Assistant Secretary of Commerce Michael C. CamuÑez
Market Access and Compliance
"U.S.-India—Building a 21st Century Trade Partnership"
Confederation of Indian Industry Luncheon
Friday July 1, 2011
New Delhi, India
As prepared for delivery
Good Afternoon; Namaste. Thank you, Mr. Mathur, for the kind introduction, and for the privilege of being with you today. Thanks also to Supriya Banarji, Deputy Director General of CII for hosting this event. I am delighted to have the opportunity to join you and the distinguished members of the Confederation of Indian Industry to explore and discuss the important strategic and economic relationship our two great nations enjoy. I appreciate the invaluable role you play, and the voice you give, to Indian Industry. CII has been an important partner to the US Department of Commerce, a strong supporter of the bilateral US-India trade relationship, and a critical stakeholder in Indian society. Thank you for your continuous support and collaboration and for your kind hospitality today.
A STRATEGIC PARTNERSHIP BASED ON “MUTUAL INTEREST AND MUTUAL RESPECT”
I am thankful to be in Delhi today engaging with you on important trade and economic issues at such a critical moment in the US-India bilateral relationship. I do not need to tell you that in many respects the US-India relationship has never been better or stronger.
When President Obama visited India last November, he spoke eloquently of our friendship and what it means not just to him personally, but to the people of the United States and India as stewards of the world’s two largest democracies. The President observed that “The relationship between the United States and India -- bound by our shared interests and values -- will be one of the defining partnerships of the 21st century.” The President has committed to a “comprehensive engagement” with India that is based, fundamentally, “on mutual interest and mutual respect”. His stated intent is to “forge a truly global partnership, not just in one or two areas, but across many; not just for our mutual benefit, but for the benefit of the world.”
The President described three core pillars of cooperation: 1) working together to advance policies that promote shared prosperity and economic growth; 2) collaborating on important matters affecting global security; and 3) strengthening respect for democratic institutions and human rights. Since the President’s visit to India, senior members of his administration have been deeply engaged in advancing our shared agenda across those three pillars. My journey to India, which began in Mumbai, passed through Bangalore, and has ended today here in Delhi, has focused principally on the first of those pillars -- deepening the economic and trade dimensions of our bilateral partnership.
As the Assistant Secretary for Market Access and Compliance, I have the responsibility and privilege of working with our trading partners worldwide to advance the goals of the President’s National Export Initiative (or the “NEI” as we call it). My primary responsibilities entail working to create the conditions and business climate -- I like to call it the “ecosystem” -- that foster and promote trade and investment as drivers of economic growth and prosperity. This includes working on policy initiatives to build the domestic capacity and infrastructure in emerging economies, including the legal and regulatory framework necessary to support trade and investment and to promote innovation and competitiveness. It is also my responsibility to promote bilateral and multilateral trading relationships that are rules based, transparent, and predictable, so as to create a level playing field that promotes open market access and fair competition.
The NEI is widely understood to be principally about export promotion. In fact, the core objective is to deepen our economic engagement with our most important trading partners worldwide. And we simply do not have a more important, strategic—or, as the President has said, “indispensable”—partner than India.
I’d like to focus my remarks today on the promise and opportunity our partnership represents, and also the responsibilities and joint commitments it requires.
THE LIMITLESS PROMISE OF THE US-INDIA ECONOMIC PARTNERSHIP
Boasting annual growth rates in excess of eight percent, the rapid growth of the Indian economy over the past 20 years is well-known and everywhere celebrated. And it is largely due to the significant market opening reforms and liberalization first embraced by then-Finance Minister Singh. Once characterized by my own agency as one of the most closed economies in the world, India has embraced global trade and competition, cutting its top applied tariff rates on most industrial goods from over 100% before liberalization to about 10% today.
India’s adoption of market liberalizing policies unleashed the talent and ingenuity of her people. Indian inventors have delivered world-changing innovations like the Pentium chip and Hotmail. Indian innovators have also taken existing technologies and tailored them for India’s own growing market and the needs of its own people, ensuring that the benefits of prosperity are increasingly shared by all. Indian innovators have created a $2,000 automobile, a $35 laptop, and inexpensive heart surgery that is accessible to even the poorest Indians in rural communities. And there is no doubt that India’s 45 million entrepreneurs have even more in store for the world.
The country has moved millions of its citizens out of poverty and into the working and middle-class. In fact, India now has one of the largest middle class populations on the planet—by some accounts, as big as the entire population of the United States. And this remarkable growth shows no signs of slowing. Morgan Stanley predicts that over the next 20 to 25 years, India will grow faster than any large country in the world.
The demands and strains that India’s rapid growth will place on its economy are significant, and the needs that India must meet, in virtually every sector, are staggering. You know the facts as well as anyone:
In 20 years, 68 cities in India are expected to surpass 1 million inhabitants, and the aggregate annual income of households in urban areas is expected to grow from about $700 billion today to almost $4 trillion by 2030. This growth necessitates the dramatic expansion of basic infrastructure and the provision of public services to meet the growing needs and demands of those flooding into urban centers.
