Interview with President of India-America Chamber of Commerce.
By Deepak Chitnis
WASHINGTON, DC: Rajiv Khanna is an attorney at Seyfarth Shaw LLP, one of the most respected firms in New York City, where he is a partner in the firm’s corporate department.
Originally from India, Khanna earned his B.Com with honors in 1976 from the University of Delhi, followed by his LL.B. three years later from the same institution. Khanna practiced law in India for four years before coming to the US. In 1984, he earned his LL.M. from the University of Miami Law School – where he stood first in his class – making him eligible to practice law in both countries.
Over the last 30 years, Khanna has become one of the leading attorneys in the US on matters of domestic, cross-border and multi-jurisdictional M&A transactions, corporate finance, project finance and real estate. He has worked with the US District Court or the Southern District of New York, and the US Court of Appeals for the Second Circuit.
Khanna is also the President of India-America Chamber of Commerce, a “a bi-national chamber of commerce which is the focal point of cross-border investments between the U.S. and India.” He is a regular host and guest for some of the biggest names in Indian politics, and his insight into all things economics and commerce between the two democracies is keenly valued.
In this exclusive interview with The American Bazaar, Khanna offers his opinion on a wide range of issues that have recently plagued the US-India bilateral relationship, and what he thinks the countries need to do to make sure that their union remains strong in the coming years.
Excerpts from the interview:
Concerns about commerce between US and India have remained high over the last year, as the two countries have had their issues with everything IP to pharmaceuticals, aviation to Khobragade – what is your take where the relationship between the two countries stands, as of this very moment?
I think it’s at an all-time low, not only for the reasons you just mentioned, but there is another underlying reason that has been critical to souring relations.
The US played a very critical role in getting civil nuclear technology to India – as you’ll recall, George W. Bush and Manmohan Singh signed the civil nuclear deal in 2006 – but the contracts stemming from that have not favored the US. The first one, I believe, went to Russia, and another after that went to France, but the US was not awarded any contract.
The US got nothing, zero. And I think there’s a deep resentment within the US about that as a result of that issue. This has underlined a lot of the tension that we’ve been seeing in the relationship lately.
How much do you think the relationship can, or will, improve when the final outcome of the current Indian election is revealed? If Narendra Modi does become the new Prime Minister, what do you think the immediate effects of the election will be?
Right now, things are so bad [that] they can only get better. So I’m very optimistic because at this point, things can really only improve. I think that Narendra Modi is a very seasoned politician, and is very pro-business; I am confident that he will see the benefits of increased US-India cooperation and will work towards that.
Could the eventual outcome of immigration reform in the US prove to be a decisive factor for the US-India relationship in the next year or two, especially if it is passed in its current form? There hasn’t been much movement on it for the last few months, but India was vocal in its opposition to certain part of it…
I’m honestly not 100% up-to-speed on that bill, but from what I understand it could seriously harm Indian companies who do a lot of outsourcing work for the US. So I would hope that at least that part of the bill doesn’t come into effect.
From what I understand, if a company is a very H-1B-dependent company, like Wipro or Infosys, there are going to be limitations on what they can and can’t do in terms of outsourcing, but the US companies like IBM and Accenture will be able to work with these laws. I don’t think the total amount of outsourcing will go down, it will just be a matter of which companies get the outsourcing more than others.
And from how it looks, Indian companies stand to lose much more than American ones. So if that comes to pass, it will certainly harm the relationship between the US and India, and could end up affecting the GDP of India by about 1-2%. Even if it’s just 1%, that’s still a significant number.
Speaking of GDP – the World Bank released a report last week saying that China will surpass the US as the world’s largest economy, and although India will become #3, it still lags pretty far behind the other two nations ahead of it. What major steps can India take to close that gap?
It actually has to do a few, very simple things – it needs to control corruption, it needs to not do stupid things like GAAR [General Anti-Avoidance Rules], and retroactive taxation, which really scares off new investors. The difference between 4.5% GDP and 8% GDP is management. If India can manage itself well, and do the things that I’ve just mentioned, it can very easily see itself rise from 4% or 4.5% to 8% in a short amount of time.
I think the decline in the GDP in India over the last few years has been because of extremely bad management, like GAAR and retroactive taxation. A lot of these transfer-pricing problems have hurt India, and all the controversies stemming from [those policies] affect the country’s image. If India just stops scaring away investors as fast as it can, GDP will see an almost immediately increase.
But after that, India still needs to do a couple more things. Mainly, India should try to sell its public sector. There are massive lock-ups of value in the public sector, and if India could sell its public sector, it would then have the money necessary to really build up its infrastructure in the same way China has. India would also be able to pay off its debts; a significant portion of tax collection in India goes towards servicing its debt.
Also, when the government goes and borrows in the public markets, they crowd out the private sector from borrowing. An orderly elimination of the public enterprises in India has to take place. These public enterprises are also creating a lot of inefficiency throughout the country. Public companies spend a lot of time writing memos and doing very little actual work; you look at a private company, the majority of the time is spent building business.
If all these things are accomplished, India could perhaps see as much as a 12% growth in GDP. India has the fastest-growing consumer market; China doesn’t have that. So India has the right mix of savings and consumption, it has a young population, it has huge potential for growth, but the only thing holding it back is its management – nothing else.
One area that India has seen substantial growth in is its bilateral trade with the US, which has hit $100 billion annually. Both governments want to see it hit a new benchmark of $500 billion annually – do you think this is feasible within the next few years?
When I first started with the India-America Chamber of Commerce, bilateral trade was just $100 million. Now, it’s already at $100 billion, so $500 billion is not an unrealistic goal. How long that will take really just depends on how fast India decides to get rid of its protectionist policies. Protectionism doesn’t help India, it doesn’t help the United States, so the more India is willing to eliminate those policies, the more bilateral trade will grow.
The US is now the leading source of FIIs into India, and is expected to hit $200 billion at some point this year. What other sectors should the US focus on to build ties with India?
All of them, frankly. I can’t think of a single sector that the US can’t afford not to invest in when it comes to India. India has excellent technology, excellent manpower, excellent education. As relations between the US and China sour, which they are likely to, India really should emerge as a natural partner for the US, and that should encourage all kinds of investments. The FIIs are obviously good, but there is certainly more that can be done.
Speaking of education – that has remained one of the cornerstones of the US-India relationship, but it’s been largely a one-way street. Indian students flock to US schools in droves every year, but the reverse doesn’t happen, despite India having a number of excellent institutions. What do you think India should do to facilitate this?
India really needs to open up its education sector. India came up because of its education but aside from a few big names, like the IITs and IIM, there really isn’t a whole lot left. India needs to have a massive drive to educate and train its own population, and to do that, it needs to open up on a for-profit and not-for-profit basis to anybody and everybody who wants to set up an educational institution in India.
Look at the Middle East – countries over there are making huge deals to allow foreign universities to open centers and schools in their region. India needs to do the same, and it also needs to focus on educating its own population to the highest standards possible. This will not only help the US ties, but it will also help India to get ahead of China, where most jobs are low-income or manufacturing-type jobs.
I don’t see US students going to India, but I do see US colleges and universities opening their own establishments in India. This is what will attract students to India, and help increase the flow of education in that direction.