“US-India Strategic Economic Partnership”: Kowtowing To American Big Business
By Prasenjit Bose
22 April, 2006
The Report of the US India CEO Forum titled “US-India Strategic Economic Partnership”, which was released during the recent Bush visit, has not attracted much media attention in contrast to the hype over the nuclear deal. The CEO Forum was formed during the Visit of the Prime Minister Manmohan Singh to the US in July 2005 with “a mandate to develop a road map for increased partnership and cooperation between the two countries at a business level”. The roadmap unveiled in the Report, however, goes much beyond partnership and cooperation between the Indian and the American corporates. It seeks to rework entire policy frameworks governing almost all the major sectors of the Indian economy.
The fact that a majority of the recommendations of the CEO Forum are related to changes sought in Indian laws and regulations and only a few are meant for the US Government shows the unequal structure underlying the economic partnership. The Indian corporates led by Ratan Tata (co-chair of the CEO Forum) have happily accepted this junior partnership to US big business as the most convenient means of their class development in the current global setting. The joint declaration issued by the Prime Minister along with the US President welcomed the CEO Forum Report, agreeing to consider its recommendations and directed the Chairs of the Indo-US Economic Dialogue to “follow up expeditiously with the CEO Forum”. The Deputy Chairman of the Planning Commission (who co-chairs the Indo-US Dialogue) lost no time in announcing the formation of twenty-six committees to carry forward each of the recommendations meant for India. This zealous haste implies that the Government wants to implement at least some of the recommendations before the US visit of the Prime Minister later this year.
Being faithful adherents of neoliberalism, the Prime Minister and the Deputy Chairman of the Planning Commission seem to believe that what is good for American and Indian big business is also good for the people of India and the Indian economy. A closer look at the recommendations of the Report not only exposes the fallacies of neoliberal thought but also points towards several imminent measures which would take the UPA Government further away from the vision underlying the National Common Minimum Programme.
Recommendations of the CEO Forum
The recommendations of the Report are summarised under the last section of the Report titled “Enabling Environment”. The creation of an enabling environment is premised upon the usual prescription for greater liberalization: “tariff and non-tariff barriers to be reduced in respect of all products, agricultural and manufactured, over a specified period of time by the US and India”. Underlying this formulation is the completely misplaced notion harboured by Indian corporates that there is a convergence of interests between India and the US as far trade liberalization is concerned. The role played by India during the Hongkong Ministerial Conference of the WTO betrayed a similar understanding currently prevailing within the Indian policy establishment that India would benefit immensely from liberalization of services and therefore it is justifiable to concede ground to the developed countries in return, in terms of tariff reduction in industry and agriculture. This shows that the Indian corporates are willing to trade off the interests of the overwhelming majority of our people in their narrow self-interest.
A closer scrutiny of the 30 recommendations made by the CEO Forum reveal that only 4 recommendations are directly related to some concrete benefit accruing to India and its corporate sector. These are as follows:
- Transfer of high technology to India to be relaxed by the US government in extension of COMSAT rules to India and ISRO.
- US government to allow/accelerate the transfer of dual use items/technologies.
- US to pursue transfer of civilian-nuclear energy technology to India to enable India to meet its energy needs and achieve energy security.
- Liberalize the US visa regime required for service providers in IT (H1B/L1), nurses (EB3), i.e. wherever U.S. is facing shortages of trained personnel. Also, ease quantitative restrictions/yearly quotas of such visas. Other impediments such as attestation requirements, reduction of periods of stay and prescriptive wage levels may be dispensed with.
These comprise most of what the Indian corporates seek to achieve through the strategic economic partnership with US big business. If this ultimately translates into actual policy changes in the US, which seems unlikely anyway, benefits would be restricted to some transfer of technology in space research and nuclear energy and a few thousand more US visas for skilled personnel in sectors like IT, Healthcare etc.
In addition there are a few recommendations, which are meant either for the US or to be jointly acted upon by the US and the Indian Government. These are:
- US to consider instituting a new business facilitator proposal to support US companies.
