Wednesday, August 18, 2010

Obama and Indian industry: navigating tough waters

“It was the best of times, it was the worst of times …,” wrote Charles Dickens. Today those could well be the words of the captains of Indian industry and the government that represents them. For even as the drum rolls have begun early this summer in anticipation of Barack Obama's visit to India in November, the record of the United States' 44th President on deepening economic ties with India does not inspire confidence.

Look at the facts. The economic dimension of the bilateral relationship has grown significantly in size and complexity since the pre-1991 era. Even more so since India decisively emerged from the fog of post-Pokhran nuclear isolation and sanctions were lifted by former President George W. Bush in 2001. Indeed it was the very same man who then went on to give the burgeoning relationship its biggest breakthrough in the form of the civilian nuclear deal.

Yet some in India's private sector, and perhaps in the Industry and External Affairs Ministries as well, would argue that that was where it ended. To be sure, the current U.S. administration has not spoiled the party entirely; if anything it has been at pains to sustain the image of not rocking the boat. Thus there have been veritable cascades of bonhomie during such encounters as Prime Minister Manmohan Singh's much-touted “first state visit” of the Obama Presidency last November, and the India-U.S. Strategic Dialogue of May 2010.

The concerns

While these events and the behind-the-scenes Track I and Track II dialogues have certainly kept the boat from rocking, there is little doubt that the two countries are charting a course through troubled waters and that storm clouds loom on the horizon. To those following the comments of visiting Indian leaders in Washington, one thing is clear: sections of Indian industry, from the high-tech and space sectors to IT giants, are deeply unhappy with the U.S. intransigence on a range of issues at the very heart of their operations.

Some of the most serious concerns are the following.

First, export control restrictions, particularly on dual-use, high-tech items, have been brought up time and again by senior officials such as Foreign Secretary Nirupama Rao and Commerce and Industry Minister Anand Sharma. In March, as Ms. Rao co-chaired a meeting of the India-U.S. High Technology Cooperation Group, she described the restrictions and related constraints as “anachronistic.”

Second, the U.S. Bureau of Industry and Security has inexplicably retained government organisations such as the Indian Space Research Organisation (ISRO) on the Entities List, thereby banning U.S. corporations from trading with them. Although Robert Blake, Assistant Secretary for South and Central Asian Affairs and other U.S. officials promised several months ago that the list was being revised, ISRO has not officially been taken off it yet.

Third, the “totalisation” conundrum has led to Indian professionals paying “huge amounts” as social security contributions in the U.S. and yet they are unable to draw any benefits on the basis of such contributions. Senior Indian Ministers such as Labour and Employment Minister Mallikarjun Kharge and Minister of State for Communications and Information Technology Sachin Pilot spelled out the nature of the problem to their U.S. counterparts in Washington in March and April. Yet in an interview with The Hindu, Mr. Blake said that the U.S. social security administration had “really grappled with this but thus far not found a way to be responsive.”

Visa fee hike

The most recent salvo came last week when Democratic Senators Charles Schumer and Clair McCaskill sponsored — and got passed — a border security bill entailing an H1-B- and L-visa application fee hike of $2,000 for firms with a higher proportion of non-American employees.

No prizes for guessing which firms would be most adversely hit by this bill. The National Association of Software and Services Companies (Nasscom) sharply criticised the bill, and its president Som Mittal warned it was an “indirect form of protectionism and runs contrary to the Obama administration's oft-repeated goal of opening markets and doubling U.S. exports.”

To some, these worrisome barriers to an open economic relationship are symptomatic of the old stereotype of Democratic administrations — that they are less concerned about economic proximity to India than Republican administrations are.

Others worry specifically about the Obama government's penchant for protectionist policies, a trend that is certainly validated by the emerging rhetoric in Washington.

So far as Mr. Obama himself is concerned, it began long before he became President. As a Democratic Senator and rising star on the domestic political scene, he gained notoriety in India for backing several “killer amendments” to the India-U.S. civilian nuclear agreement. Although pro-deal lobbies dodged that bullet and the Feingold Amendments were defeated in the Senate, Mr. Obama has done little in his Presidential avatar to shake off the reputation that his actions created.

And the future looks even bleaker. The President and his Democratic colleagues are increasingly adopting a tunnel-vision approach, focussing on the one challenge that could make or break the next few years for them — the November Congressional elections. Thus India should expect that this administration will, for the next few months at least, be driven only by the adage: “It's the economy stupid!”

With the unemployment rate stabilising at 9.5 per cent and over 130,000 jobs being shed each month, even a juggernaut of a political issue such as the BP oil spill in the Gulf of Mexico may trail behind job creation.

So might immigration reform. So might even the wars in Iraq and Afghanistan, which are in any case set to slowly wind down. Imagine, then, how low on the priority list the woes of Indian industry must be. Nay, consider in fact the possibility that the battle of cry of “Stop jobs getting Bangalored!” may actually serve as a handy rallying point in the barren wasteland that is the American job market.

Given the compelling power of protectionist politics on the eve of a major round of elections, there will be little point in arguing that Indian industry is actually helping to create jobs for American citizens — though in fact it is.

Over time the only hope for those within Indian industry seeking to do business with the U.S. may be the U.S. private sector itself. History would corroborate this theory. It was in many ways the bonds between the Indian government, on the one hand, and the Indian-American community and the U.S. nuclear lobbies, on the other, that helped shepherd the civilian nuclear deal through Congress.

Indian companies with global ambitions may find that this is the only way to stop the spring of hope from giving way to the winter of despair.

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