There is not yet much evidence that India has achieved major manufacturing gains at China’s expense, says Rick Rossow.
The Covid-19 pandemic has started to scare again. This time, the signals are even worse than last year. In India, the spike rate is more threatening than in 2020. The business sector and industry are cautious. But a silver lining is India’s resilience despite Covid forcing shutters down on the economy for most part of the last year. In fact, the latest report published by the Center for Strategic and International Studies (CSIS) on investments and business growth in India shows a silver lining emerging for a nation aspiring to be among the top three global economies. Investments are coming and India-US business relations are on the upswing. Richard M. Rossow, Wadhwani Chair in US India Policy Studies at CSIS, spoke to The Sunday Guardian on the state of foreign investments in India, the possibility of India becoming the next manufacturing and technology hub and the future of India-US business ties. Excerpts:
Q: Is the India-US business partnership on the upswing? Can you elaborate more from the recent CSIS report on the investment scenario in India during and after the pandemic?
A: The investment numbers show continued strength; India is attracting record levels of foreign direct investment, and near-record levels of foreign portfolio investment. Trade numbers are more depressed, even relative to our other trade partners. And the tricky policy issues remain. Our governments were unable to conclude a mini deal to remove some of the more recent impediments. And both nations continue to put up new barriers to imports. So while there are some positive elements to our economic relationship, there is a great deal of friction.
The Indian government has taken some difficult, yet positive steps to further improve the investment environment. Recent increases in foreign investment limitations in both defence and insurance will provide key opportunities for foreign companies to now own majority stakes in both sectors. Though it is important to note that the government is also preparing sub-regulations governing foreign firms in the insurance sector; this process is being followed closely.
Not to miss, key domestic reforms like the Major Ports Authorities Act is likely to also improve India’s business environment, both in terms of trade and investment.
Q: What potential do you see in this partnership on trade, technology and knowledge sharing?
A: Our nations have natural complementarities which have been articulated by a million commentators. But more recently, a new element should serve to bring us together—shared concerns about a technology future dominated by China. We are both taking unilateral steps in areas like 5G, data flows, and investment reviews. I hope we can find space to coordinate more robustly, and open new channels for bilateral cooperation in these areas.
Q: You being an expert on climate and energy involving India and the US, what future you anticipate in these two critical sectors of partnership for both?
A: Our agenda will be driven by our respective national capitals. However, in both nations, our national governments do not actually have the authority to take the most urgent decisions regarding climate change. We rely on our states, though state-level agendas and priorities can vary dramatically from our national governments. So I suspect we’ll see less pressure on India to buy American oil and gas, and renewed vigour in our climate change partnership. But practical steps require a deeper push; America needs a much more powerful push to engage locally and help states put their economies on a cleaner, faster-growing pathway.
Q: Can India balance its energy demand from both the US and West Asia, including Iran?
A: Yes, India is one of the world’s fastest-growing consumers of energy. I should expect India can maintain strong energy partnerships with a wide range of suppliers.
Q: Has India gained from loss of markets for China? Is India making the right progress?
A: There is not yet much evidence that India has achieved major manufacturing gains at China’s expense. China has reclaimed its status as India’s top goods trade partner. India’s goods exports were at $277 billion in the 12 months through February 2020; this is well below India’s peak of $331 billion exports in the 12 months through May 2019. But we will need to put the global pandemic behind us to get a better sense of longer-term supply chain evolutions.
Q: What gaps do you see in India-US full-throttle business partnership and what India needs to do to make the most from China’s absence in the global demand-supply chain?
A: To unlock our commercial relationship, a few hard steps must be taken. India should open most remaining sectors to 100 per cent FDI, and remove unfair restrictions on foreign companies where they exist. India must focus efforts in improving legal remediation; it remains a key weakness in India’s “Doing Business” ranking. India’s states must do their part—much of the remaining reform agenda lies in places like Patna, Agartala, and Bhubaneswar. India must return to the path of trade liberalization; the same can be counselled to the American administration. And lastly, a more flexible American immigration system will support our critical technology services partnership.
If we take care of these elements, paired with India’s attractive demographics, India will truly begin fulfilling its promise as the next centre for global manufacturing and technology.