- Both countries need to make tourist visas easier to obtain.
- India-US Dual Taxation Treaty to be revised to include state taxes and federal social security/Medicare deductions.
- Indian IT firms should be permitted to bid for US technology programs after receiving appropriate clearances.
- The Indian & US economies to be opened up further for freer trade in services and products. Dialogue to be initiated on a US-India FTA to take bilateral trade and investment to a new level.
These may provide some benefits to the Indian corporates, especially the IT and Tourism sector. The effort is clearly to lure India into greater trade liberalization by making some concessions to some of the successful Indian exporters in the Services sector.
The rest of the 21 recommendations are all exclusively for India. Most of them are in the form of demand(s) for policy changes related to specific sectors of the Indian economy to the obvious benefits of the US corporates. They are as follows:
Infrastructure: Need to foster speed, efficiency and transparency in the bidding process for BOT contracts in infrastructure in India.
Power: Need for Indian power sector reforms to ensure sanctity of contracts, encourage competition, promote market-driven tariffs and separate regulatory and adjudication authorities.
Insurance: Insurance Industry FDI cap to be reviewed and raised by India.
Banking: Consider allowing FDI in Indian private sector banks; schedule for liberalization to be advanced from 2009. ii. Restrictions on expansion/new branches by Indian banks in the US to be removed/norms liberalized.
Retail Trade: Further liberalization of FDI in retail in India to be considered.
Oil & Gas: The proposed Petroleum and Gas Regulatory Board Bill to be enacted in India. ii. The Indian Natural Gas Pipeline Policy to be adopted.
Real Estate & Urban Development: India to consider reducing restrictions on FDI in the Real Estate Sector. Also move ahead on urban land reforms, streamline the regulatory, tax and duty structure, revamp stamp duty and title registration regimes and reconsider change of use restrictions as was done in the US for decaying cities.
Telecom: India to pursue truly technology-neutral policies in telecom, and ensure a level playing field so as to allow the full range of private telecom companies and public sector(Government owned) companies to compete fairly and fully.
IT: Licensing requirements for certain information sector products and for services, which support business activity, should be reviewed and eliminated by the government of India.
Media: Elimination of FDI caps in sectors such as print media, broadcasting, cable and satellite systems and e-commerce to be considered by government of India.
Defense Procurement: The Offset Policy of India needs to be framed considering global best practices and the use of “indirect” offsets.
The other recommendations of the CEO Forum seek changes in the Indian judicial system, and the Intellectual Property regime along with changes in tax and company laws.
Judicial Reform & Regulatory Framework: Strengthen the Indian judicial system to address case backlog, expedite legal proceedings, address the issue of no limit on the number of adjournments, inadequate number of judges, large number of court holidays and civil infrastructure. ii. Strengthen the regulatory environment in India, to be clear and consistent with legal enforcement through special courts at both Central and State levels. iii. Need to resolve commercial and contractual disputes quickly through an independent tribunal under the Arbitration and Conciliation Act, 1996.
Intellectual Property Regime: Specialized IPR courts to be established to enforce IPR laws. ii. India needs to develop a TRIPS compliant IP system and IP protection, especially for software and published materials, print or electronic.
Company Law: Review the Indian Companies Act, with respect to provisions relating to private companies, as many US companies are privately held.
Taxation: India to consider treating dividends received from overseas companies in the hands of an Indian resident at par for tax as domestic dividends, so as to make outward FDI no less attractive.
Visa Regime: India to consider providing visas for up to five years and removal of FRO/FRRO requirements for US citizens to report physically once a year.
One of the reasons that have prompted the Indian corporates to endorse such a skewed ‘partnership’ heavily loaded in favour of the US corporates is the perceived need to attract more FDI from the US. Ratan Tata, who co-chairs the CEO Forum, also chairs the Investment Commission set up by the Prime Minister. This Commission has recently submitted a Report, which has underlined the need to attract FDI over $ 70 billion in order to sustain a GDP growth rate of 8% over the next five years. Given the fact that India has attracted FDI worth around $ 38 billion between August 1991 to January 2006 (of which FDI from US is less than $ 5 billion), the target set by the Investment Commission seems totally over-ambitious.
