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India-US Economic Relations Bounce Back – Analysis

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By Jayshree Sengupta

Recently the US Citizenship and Immigration Services (USCIS) resumed premium processing of all H1 B visas after suspending it for six months. In April 2017, the agency had said that it would take six months to process existing applications but now it has resumed the premium processing for a fee of $1,225 in only 15 days. H1B visas are used by Indian technical professionals to go to US to work and Indians utilise 70 per cent of the visa quota every year. This move by USCIS shows that are no major hitches in the Indo-US economic relations under Trump administration. Modi wants to accelerate trade to the US to $500 billion. Currently, the total goods and services trade is at $114.8 billion ( 2016) . Unlike China, America buys more from India and US exports to India were at $42 billion whereas imports from India were at $72.8 billion. US trade deficit with India is around $24 billion.

What should please Mr. Trump most is the fact that Indian investment in the IT sector in the Silicon Valley has created 52,000 jobs in 2016. Also Boing is going to get a huge order from India for civilian planes. Indian Airlines and SpiceJet have ordered 205 planes and Jet Airways has ordered 75 planes. Under India US defence cooperation, there will be collaboration between Tata and Lockheed Martin to produce F16 fighter jets in India.

There is going to be a big collaboration between India and the US in the energy sector and GAIL has signed a 20 year supply agreement to buy 5-8 tonnes of US LNG with Cheniere Energy. India already has undertaken delivery of one commissioning cargo of gas from the US.

India is trying to woo US investment because of its Make in India initiative which will help create jobs. There are a number of glitches which need to be looked into before one can hope that American investors will prefer India to other investment destinations.

One of the irritants in US-India trade has been the sudden price control that Indian government imposed on stents — a medical device used in heart surgery. It is considered to be an anti-trade measure by the US. Many of these stents are imported from the US and the companies supplying them have been hit by the nearly 80 per cent cut in prices by the Modi government. True these devices are now widely used and are unaffordable by ordinary people and now with prices slashed, it has helped many ordinary Indian citizens. But this regulatory practice is controversial and 18 members of the US Congress have appealed against such control. Recently, the government of India has agreed to review the whole business of stent pricing in February 2018 otherwise the US companies will call it quits.

Similarly, Monsanto has suspended plans to introduce upgraded version of GM cotton in India because of ‘the business and regulatory environment.’ Indian government slashed its seed price after it was found to be ineffective against a new kind of pest disease. Monsanto started its business with great fanfare in 2002 and India’s cotton exports soared due to the introduction of Bt cotton that resulted in a rise in production.

One other regulatory measure that is not liked by the US government is about protecting India’s agricultural sector. There was a dispute at the WTO regarding India banning chicken leg imports and later, India lost the battle. India has also had trouble with the US solar panel makers on grounds of ‘local content’. The US also went to the WTO dispute settlement body and India lost its case once again. US government has given December 2017 as the deadline for India to remove the mandatory requirement of local sourcing.

US business is most uncomfortable about the Intellectual Property Rights infringements in India. US business wants strong enforcement of IP protection which can only be achieved through fast track judicial processes. In India IP infringements are not considered serious and there are few disincentives in the system for such infringers. To be able to win the confidence of American investors infringement in the digital environment has to be checked. Indeed India’s score in the Intellectual Property Index is at the bottom. It is 43rd out of 4 5 countries. The Indian Copyright Act of 1957 has been amended in 2012 and monetary and criminal sanctions can be used against those circumventing digital rights. Yet the whole area of IPR protection needs more attention.

The perception of American doctors is somewhat coloured by this notion and they often do not prescribe drugs made in India. This perception has to change for Indian drugs to do well in the US market.

Most investors will look at the Ease of Doing Business index when deciding to choose a country for setting up ventures. India’s rank at 130 is low compared to other BRICS members but the government is hopeful that with the introduction of GST and 20 other reforms in various sectors and the bankruptcy code being in place, the ranking will go up to 100. Modi wants it to go up to 50th position. Yet key areas that are important in the computing of the index have not progressed at all in the last one year (from 2016 to 2017) and have in fact gone down to a lower position are– paying taxes, trading across borders, getting credit and construction permits.

The US businesses which went to China, made products which could be exported back home and became a part of the global value chain. For India, problems in physical infrastructure and low human development are major inhibitors for American FDI to come to India and need to be addressed.


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Observer Research Foundation

Observer Research Foundation

ORF was established on 5 September 1990 as a private, not for profit, ’think tank’ to influence public policy formulation. The Foundation brought together, for the first time, leading Indian economists and policymakers to present An Agenda for Economic Reforms in India. The idea was to help develop a consensus in favour of economic reforms.

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