MODI-OBAMA CHEMISTRY TO BOOST INDIAN ECONOMY
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“India and the United States are true global partners. And a core element of this vision is greater trade, investment, and economic partnership. Our two business communities - all of you - have been some of the strongest champions for a closer relationship.”
“In our globalised world, the fortunes of the United States and the fortunes of India are inextricably linked. We can grow and we can prosper together, and establish a set of global norms in terms of how business is done that will benefit not just our two countries, but people around the world.”
These and some similar statements of US President Barack Obama to Indo-US business leaders itself tell everything about the seriousness and commitment of the US administration to have better ties with India that will mutually help both the countries march ahead on the path of growth. Undoubtedly the recent visit of the US’ president to New Delhi has written a new saga of Indo-US business and strategic relationship and the chemistry that PM Narendra Modi and Barack Obama shared during this three-day visit will certainly go a long way and will change the overall global trade and diplomatic scenario. Already China behaved anxiously after the visit and sent warm feelers to Modi.
Though the visit of Obama was quite important for India and it clearly shows the new found might of the country on a global platform, it also showcased the gaining confidence of global investors in India under new NDA regime led by Modi. DSIJ digs deeper into the long-term impact that Obama’s visit would have on the overall business and developmental scenario.
The Dollar Rain
Ever since PM Narendra Modi has taken over the reins of the country, dollars have kept pouring in thick and fast. First it was Japan that pledged USD 35.5 billion investments in the next five years; then China committed USD 20 billion investment. While Australia is also considering investment avenues in the country, US President Obama announced USD 4 billion investment initiatives in India during the visit. While addressing the corporate diaspora of the country he announced various measures to boost the trade and investment relationship between the two countries.
“Of all of America’s exports to the world, just over 1 per cent goes to India - 1 percent to over a billion people. We do about USD 100 billion a year in trade with India, which is a great improvement since I took office. But we do about USD 560 billion a year with China. That gives you some sense of the potential both for the kind of growth that India might unleash, and the potential for greater trade between our two countries,” Obama said. The focus of this investment would be on the generation of thousands of jobs in both countries. As per the plan, over the next two years the Export-Import Bank of US will commit up to USD 1 billion in financing to support ‘Made in America’ exports to India.
Also, the Overseas Private Investment Corporation (OPIC) will support lending to small and medium businesses across India. Under this around USD 1 billion would be given to SMEs in the form of loans in underserved rural and urban markets. In addition to this the US Trade and Development Agency (USTDA) will provide leveraged financial support for renewable energy in India. Two trade missions of the US will visit India this year to work on infrastructure development, particularly in rail, roads, ports and airports.
A Nuclear Fusion
As expected, the biggest respite came in the matter of the Indo-US nuclear deal that was signed almost 10 years back but hadn’t seen the light of the day due to various problems like the controversial unlimited liability clause and a tracking clause inserted by the US. Within hours of touchdown of Air Force One, Obama and Modi sorted out the deadlock that has stalled the project since the Nuclear Suppliers Group (NSG) waived the deal in 2008. After clearing the deal PM Modi said in a joint statement, “The civil nuclear agreement was the centerpiece of our transformed relationship. It demonstrated new trust. It also creates new economic opportunities and expands our option for clean energy. In the course of the past four months, we have worked with a sense of purpose to take it forward.”
As per the nitty-gritty of the deal, to tackle the problem of the liability clause it has been decided that India will set up an insurance pool of Rs 1,500 crore. This pool will be used to indemnify the companies that would be involved in building nuclear reactors in case of any accident. Of this amount, Rs 750 crore will be contributed by five general insurance companies and the rest will be given by the Government of India. Along with this the US also accepted the removal of its long pending demand of nuclear material tracking supplied to India. This is quite an important breakthrough as this clause threatened the existence of the civil nuclear deal. Sounding optimistic, Obama said, “Today we achieved a breakthrough understanding on two issues that were holding up our ability to advance our civil nuclear cooperation and we are committed to moving towards full implementation.”
Strategic Partnerships Ahead
Obama’s visit is likely to have a huge impact on defence partnership between two countries. As an impact of the visit, India and the US has agreed to manufacture four military products jointly and also explore the possibility for developing two more high-end technologies. These four products include next-generation Raven unmanned aerial vehicles (UAVs), mobile electric hybrid power sources, ‘roll-on, roll-off’ intelligence gathering, reconnaissance modules for C-130J Super Hercules aircraft and ‘uniform integrated protection ensemble increment-2 (chemical, biological warfare protection gear for soldiers). For this a defense framework between the two countries is being renewed for another 10 years. In addition to this India and the US will be involved in more joint combat exercises, maritime security efforts, military exchanges, and intelligence sharing.
On the other hand, the US will also assist India in setting up smart cities. For this the USTDA has signed a Memorandum of Understanding (MOU) with Rajasthan, Andhra Pradesh and Uttar Pradesh to establish three smart cities in Ajmer, Visakhapatnam and Allahabad. As per these MOUs, funds would be arranged by the US agency for undertaking feasibility studies, pilot projects, study tours, etc. related to smart city projects that will soon be unveiled by the Government of India. USTDA will collaborate with the Department of Commerce, US Export Import Bank and trade and economic agencies to promote smart cities.
Protecting the Environment
Environment conservation remained at the forefront of Obama’s visit as both India and the US committed to work more closely on various platforms so that ambitious climate and energy objectives can be met. This includes working for better air quality and focus on renewable energy so that its share in the overall energy space will rise. For this cause around 10 initiatives have been flagged off, including expanding the space for doing research in clean energy; expanding policy dialogues and technical work on clean energy and low green house gas emissions technologies; addressing urban air quality; doing pilots of clean energy projects; developing new type of cooling solutions to reduce global warming, etc. US will help India in various other ways to conserve the environment.
As per sources in the government, this strategic partnership between the two countries will lead to huge investment and interest in the green energy space and more projects will come to India financed by US and its companies. The Obama-led administration has given a clear signal to US’ venture capital and pension funds to provide ample funding for these projects and soon India and the US will sign major deals on green energy projects, involving companies from US, India and Europe.
Removing the Hurdles
Another major development was related to the issue of granting visas. Obama has assured Modi that he will look into the matter and initiate comprehensive immigration reforms. This is a significant development for Indian IT companies and techies as it will have a positive impact and improve the current scenario. At the same time Modi has committed to make India a better place to do business. In fact India’s prime minister has promised Obama that he will provide an open business environment along with a consistent tax regime. Modi’s commitment came just after Obama’s indication towards red-tapism. “India still has too many barriers and hoops to jump through; bureaucratic restrictions that make it hard to start a business or export or import or close a deal,” Obama remarked.
Modi said that he would personally take charge of implementation of big projects and monitor them. “It will make it easier to do business. You will find a tax regime that is predictable and competitive. We have removed some of the excesses of the past. We will now address the remaining uncertainties,” Modi assured. All in all, the entire visit is sure to have a positive long-term impact on the relationship of the two countries and will help in promoting trade and commerce. It will also help in pumping huge cash flows into India both in the form of FII and FDI as investors seem quite optimistic about India. It would therefore not be wrong to say that the time has come for India to accept the US as an important partner, both socially and commercially.
To put it in Obama’s words, “That’s the purpose of trade and investment - to deliver a better life for our people. And both Indian and American workers can benefit even more in the future from closer ties between our two countries.”