India has not been able to attract larger volumes of FDI, especially in comparison with countries like China, South Korea or Malaysia, despite having a much more liberal FDI regime. India has foreign ownership restrictions in very few sectors and 100% FDI is permitted in most sectors through the automatic route. China, which has a far more restrictive regime where FDI proposals are approved on a case-by-case basis and foreign ownership is restricted in many sectors, has been able to attract more than ten times the volume of FDI that India attracts annually. Rather than reviewing this experience properly, Indian corporates are prodding the policymakers to move towards lifting whatever little regulation that exist in India vis-à-vis foreign capital. The effort is to increase the share of FDI not through greenfield investments like in China but by facilitating the takeover of Indian companies by US based MNCs through mergers and acquisitions, a policy that was followed by Brazil in the late 1990s to its own detriment. Besides failing in its objective to meet the over-ambitious FDI target, the adoption of such a policy course would neutralize the benefits of FDI accruing to the Indian economy in terms of technological advancement and generation of skilled employment.
“Strategic Economic Partnership”: Implications for India
The Forum has identified 6 major areas for cooperation. These include Physical Infrastructure Development, Energy Security, Human Resource Development, Technology Exchange, Trade and Industry Promotion and Intellectual Property Protection. Cooperation in Physical Infrastructure Development involves setting up of a $ 5 billion private sector Infrastructure Fund (minority Government participation) with the participation of US companies to fund infrastructure projects under the supervision of multilateral agencies like the World Bank, ADB and IFC. There are further proposals to involve the US in the development of Mumbai into a ‘Regional Financial Centre’ and the setting up of large scale Special Economic Zones. The Forum has called for a change in the bidding process for infrastructure projects to foster ‘speed, efficiency and transparency’. What this implies is that the development of infrastructure in India, especially key infrastructure projects like roads, sea and airports and Special Economic Zones etc will be undertaken by the private sector with US corporate lending through the Infrastructure Fund.
Besides the fallacy in assuming that the Government of India lacks adequate resources to develop such infrastructure through public investments, which underlies the logic of such ‘Private-Public Partnerships’ (PPP), the problem with such a model of infrastructure development lie in the conditionalities that come along with private funding in terms of high cost borrowing which are passed on as high user charges (higher toll taxes for roads for example). Moreover, the fact that ‘flexible, internationally competitive labour laws’ have been demanded for the Special Economic Zones to be set up under PPP also point to such objectionable conditionalities. In the area of Energy Cooperation also the conditionalities have been clearly specified. The precondition set for further infusion of US capital into the Power and Oil sector is the promotion of a ‘market driven’ structure of power tariffs and pricing of petro products. A US-India private sector Task Force comprising power companies has been proposed to work with the Central and select State Governments to “facilitate on-time implementation of investments being made and resolution of legacy disputes in the Indian power sector”. An early passage of the Petroleum and Natural Gas Regulatory Board Bill has been advocated. It is clear that further neoliberal reforms in the Power and Oil sector to benefit the US corporates have been accepted as a quid pro quo to cooperation in civilian nuclear energy and ‘clean fuel’ between the US and the Indian Governments.
