Remarks by Franklin L. Lavin
Under Secretary of Commerce for International Trade
Indo-American Chamber of Commerce
Hyatt Regency, New Delhi, India
December 5, 2006
As prepared
Thank you, President (Deepak) Pahwa for that kind introduction. It is a pleasure to be here.
I would like to thank the Indo-American Chamber of Commerce for your excellent work in fostering improved business relationships between the United States and India, particularly with small and medium-sized enterprises.
This luncheon will be my final public meeting in Delhi, and I’m grateful that so many of you are able to be here today. As we conclude the U.S. Business Development Mission to India, I would like to revisit how this all started.
When President Bush and Prime Minister Singh met in March, the U.S. Department of Commerce and the Indian Ministry of Commerce and Industry were given a mandate: Work together to promote business and improve the policy framework between our countries. The Mission is one of the ways we are responding to this mandate.
Two hundred and fifty-eight executives from 202 U.S. companies have joined me on this Mission, which began with the two-day Indian Business Summit in Mumbai where more than 300 Indian executives joined us. After the Summit, we led ancillary missions to six cities - Bangalore, Chennai, Hyderabad, Calcutta, Mumbai, and New Deli. These included one-on-one appointments and a full schedule of policy meetings with senior officials in the Indian Government. Another 600 Indian business people were involved in additional meetings in total for all six cities in the ancillary missions.
We’re going to track the results of this Mission in 90 days and then regularly after that to get an understanding of its real business success. Of course, for most companies it will take time to realize the business potential of India. When we invited American businesses to participate, we posed this question to them: “Does your company have an India strategy?” With an open and growing economy and a billion potential customers, the Department of Commerce believes in order for American companies to be globally competitive, they need to be thinking about India. Nearly half of the companies on the Mission have not been to India, so it’s clear we’ve helped get them thinking.
Good News and Good Progress
Perhaps the principal factor that has allowed us to create so much interest is the economic success of India. Congratulations are due to the Government of India for making this happen. For some 15 years India has enjoyed high rates of economic growth, and this has accelerated the past three years. In fact, the growth in India’s economy last year is the equivalent to an entire Indian economy of 35 years ago.
India’s trade with the world is booming, more than doubling in the past three years. Trade with the United States this year will be more than India’s trade with the entireworld in 1987.
Much of this success is due to the reform agenda of the Indian government and the work of the Indian business community.
Let me give a few examples of the reforms that are making India a more inviting place to invest and do business in:
1) In civil aviation, we signed an open skies agreement that has increased the number of flights and passengers traveling between the U.S. and India 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, single brand retail and civil aviation.
5) And, I understand that the Government of India plans to introduce legislation that would allow foreign educational institutions to offer courses in India. This will provide substantial benefit to Indian students and the Indian economy.
Challenges
At the same time, challenges exist. Let me suggest a few steps that will enhance the business environment 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. Regardless of recent news stories about cracks in the dam on retail access, the fact is that significant barriers remain.
- Similarly, eliminating foreign equity caps in the financial services, banking and insurance sectors 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. More open markets will lower borrowing and premium costs, increase the volume and effectiveness of capital allocation, and enhance the breadth of product offerings Indian consumers deserve.
As of 2005, India had received $45 billion in foreign direct investment, with $8 billion of that from the United States. Compare that to tiny Singapore, which as of 2005 received more than $186 billion in FDI, with $48 billion coming from the United States.
- And in the telecommunications sector, greater foreign participation will mean better service and lower rates.
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.’s 4 percent average.
3) Third, laws that protect patents and copyrightswill encourage Indian entrepreneurship and creativity by protecting innovations and brands. Robust intellectual property rights protection will encourage the investment of foreign technology into India’s markets, and give India an edge in environments such as healthcare, energy and aerospace over countries.
There are some unpleasant facts amidst the good news in India. The World Bank’s Ease of Doing Business study India ranks right at the bottom-173 of 175 countries in the area of enforcing contracts. 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. Indians are an endlessly innovative people, and when they invest in creative pursuits they deserve to benefit from their hard work.
There are other areas where we can work together to improve the U.S.-India economic relationship including:
- Ensuring common sense postal reform to allow continued competition from express delivery companies, like UPS and FedEx;
- Creating and enforcing clear and consistent laws and regulations; and
- Eliminating non-tariff barriers to trade in areas such as medical devices.
IV. Conclusion
The question in front of us 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 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 conclude this Mission with a sense of optimism. I know the companies that I have brought with me from the U.S. are serious and I have witnessed their enthusiasm and interest in doing business in India over the last week. I can say for certain that good contacts have been made by our delegation and I expect to see more transactions result. I know that American companies have much to offer to Indian customers, and I’m pleased that I have been able to 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. To them I say: 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.
Thank you.