The trade-off with US

By: Sonam Roi

The need for India-US trade to grow in bid to combat the recessionary tendency of the economy for a mutually engaging relationship

Source: The Washington Times
For the last 21 months, exports have been falling — except in June — mainly because of global recessionary trends as well as the tough competition from other developing countries. But the future of Indian exports looks good to Finance Minister Arun Jaitley who told visiting US Commerce Secretary Penny Pritzker that he would like India-US trade to grow five times — from the current $109 billion to $500 billion. An ambitious target that would depend on the pace of the US economic recovery and India’s own manufacturing growth.

One way of increasing the bilateral trade between the US and India is to invite American companies to set up shop in India and manufacture goods which could be sent back to the US. Jaitley rightly observed that the passage of GST will help American companies to do business in India. Hitches still remain as India has a lower ranking (130th) than China (84th) in the World Bank’s ease of doing business index, comprising 189 countries. The GST will help because otherwise the cascading effect of various taxes will make their products uncompetitive.

American companies want stricter Intellectual Property Rights (IPR) regimes for their technology transfer. The US companies have objected in the past about India’s slackness in data protection, poor application and enforcement of patent rights. The patent processes are long drawn and there are copyright and trademark infringements. In India, IPR infringement offences are not considered serious and there is no significant disincentive to stop infringers. With the help of the police and customs, there can be criminal enforcement of IPR violations. The imposition of criminal and monetary penalities for the circumvention of digital rights management have however been introduced through the amendment to the Indian copyrights Act 1957, in 2012. Stricter IPR regimes will help attract more FDI.

India passed the Bankruptcy Law recently which should help foreign companies to wind up business when they want. Infrastructure remains a big constraint and there is need for upgrading state and national highways as well as improve freight handling capacities primarily through improving railway services.

FDI limits in industries like telecom, pharmaceuticals and retail have been raised to promote FDI and a number of incentives like duty drawback and stamp duty exemption have been introduced to attract foreign investment. A technology acquisition and development fund will be set up to develop technologies and create a patent pool, and an e-business portal has been introduced to expedite licence applications and the number of forms required to be filled by exporters has been reduced from nine to three.

India’s exports to the US are mainly in services and in a few important items like gems and jewellery, textiles and drugs. In services, exports between the two countries have grown 93 percent since 2002 and currently stand at $34 billion. Software services comprise half of the service exports from India growing at 19 percent. But for service exports from India visa issues are important and there has been much concern about the US doubling visa fee for H1B and L1 temporary software workers. L1 visa is a non-immigrant visa enabling US employers to offer intra company transfers to employees with specialised knowledge. According to NASSCOM, the visa fee hike’s impact could be between $100 million to $499 million for Indian companies. India pays over $1 billion annually to the US government in the form of social security, though there are no possibilities of refund. In aviation services, the US Federal Aviation Administration has downgraded Indian aviation safety rating thus impacting on plans of Indian carriers like Air India and Jet Airways to increase the number of flights to the US.

In exports of manufactures, pharmaceutical exports are increasingly important. India is now a global manufacturing and R&D hub and exports to over 100 countries. The total value of India’s pharma exports is $14.84 billion (2013-14). India exports around $4 billion of pharmaceutical products to the US which comprises 26 percent of India’s total pharma exports. According to experts, India has to agree on certain regulatory practices firmly. In 2013, the US Food and Drug Administration issued 21 warning notices concerning the quality of drugs, half of which were directed at Indian companies. There is also a misperception among American doctors that Indian drugs are of poor quality. Thus quality control has to be central to the export drive.Additional hurdles as perceived by Indian business who are exporting to the US are bureaucratic delays and ‘hidden taxes’ in the form of petty corruption in India.


In textiles, India is the second largest exporter after China. With economic slowdown in China, more textiles, especially handlooms and organic cotton, can be exported to the US. The biggest trade item between India and the US is precious stones. India imports rough diamonds from the US and exports finished diamonds to the US. Surat is the biggest diamond cutting and polishing hub in India. More value addition could be achieved if Indian firms get into jewellery making and retailing in the US. In general, more skill training of labour force and R&D would help India harmonise standards and allow Indian companies to integrate into the global value chain.

To increase trade volume, India should increase imports from the US also. But trade disputes have been frequent. The US took India to the WTO dispute settlement body for refusing to import American chicken as it feared bird flu virus. The US won the case. The US also took India to the WTO for discriminating against US solar panels on the basis of local content criterion. Again it won. There have been problems with individual companies like Monsanto which introduced Bt Cotton in India. On March 8, 2016, India slashed the royalty fees of Monsanto because the technology had lost its efficacy in resisting certain types of pest attacks. Monsanto has decided to withdraw an application seeking approval for its next generation of GM seeds in India. Dispute resolution is important for a trade surge.

India can import more from the US air and defence equipment, infrastructural projects, medical equipment and educational services to harmonise standards in IT specially. Increasing trade to $500 billion is probably then attainable!

This commentary originally appeared in The Tribune.

The views expressed above belong to the author(s).

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