports, airports and telecom infrastructure.

US investors in pharmaceuticals and biotechnology have also had major problems with our regime on intellectual property rights, mostly because our policy regime protected processes rather than products till recently. Now this regime has been brought in line with those at the World Trade Organisation. But the tide has, no doubt, turned of late with the focus of the Obama administration on strengthening US’s strategic engagement with India.