Remarks by Franklin L. Lavin
Under Secretary of Commerce for International Trade
December 19, 2006
It is a pleasure to be here with the Asia Society today. I’d like to take a few moments to tell you about the business mission I led to India earlier this month and then take your questions.
Perhaps we should begin by taking a step back and remember how this all came about. When President Bush went to visit Prime Minister Singh in March, the U.S. Department of Commerce and the Indian Ministry of Commerce and Industry were given a mandate: 1) Promote business and commercial ties and 2) Improve the policy framework between our countries. The Mission, which was the largest trade mission of any kind by the American federal government, was our response.
On the promotion side, 258 American executives representing 200 companies participated in the Mission. M ore than 300 Indian executives attended the launch of the Mission at the Mumbai Business Summit. Another 600 Indian businesspeople met with U.S. attendees in five other cities. To give you a sense of the Mission, nearly half of the U.S. companies- 46 percent- had never been to India before. But all of them came to India, ready to do business.
Good News and Good Progress
Much of the success of the Mission is due to the groundwork set by the reform agenda of the Indian government, as well as the desire of the Indian business community to engage with the world to grow their businesses and improve their country.
The timing of this Mission could not have been better because India’s economy has been booming for the past four years. In fact, just the growth alone in India’s economy last year is the equivalent an entire Indian economy of 35 years ago. Contributing to this growth is India’s trade with the world, which has also been growing quickly, more than doubling in the past three years. To put it in perspective, India’s trade with just the United States this year is more than India’s trade with the entireworld in 1987. India has replicated on a bilateral basis what it had achieved globally 19 years before.
Let me give a few examples of the reforms that are making India’s economy grow, and the kind of changes that are creating a better environment for business in India:
1) In civil aviation, the U.S. and India signed an open skies agreement that has increased the number of passengers and flights traveling between our countries by more than 60 percent in a little more than a year.
2) India has begun to lower tariffs on industrial goods from 15 percent on average to 12 ½ percent this year.
3) The extension of patent protection to pharmaceuticals, agricultural chemicals and various food products will encourage innovation in India.
4) In the past two years, India relaxed investment caps in areas like telecommunications and single brand retail.
5) While we were in India the government introduced legislation that would allow foreign educational institutions to establish a presence in India. This should provide substantial benefit to Indian students and to the Indian economy.
6) And perhaps the most historic part of the Mission was the participation of 14 American civilian nuclear companies. During the Mission, the civilian nuclear delegation met with Indian government officials and businesses. Our Indian counterparts have been very cooperative in exploring ways to expand our relationship in this area. Contributing to this was that while we were in India, the U.S. Congress in an overwhelming, bi-partisan fashion, acknowledged the importance of developing India’s civilian nuclear power industry. Civilian nuclear cooperation will make a big difference in enhancing America’s exports to India in the coming years.
Yet despite all of this good news, significant challenges exist. Lets turn to some of the policy issues that we addressed through the commercial dialogue, our main mechanism for negotiating policy matters. I’d like to suggest a few steps from our perspective that will allow for a better environment for business and improve the lives of Indians:
1) First, lifting ownership caps and opening the Indian economy to international participation will bring greater efficiencies and help Indian consumers.
- Opening India’s retail sector to foreign multi-brand retailers will allow Indian consumers access to the best products at the lowest prices and will improve supply chain efficiencies. Despite recent news stories about cracks in the dam on retail access, the fact is that barriers remain.
- Similarly, eliminating foreign equity caps in the financial services, banking, insurance and asset management will allow investment to flow into the areas where it is needed the most. Right now, investment caps are very low. In insurance it is 26 percent, and foreign companies are prohibited from participating in the pensions sector. Opening markets will lower borrowing and premium costs, increase the volume and effectiveness of capital allocation, and enhance the breadth of product offerings that Indian consumers deserve.
Remember, these are as much about infrastructure as it is about benefiting consumers. For example, it’s the long-term funding insurance companies provide that contributes to paying for infrastructure development.
Overall, as of 2005, India had received $45 billion in foreign direct investment, while Singapore received $186 billion, about four times as much. Of that, the U.S. invested $8 billion in India while Singapore received $48 billion, about six times as much. So there is plenty of room for growth and improvement. These investments go to improve and build the factories, roads, airports, rail and seaport systems that will pull the Indian economy ahead.
2) Second, India’s tariffs are still high compared with the rest of the world. India’s tariffs average more than 20 percent, and in some cases tariffs are more than 100 percent. Compare India’s average tariff on industrial goods of 12.5 percent to the U.S. 4 percent average.
3) Third, laws that protect patents and copyrightswill encourage Indian entrepreneurship and creativity. India’s patent law does not meet the needs of the 21 st century marketplace, and India’s copyright law does not fully meet WIPO standards. Robust intellectual property rights protections are essential to encourage the investment of foreign technology into India.
I hope I don’t undermine the upbeat mood of this lunch by reminding us of some unpleasant facts that still persist and must be addressed. An estimated 74 percent of software in India is pirated, and India is one of the world’s leading manufacturers of counterfeit pharmaceuticals. The entertainment industry in India has suffered as the result of the inability to adequately protect its movies and music. Indeed, many of the Bollywood producers I spoke with are quite keen on this issue, which gives me a sense of optimism. Indians are an endlessly innovative, entrepreneurial people, and when they invest in creative pursuits they deserve to benefit from their hard work.
There are other areas where India and the U.S. can work together to improve our economic relationship including:
- Ensuring common sense postal reform to allow continued competition from express delivery companies;
- Eliminating non-tariff barriers to trade in areas such as medical devices; and
- Allowing open access to foreign broadcasting and cable TV.
I was able to have productive meetings with our Indian government counterparts on all of these issues during my visit to Mumbai and New Delhi. I met with Minister Nath and Secretaries Pillai and Dua from the Commerce Ministry, and with other ministries including Energy, External Affairs, Health and the Planning Commission. All of these talks took place in the spirit of friendship and generally I felt that there was far more convergence to our policy discussions than a divergence.
Every progressive policy change will help both U.S. companies and Indian companies, and, we should add, India, as a whole. That’s how it works – we all benefit from the reform process and your participation is important. Your voice must be heard, and the benefits of reform must be continuously reinforced from both outside and within Indian society.
Let me conclude with this thought. India is moving in the right direction and the energy and growth is palpable. The question in front of us, however, is this: Is India on a long-term path of reform or are we simply looking at “the Indian moment?” Will these reforms continue, or will India pull back? The Indian people and their government will answer this question.
The United States supports India’s reform efforts, and we want to see both of our economies continue to expand and continue to improve. What I would like to see is for every Indian company to have as much access to the American market as possible, and for every American company to have as much access to this market as possible.
I come back to Washington from India with a sense of optimism. I know the companies that I brought with me from the U.S. to India are serious and I have witnessed their enthusiasm and interest in doing business in India. I can say for certain that good contacts were made by our delegation, and we expect to see transactions result. The Department of Commerce will be tracking this and following up with companies that have participated in the Mission. I know that American companies have much to offer to Indian customers, and I’m pleased that we have been able to open a few doors for them.
For years, Indians have told me that they want to do business with Americans and are just waiting for the right opportunity. I told them: Your wait is over. Your opportunity is today. We are prepared to work with you, and we are ready to be your partner in a world that is getting smaller and is within reach right now. This Mission was a success on every level and I believe its dividends will be paid with an expanded economic relationship long into the future.