Cooperation in Human Resource Development, besides involving US institutions of higher learning like MIT, Lincoln Labs, Bell Labs, John Hopkins and Carnegie Mellon to set up research institutions and Phd programmes in India has also proposed to upgrade the ITIs with the cooperation of the US companies. However, such cooperation also comes with the precondition of giving private educational institutions a “free hand in terms of fees, course structure and affiliations”. While the CEO forum has called for relaxation of US norms for transfer/export of high technology to India including dual use categories (like advanced electronics, semiconductor technology, aviation related technology, key software systems and equipment), removal of restrictions on R&D collaboration by the US companies and encouragement to R&D collaboration in product design and development as well as agricultural research, such transfer of technology and R&D collaboration is envisaged only under a drastically restructured Intellectual Property Protection regime in India. For instance, on cooperation in biotechnology the Report says, “Partner in Biotechnology by jointly developing a regulatory pathway to ensure regulations surrounding the sector are based on sound science, are transparent and supportive of policies that encourage investment in and commercialization of biotechnology, and promote trade in biotech goods and services. Both countries (i.e. US FDA working with the Indian FDA) should harmonize legislation to provide opportunities and protection for US as well as Indian companies in biotech related IPR.”
‘Harmonization’ of legislations related to Intellectual Property Protection between India and the US has serious implications for India. The CEO Forum Report says, “Intellectual Property Rights (IPR) protection has separated and divided US and Indian businesses in the past but there is an increasing convergence in the approach to IPR and supporting legislation. There is now a mutual, agreed agenda to frame laws, rules and processes to sustain the highest standards of protection to the inventor or the organization, which invests in IP. The next ten years can witness a new surge in partnership in IPR between the U.S. and India which includes mutual cooperation in IPR implementation and enforcement as well as building a ‘patents’ culture.” (Emphasis added). The key institutional changes which have been suggested by the CEO Forum in order to usher in a ‘patents culture’ in India includes setting up a national unit dedicated to IPR enforcement (HRD and I&B Ministries have been asked to take the first steps in coordinating the IPR enforcement efforts as a first step) and setting up of specialized Intellectual Property Courts to handle both civil as well as criminal cases related to IPR. A particularly significant recommendation calling for a “national initiative to crack down on piracy in the educational and research sectors” has been made in the Report. The report says, “The Ministry of Human Resource Development (and other relevant ministries, such as Health, for medical schools) could issue directives to all public and private educational and research institutions to stop using unauthorized photocopies of books and journals; take action against on-campus copy-shops engaged in illegal activity; and report periodically to the Ministry on what steps have been taken. This data would form the basis for more targeted efforts in the future.” Whether such an initiative is at all possible in India is another matter; but the fact that the Indian corporates could agree to such a proposal show how much they are out of sync with the Indian reality.
The seriousness with which the IPR regime and the policy framework is sought to be restructured by the CEO Forum is evident from the section on the pharmaceutical sector in the Report. A Report recently prepared by a Task Force under the Chairmanship of Dr. Pronab Sen of the Planning Commission has recommended that price controls be expanded to every medicine on India’s Essential Drug list. It has further recommended that patented medicines be subject to a price monitoring system with mandatory price negotiations and compulsory licensing if agreement on the price cannot be reached. Also, the task force has suggested that if a medicine reaches a certain volume it should be genericized. Besides calling for a review of the pharmaceutical price controls policy the CEO Forum Report has specifically challenged the Task Force recommendations. On the recommendation of genericization of an essential drug once its sale exceeds a specified volume the CEO Forum Report says, “Although the industry is confident that this particular recommendation will most likely not be adopted, it is troubling as it could portend future anti-industry actions by the government”.
The lopsided nature of the Indo-US business partnership is best manifested in the cooperation on Trade and Industry Promotion. The most important demand is for reducing restrictions on foreign investment. The demands to expedite the decision to allow FDI in the Retail sector in India as well as an accelerated timetable for raising the FDI caps in the Insurance and Banking sectors have been specifically articulated vis-à-vis the Government of India. These have been demanded along with a call for liberalizing the US visa regime for service providers, particularly for IT (H 1B/L 1) and nursing staff (EB3). This bargain between the Indian and the American corporates also underlies the ongoing collaboration between the Indian and the US Governments on the GATS negotiations in the WTO. For a few thousand more US visas for IT professionals and nurses in India, which would solely benefit the IT and private healthcare sectors, the Indian corporates are arguing on behalf of the US multinational retail giants like the Walmart and US based transnational banks and insurance companies for the further opening up of these sectors in India. The interests of the millions of Indians who are employed in the retail sector, especially in unorganized retail, or the security of the savings of millions of Indians in the banks and insurance companies, which have so far been protected by extant Indian regulations, are being sacrificed.
