India has repeatedly voiced
concerns that its IT-driven services sector faces several barriers to entry
into the US market. And recently proposed policy changes are threatening to
exacerbate the problem. India has consistently raised these issues with the
World Trade Organization (WTO), but its demand for a less restrictive regime
for service providers has failed to cut any ice with countries like the US.
US domestic policies have
become significantly more unfavourable since the economic downturn in 2008.
Now, the US Congress is debating immigration reform, which could have far reaching
implications for Indian IT firms. The 2013 Border Security Economic Opportunity
and Immigration Modernization Act proposes to cap the share of employees
holding H1B visas in any firm at 15 per cent. While the bill has passed the
Senate, it has yet to be cleared by the House of Representatives.
From India’s point of view,
President Obama’s offer to support India’s transition into a low carbon economy
is an important step. India has previously considered adopting green
technologies, especially in the energy sector. In 2010, the Singh government
introduced the ambitious National Solar Mission, which aimed to provide 20,000
MW of grid-connected solar power by 2022. In its attempt to reduce the cost of
power generation, the government promoted the use of domestically produced
solar panels.
But these plans are now in
serious jeopardy. The US has objected to the use of ‘Made in India’ solar
panels, labelling it as a violation of India’s national treatment commitment to
the WTO. India is now busy defending itself against the complaint made to the
WTO’s Dispute Settlement Body. Now that the leaders of the two countries have
agreed to work in a spirit of cooperation, India should expect the US to
support the plans it had enacted to generate affordable solar power in the
country.
But this is not the only
area in which India’s economic policies have met with serious challenge from
the US administration. In December 2014, the US International Trade Commission
(USITC) unveiled the findings of a yearlong survey of the effects of India’s trade, investment and industrial
policies on the US economy.
The report concluded that
that a wide range of restrictive Indian policies
have adversely affected US companies doing business in India. The USITC reports
that its investigations (covering a large number of US business lobbies) showed
that tariffs, as well as taxes and financial regulations, have had the heaviest
effects on US companies. Foreign direct investment and intellectual property
policies have also negatively affected specific industries in the agricultural,
service and manufacturing sectors.
The USITC announced that ‘if
tariff and investment restrictions were fully eliminated and standards of
[intellectual property] protection were made comparable to US and Western
European levels, US exports to India would rise by two-thirds, and US
investment in India would roughly double’.
The message is unambiguous:
India must undertake a significant change in its policy orientation so that it
meets the expectations of the business interests in US and Western European
countries.
This broad affront on
India’s economic policies by the USITC, which closely followed the
investigation of India’s intellectual property laws by the US Trade
Representative, seem to undermine the new found warmth in the relations between
the two countries. It is clear that the various wings of the US administration
need to understand the spirit of the New Delhi dialogue on economic issues,
else the economic partnership will be all for nothing.
Dr Biswajit Dhar is
Professor at the Centre for Economic Studies and Planning School of Social
Sciences, Jawaharlal Nehru University, New Delhi.
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