US – India Strategic Economic Partnership
USISEP
A new era of cooperation between the US and India was ushered in on July 18, 2005 in Washington DC when President George Bush and Prime Minister Manmohan Singh concluded a set of far reaching initiatives which will pave the way for a closer economic and strategic partnership between the two countries at Government and at industry levels. One of the initiatives taken was to form a US-India CEO Forum, comprising selected CEOs from both countries, with a mandate to develop a road map for increased partnership and cooperation between the two countries at a business level. It was also envisaged that this joint Forum could identify issues which might be included in the Agenda for discussion between President Bush and Prime Minister Singh when they meet in New Delhi in March 2006. The US and India share common values based on their democratic, multi–cultural, multi-ethnic and multi-religious societies, as well as a strong entrepreneurial spirit, all of which support the bilateral Strategic Partnership. Both the US and India are committed to full exploitation of the mutual benefits of globalization, which is an irreversible process driven by technology and the development of human resources in an increasingly knowledge-based world. Through mutual harnessing of technology and human capital, the US and India can forge a unique partnership to achieve greater competitiveness and prosperity for the citizens of both nations. The Forum believes the new Economic Partnership will present the US and India with substantial opportunities to increase trade and investment activity, enhance market access for goods and services and develop greater competitiveness in both countries by leveraging their respective strengths. 1Trade and Industry Promotion of Trade and Industry 1.1Trade and Industry PromotionTrade and Industry Promotion With the objective of doubling trade every 3 years, promotion of trade and industry by removal of barriers needs to be a priority. The Forum would recommend that a US-India Comprehensive Economic Cooperation Agreement (CECA) which includes trade, be considered as a medium term objective. Specific initiatives proposed in this area are: (i) Reduce restrictions on foreign investment, especially: • Expedite the decision to allow FDI in the Indian Retail Sector beyond the limited opening up of the sector provided currently (as an immediate first step, GoI could permit FDI in Retail in all SEZs and/ or permit joint ventures in retail with minority foreign investment) • Accelerate the timetable to raise FDI caps in the Indian Insurance sector and allow foreign FDI in Indian private sector banks as well as an accelerated approval of foreign bank applications for branches in India. • Remove restrictions on expansion/ new branches by Indian banks in the US. Action: USG and GoI. (ii) Facilitate Movement of Business and Professional Personnel • US should liberalize the visa regime for service providers in fields ranging from IT (H1B/L1) to Nursing staff (EB3) where the US is facing a shortage of trained personnel. As in goods, progressively ease quantitative restrictions/yearly quotas of such visas. Further impediments on the grant of H1B/ L1 visas such as attestation requirements, reduction of periods of stay and prescriptive wage levels need to be dispensed with. • For select countries/ strategic partners, such as the US, India should provide visas for upto 5 years and remove Foreigners Registration Office (FRO/ FRRO) requirements to report in physically once a year. Action: USG and GoI. (iii) Facilitate Tourism - The tourist flows between India and the US, though small at present, hold great potential given the strong linkages that India has with the US in trade, education and entertainment and leveraging off the "Open Skies" agreement signed between the two countries in 2005. Both countries would benefit by making tourist visas easier to obtain. Action: USG and GoI. (iv) Sign a Totalization Agreement - It is estimated that over $500 million is contributed annually by Indian companies to the US Social Security with no benefits to the people for whom these contributions are made. India and the US should sign a Totalization Agreement such that Social Security contributions are made in only one country or a refund-on-return regime is put in place when Indian employees leave the US and return to India. Action: USG and GoI. (v) Set Up a Dispute Settlement Mechanism - A dispute settlement mechanism that has the power and jurisdiction to resolve commercial and contractual disputes quickly could be set up by India. An independent tribunal formed through the Arbitration and Conciliation Act 1996 should be a forum for dispute resolution. Specific focus on resolving legacy issues such as those impacting Dow/ Bhopal tragedy of 1984 and the Tamil Nadu IPPs would send a strong positive signal to US investors. In addition, India could undertake to strengthen and reform the judicial system to address the