The McKinsey Global Institute projects that India will need $1.2 trillion in additional capital investment by 2030 to do things like build 2.5 billion square meters of new paved roads and 7,400 kilometers of new metros and subways. By some estimates, at least half of that $1.2 trillion must come from the private sector.
Of course, India’s needs go well beyond brick and mortar infrastructure. India must also make significant investments in the energy sector to bring electricity to the 40% of its population that still lacks access to the grid. That will require the deployment of renewable and alternative energy sources that rely on state-of-the-art technology that meets the unique needs and circumstances found here in India. Expanding access to affordable health care, safe drinking water, and safe and affordable food staples remain foundational challenges facing the nation. For example, at a time of sharply rising food costs, India is confronting the hard reality of as much as 30% of fruits and vegetables spoiling due to inadequate logistics and supply chain management, including the absence of cold storage. This reality hurts Indian farmers, Indian consumers, and the Indian economy.
The good news is that India does not have to face these challenges alone. To the contrary, the very essence of the partnership between the United States and India is built on a shared commitment to address the challenges common to both nations.
This partnership has been hard at work, with great success, for years. When India opened its markets, the United States invested heavily here. American companies brought with them the best of our technology and know-how across a wide range of sectors -- all the while leveraging the talent and ingenuity of the Indian people. Today, the United States remains among the largest sources of foreign investment in India. The cumulative total of U.S. FDI in India was $18.6 billion in 2009 -- up by 12 percent from the year before and over 2½ times the amount of U.S. FDI in 2005. As you know, FDI is no remote concept or abstract statistic. It is hard evidence of a living and thriving partnership.
Just two days ago in Bangalore, I had the privilege of visiting the campus of GE’s John Welch Technology Center. It is one of just five such R&D campuses GE maintains and the first to be located outside of the U.S. The center, which this year celebrates its 10th anniversary, represents a $200 million investment by GE and employs over 4,000 Indian scientists and engineers. In addition to driving world-wide R&D for each of GE’s business units (I learned that the research from that facility alone is responsible for the filing of more than 1,000 patents, including many in India), what excited me most was to witness first hand the incredible innovation that is being undertaken to meet the unique needs of the Indian market and Indian society. Let me give you just one quick example:
Medical research tells us that, over the next few years, 40% of people suffering from cardiac disease will reside on the Indian subcontinent. The best way to treat cardiac disease is early diagnosis from regular screening. Yet, only about a third of India’s people receive such screenings. And that percentage is even lower in rural communities. Why? Well one basic reason concerns the lack of access to the required medical equipment -- echocardiograms (those devices that produce EKGs) and the electricity that powers these devices. While commonplace in most urban areas throughout the world, echocardiograms are difficult to find in Indian cities and villages. GE’s health care division went to work to assess how it could create a device that fits the unique circumstances present here in India, especially in poor rural communities. Within a short time this team of engineers, Indians and Americans working together, invented a new device, known as the “Mac-i”-- basically, a battery operated, two pound, portable, electrocardiogram. The technology is so advanced that you don’t even need a trained cardiologist to administer the EKG or interpret the results. All of that means that tests can be administered at a stunning cost of just nine rupees (or about twenty cents) per scan. The device, itself, costs a community just $500. The Mac-I is designed and manufactured in India, and is now being exported to developing countries around the world.
At GE, and at countless other companies around the country, American and Indian scientists, engineers, and software designers are collaborating to drive the development of innovative products, build internationally competitive companies, employ thousands of Indian and American skilled workers, and create economic wealth and prosperity in both countries.
MARKET LIBERALIZATION AS A DRIVER OF INDIAN COMPETITIVENESS AND INCLUSIVE GROWTH
The innovation you see in India -- and the growth that it’s producing -- did not happen by accident or because of some happy coincidence. Rather, it is a consequence of a calculated decision on India’s part to open key sectors of its economy, embrace foreign direct investment, welcome global imports of goods and services, and to accept, and even encourage, domestic competition as a way to build India’s own competitive strengths. That approach has paid big dividends. Indian companies and entrepreneurs have achieved incredible breakthroughs across a wide range of sectors where these policies have been embraced.
As I mentioned, I came here directly from Bangalore, where I saw the incredible results of such reforms. India’s decision to allow uncapped foreign investment in many parts of the ICT sector, coupled with its decision to join the WTO Information Technology Agreement and eliminate tariffs on over 200 IT products, were major factors in making Bangalore the city it is today: a globally-connected hub of software and IT-enabled services that is world renowned and best-in-class, whose software engineers and designers are among the very best in the world. Whether in ICT, civil aviation, or the automotive industry, the lesson is the same: where India has opened its markets to global competition, it has thrived.
I am convinced that continued market-opening policies will be the key to India’s future success, and, importantly, will be essential to India’s ability to meet its own domestic goals and objectives. And these policies are essential to the continued deepening of our nations’ economic engagement and partnership together.
