Despite concerns, Indo-US economic ties will blossom, says Nirupama Rao

Indian IT industry faces regulatory challenges in US, says Ambassador.

Bureau Report

WASHINGTON, DC: Despite some concerns about doing business between each other, India and the US’ economic relationship would become stronger in the years to go, said the Indian Ambassador to the United States Nirupama Rao, speaking at a forum here.

“Just as US businesses have some concerns, Indian industry has also highlighted its concerns,” she said at the Centre for Strategic and International Studies’ (CSIS) Statesmen’s Forum – ‘US- India Economic Agenda in 2013’.

“Just as US businesses have some concerns, Indian industry has also highlighted its concerns. We are told that the Indian IT industry, which according to a report from NASSCOM, employs over 100,000 in the US, and supports another 200,000 jobs including indirect ones, faces regulatory challenges here. We are also unable to even begin a dialogue with the US on a bilateral Totalization Agreement,” said Rao.

Citing studies sponsored by the CSIS, Rao pointed out the changing nature of India U.S. trade and economic relations. The study suggests a possible framework for strengthening economic ties between the two countries, which comprises negotiations on concluding a BIT; creating a stable and predictable environment for foreign investments in India; maintaining continuity of political level direction prioritizing bilateral economic engagement, including convening meetings of the Trade Policy Forum (TPF); a serious effort on the U.S side to ameliorate the concerns of India’s IT industry; enhancing India’s commitment to advanced Free Trade Agreements (FTAs); and, commencement of negotiation on a India-U.S FTA.

Rao informed that FDI flows to India have gone up from $35 billion in 2007-08 to $47 billion in 2011-12. Portfolio investment norms for Foreign Institutional Investors (FII) have been progressively relaxed, in categories of securities such as Government securities, and corporate bonds, both infrastructure and non-infrastructure. The total net portfolio investment into India has gone up progressively, and has touched $17 billion in 2011-12, after a significant level of net outflow during 2008-09, the peak post crisis year.

“India’s receptivity and openness to foreign investment is only expected to go up,” she said. “…the Indian economy will bounce back to its targeted trajectory of 8-9 percent per annum growth.“

According to Rao there is immense potential for increasing U.S investments into India, considering that the U.S is the world’s leading investor, holding 14.8% of total global FDI stock in 2010.

Except for 2005, the U.S has remained the leading source of FDI across the globe for the past decade, with the total FDI outflow from U.S in 2011 being of the order of $400 billion. U.S investments in India between January 2000 and July 2012 have totaled $10.88 billion.

Talking about Indian investments in the U.S and the jobs that these have created, Rao said over the past few years, India’s actual FDI outflows have been growing at a tremendous pace, mainly due to progressive liberalization in India’s overseas investment policy during these years.

A study by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst and Young (E&Y) reveals that during July 2010–July 2012, Indian investments in the U.S maintained a strong momentum, despite global and domestic economic headwinds. The period witnessed 87 mergers and acquisitions (M&As) with a cumulative disclosed value of $4.3 billion.

According to Confederation of Indian Industries (CII) estimates, cumulative Indian investments in the US market between 2000 and 2010 stood at $6.6 billion, of which $4.2 billion was invested between 2007 and 2010, indicating an upward trend. Metals, information technology, media and entertainment, industrial machinery and equipment, and financial services were the principal investee sectors. As a result of these investments, tens of thousands of direct jobs, of predominantly U.S citizens, supporting many more indirect ones, have been created in this country.

The narrative of strong commercial ties is reflected in figures with bilateral trade in goods and services touching $100 billion for 2011 which is likely to cross that figure in 2012, and which remains broadly balanced, said Rao.

“At $62.3 billion, trade in goods for 2012 grew at about 9%. At $ 46 billion for 2010, with a slight surplus in favor of the U.S, our two-way diversified services trade has sustained good growth over the last several years. U.S. exports of around US$3.3 billion in educational services in 2011, the bulk of which we understand is on account of tuition fee paid by over 100,000 Indian students in the United States, reflect a key strength of our overall education cooperation,” said Rao.

Rao said the government favors opening up the export of shale gas from the United States to India.

“There are also fertile possibilities for developing commercial technology partnerships in the renewable energy sector including solar and wind energy. In fact, the availability of clean sources of energy is important for the future well-being of both our nations,” said Rao.

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