The role of the American and Indian corporates in the Defence sector has been increasing under the ongoing Indo-US Defence Cooperation. The CEO Forum report states that “with the opening of defense supplies from the US to India, there are new opportunities emerging for private sector defense cooperation”. In order to address the insecurity about the reliability of US Defence supplies, the CEO Forum has envisaged the integration of “Indian private sector companies into the global supply chain of US defense manufacturers, combined with co-production”. In return the adoption of a “liberal offset regime” in India has been demanded, which would imply a dilution of the current Indian policy which requires direct offsets for defence purchases over Rs 300 crores. Thus the lure of cooption of some Indian corporates as junior partners into the military-industrial complex of the US is being used to make India a major buyer of US defence supplies.
The setting up of a Dispute Settlement Mechanism in India, with the “power and jurisdiction to resolve commercial and contractual disputes quickly” has been proposed in the Report. The Report says that “An independent tribunal formed through the Arbitration and Conciliation Act 1996 should be a forum for dispute resolution. Specific focus on resolving legacy issues such as those impacting Dow/ Bhopal tragedy of 1984 and the Tamil Nadu IPPs would send a strong positive signal to US investors.” It is clear that a parallel judicial system favourable for the corporates and unaffordable for the bulk of Indians has been envisaged. Far from providing any justice to the victims of corporate negligence and crimes, like the Bhopal Gas tragedy, this is meant to refashion the judicial system to preempt any possibility of litigation against any company by common citizens in the Indian courts in future.
The Report of the CEO Forum on “US India Strategic Economic Partnership” has brought out clearly the class basis of the “strategic alliance” that the UPA Government seeks to cement with the US. This junior partnership to the US, especially American big business, while serving the interests of the Indian corporates who have forsaken all pretensions of autonomous development, would be severely detrimental to interests of the Indian people. Indian big business, which had suffered a jolt in the aftermath of the 2004 Lok Sabha elections when their darling, the NDA Government, was booted out unceremoniously, is seeking to push forward the discredited neoliberal policies in India in a direct alliance with American big business. It has to be ensured that the cheerleaders of neoliberalism within the UPA government are prevented from taking this anti-national agenda forward.
US-INDIA CEO Forum Members
JP Morgan Chase Tata Sons Limited
Mr. William B. Harrison, Jr. Mr. Ratan Tata
Chairman of the Board Chairman
AES Corporation Apollo Hospitals
Mr. Paul Hanrahan Dr. Pratap C. Reddy
President & CEO Chairman
Cargill, Incorporated Bharat Forge Ltd.
Mr. Warren R. Staley Mr. Baba Kalyani
Chairman & CEO Chairman & MD
Citigroup Biocon Ltd.
Mr. Charles O. Prince Ms Kiran Mazumdar Shaw
Chairman & CEO Chairman & MD
Honeywell Inc. HDFC & IDFC
Mr. David Cote Mr. Deepak Parekh
Chairman & CEO Chairman
The McGraw-Hill Companies ICICI One Source Ltd.
Mr. Harold McGraw Mr. Ashok Ganguly
Chairman & CEO Chairman
Parsons Brinckerhoff Inc. Infosys Technologies Ltd.
Mr. Thomas J. O’Neill Mr. Nandan Nilekani
Chairman & CEO CEO
Pepsico ITC Limited
Mr. Steven Reinemund Mr. Yogi Deveshwar
Chairman & CEO Chairman
Visa International Max India Ltd.
Mr. Christopher Rodrigues Mr. Analjit Singh
President & CEO Chairman
Xerox Inc. Reliance Industries Ltd.
Ms. Anne Mulcahy Mr. Mukesh Ambani
Chairman & CEO Chairman & MD