The following example illustrates my point. As you know, India today imposes substantial FDI caps in the financial services sector, and in particular in the insurance sector, which is capped at just 26%. The insurance market in India is largely dominated by state owned insurance entities, and insurance penetration across the board is very low, estimated at just 20%. And yet, with rising incomes and a growing middle class, India’s need for insurance coverage is quite high.
All of us here understand the central role insurance plays in facilitating commerce, trade and economic activity. Planes don’t fly, ships don’t sail, and trucks don’t haul goods in global commerce without insurance. Farmers depend on crop insurance to protect against unexpected problems arising from drought, floods, and other calamities. And the ability to extend affordable health care to millions of citizens depends in part on the availability of health insurance to help defray the cost of care and medicine.
At a macro-economic level, a robust private insurance market is critical to supporting the creation of long-term institutional investors and debt markets that are essential to finance the massive infrastructure and public works initiatives that India must deliver. It is well understood that public financing alone simply cannot meet India’s capital requirements. So, up to half of the $1.2 trillion in capital expenditures India needs must come from the private sector. India does not currently have the lending capacity required to meet these massive needs. Meanwhile, the Indian insurance market is estimated by the Boston Consulting Group to become one of the top three life and top 15 non-life insurance markets in the world. The institutional lending that would arise from further liberalization of the private insurance sector could help meet India’s needs. In addition, the availability of these funds can significantly lower the cost of capital. In short, opening the insurance market in India would be a win-win for India and the United States. We are the world leader in the insurance sector, and our industry is ready and willing to invest substantially in this growing and promising market. These investments would not only bring benefits related to the provision of insurance and the support of capital markets, but also managerial and technical expertise to Indian professionals and millions of new white collar jobs. Under existing market caps alone, the private insurance sector created over 3 million new jobs in India between 2000 and 2008.
Insurance, of course, is just one of many parts of the broader financial services sector, all of which would similarly benefit from liberalizing caps on foreign direct investment. Indeed, by one estimate, substantially liberalizing FDI caps in the financial services sector could contribute as much as 1.5% to India’s already stunning growth in GDP.
Notwithstanding the important and tangible benefits that twenty years of increasing market liberalization has brought to India, there are hints of some concerning signs on the horizon. In recent months, we’ve observed the consideration of increasingly protectionist policies like forced technology transfers, mandatory local content rules, and other industrial policies that are intended to stimulate the development of indigenous intellectual property and manufacturing in India. Whether in connection with the development of emerging technologies in the field of alternative energy, or the stimulation of domestic manufacturing in more mature sectors like the telecom and electronics industries, these policies risk hampering, not improving, India’s domestic competitiveness. And I believe they send exactly the wrong message to foreign investors at the very moment when India needs to attract them most.
It is important to carefully consider whether these so called indigenous innovation policies will achieve their intended purpose. I can tell you that similar approaches in the alternative energy sector in other countries have not worked out quite so well for their proponents over the long-term, resulting, in some cases, in significant overcapacity in the domestic market, diminished quality, and overall increased costs in the lifecycle of these goods.
The United States encourages India, and I would like to encourage you, as India’s private sector leaders, to reflect carefully on your own experience and that of others, and draw the correct lessons, which should encourage you to embrace global competition not shield yourselves from it; and to use incentives to cultivate domestic industry not requirements. That will allow market forces to allocate capital and investment according to business needs and market demands, thereby recognizing the globally interconnected nature of distributed R&D. And that will allow India to continue to be a world leader in innovation.
Finally, let me add just one last point: Whether in the G20, the Security Council, or elsewhere, the United States has welcomed India’s ascent and its assumption of its rightful place on the global stage as a leader, not just in South Asia, but in the world. Just as we welcome India’s leadership, we also encourage India to lead by example in matters of commercial and trade policy, and to be aware of the important standard it sets through its actions. The endorsement of trade distorting policies that discriminate against imports, require the transfer of technology and intellectual property, and preference domestic industries over foreign competition can propagate in quick and dangerous ways across other jurisdictions that look to India for leadership. That could quickly lead to protectionist and discriminatory policies that hurt India’s own industry and ability to compete in world markets. So we urge India and its private sector to give full consideration to these concerns before altering course from a proven path that has led to so much growth and prosperity.
CONCLUSIONI’d like to conclude my remarks today by expressing the profound sense of optimism I feel about the partnership shared by the United States and India. I see great opportunities and enormous untapped potential for both Indian and US companies to work closely together in our own markets and abroad to drive innovation, generate economic growth, and provide a better life to millions of our citizens. And yet, when I consider that the United States trades less with India than we do with the Netherlands, I am reminded of how much untapped potential remains. I want to leave you with the firm assurance and commitment that the United States remains deeply committed to this “indispensable” and “defining” partnership with India. We stand ready to work closely with you to achieve your goals and ambitions. Thank you.
The International Trade Administration, U.S. Department of Commerce, manages this global trade site to provide access to ITA information on promoting trade and investment, strengthening the competitiveness of U.S. industry, and ensuring fair trade and compliance with trade laws and agreements. External links to other Internet sites should not be construed as an endorsement of the views or privacy policies contained therein. This site contains PDF documents. A PDF reader is available from Adobe Systems Incorporated.