India Undermines Its Own Economy

Prime Minister Singh and President Obama should work to undo unproductive trade policies.

Indian Prime Minister Manmohan Singh and President Barack Obama.
By SHARE

When Indian Prime Minister Manmohan Singh last visited the White House in 2009, he heralded "a moment of great opportunity" for the two countries, calling on both sides to work together to "harness the immense potential of our talented and enterprising people and support each other's growth and prosperity." Yet, as Singh prepares for his visit to Washington this week, India's trade and investment policies threaten to undermine, rather than harness, this potential.  

With the United States still recovering from a recession and the continued slowdown in India's economic growth, the potential value of a deepening partnership has only increased. From my personal experience in India over the last two decades, I have witnessed firsthand the progress that has been made to solidify the relationship between India and the U.S. Between 2000 and 2011, revenue from U.S. exports to India increased seven-fold, and India's exports to the U.S. more than tripled as the trade and investment relationship gathered momentum.

Yet, four years after Singh's initial visit, the potential of the relationship still remains largely unfulfilled. Surprisingly, India remains only the 13th largest trading partner of the United States, even though it may soon become the world's third largest economy. The United States trades more with Taiwan and Korea than with India, despite their being only a tiny fraction of India's size.

[See a collection of political cartoons on the economy.]

Recent actions taken by the Indian government have only impeded further progress in the relationship. India has resorted to "compulsory licensing" to appropriate foreign firms' intellectual property in violation of international trade norms. It has overridden, revoked or infringed upon approximately a dozen pharmaceutical patents held by foreign firms since 2012 alone. And its industrial policy expressly calls for such measures in other sectors as well. These actions create an atmosphere of distrust that will only discourage new investment in India.

India has also mandated local content requirements, charged exorbitant tariffs at the border in certain sectors and maintained onerous market entry barriers and foreign equity caps. One headline aptly captured India's ambivalence towards easing market access: "The License Raj is Dead. Long Live the License Raj." These barriers hinder investment in banking, financial services, insurance, retail, telecommunications and many other sectors.   

This year, India will experience only 5 percent growth – the lowest in a decade. Foreign investment has fallen by nearly two-thirds in the past year, and the rupee has plummeted. Although short-term protectionism may appeal to domestic constituencies as the campaign begins for next year's elections in India, history has proven that such policies are inconsistent with a dynamic economy that generates wealth over the long-term. And given the state of its economy, this is hardly the time for India to alienate foreign investors.

[See a collection of political cartoons on the budget and deficit.]

Certainly the U.S. can do its part, too, by implementing sorely needed reforms to our immigration policy and ensuring that highly-skilled workers can continue to learn from and contribute to our economy through the H-1B visa program. But frankly there is far more to be done on the Indian side to ensure fairness in our economic relationship. Respecting intellectual property rights and beginning to remove restrictive barriers to trade and investment will be essential first steps along this path.

President Obama should use Prime Minister Singh's upcoming visit to raise concern that the relationship's "immense potential" that was heralded four years ago remains unfulfilled. While important progress has been made on the strategic front, India's recent economic policies are hurting the relationship. Mr. Singh's visit represents a new moment of opportunity – we can only hope that the opportunity is seized more effectively than four years ago.