large backlog of cases and the time taken to complete legal proceedings. The issues of no limit on the number of adjournments, too few judges/ too many vacancies, large number of court holidays and poor physical infrastructure, need to be addressed on an urgent basis. Action: Task Force on Judicial Reform recommended – comprising representatives from Law Ministry, GoI, Supreme Court and CEO Forum members. Task Force to submit their recommendations in 3 months (possibly to the Law Commission that could assess/ approve these recommendations). (vi) Greater defense industry cooperation and a liberal offset regime. Specifically: • US should treat approved Indian defense contractors on par with those of other strategic allies such as UK. Indian IT firms should be permitted to bid for US technology programs after receiving appropriate clearances. • India’s could adopt an "indirect" defense offset regime by including areas such as commercial space, R&D, etc. The offset program could be based on a review of global best practices adapted to India’s needs in defense and high technology. Action: USG and GoI. (vii) Set up an Indian Institute for Regulation - An independent institute which develops into a think-tank with a strong research base will provide an excellent platform for development of regulatory practices. Action: US and Indian businesses and their associations with GoI support. Encompassing greater freedom to invest in services sectors, freer movement of people, removal or reduction of tariff and non-tariff barriers and subsidies in agriculture and manufactured goods, on both sides. India and the US can partner to make the Doha Round of the WTO a success by showing leadership to support an ambitious outcome and making strong offers in all the key areas of negotiations.2InfrastructureCreation of an Infrastructure Development Fund2.1Physical Infrastructure DevelopmentPhysical Infrastructure Development India’s infrastructure needs exceed its domestic (public and private) funding capacity. The US could assist/ participate in the development of India’s infrastructure through technology sharing, systems design, or investment/ funding. Specific initiatives proposed in this area are: (i) Public private partnerships must be encouraged and the Indian government must play a lead role in fostering speed, efficiency and transparency in the bidding process for Infrastructure contracts to attract more US companies. Action: Government of India (GoI). (ii) The US could partner India in making Mumbai into a Regional Financial Centre. This partnership could extend from the ‘softer’ aspects such as an appropriate regulatory framework, to the ‘hard’ aspects of identification of infrastructure needs and participating in their financing. Action: Expert Committee on the Mumbai Regional Financial Centre set-up by the Ministry of Finance (MoF), GoI (iii) Set up a $5 billion plus private sector Infrastructure Fund (with minority government participation) drawing on the resources and expertise of World Bank/ADB/IFC and other financial institutions. The fund would lend long tenor debt as well as invest in the equity of infrastructure projects. Action: CEO Forum, Working Group of US and Indian businesses/ associations, working with the MoF and RBI. (iv) Set up large scale Special Economic Zones (SEZ’s) in India, designed to serve both domestic and export markets, that comprise world-class infrastructure with integrated real estate, power and transportation facilities, single window clearance approval and administrative process, flexible, internationally-competitive labor laws and transparency/clarity of governance. Action: A US-India private sector Task Force comprising representatives from various industry/manufacturing sectors to work with the appropriate Central and State Government agencies to expedite execution of plans to set up such SEZ’s. 2.2Energy SecurityEnergy Security India’s need for reliable sources of power and energy are substantial and growing. Only 55% of households in India have access to electricity. Electricity supply remains a bottleneck for growth, particularly in the Indian rural/ agricultural sector. Captive and back-up power generation is costly and less efficient. An opportunity exists for US companies to be involved and invest in the power sector in India. Specific initiatives proposed in this area are: (i) India should move more aggressively in reforming its power sector to ensure sanctity of contracts, encourage greater investment/ competition in generation, promote market driven tariff structure and achieve a separation of regulatory and adjudicatory authority, among other things. Action: A US-India private sector Task Force comprising power companies to work with GoI and select state government agencies to facilitate on-time implementation of investments being made and resolution of legacy disputes in the Indian power sector. (ii) Support for cost effective technologies that foster a clean environment especially in the areas of Coal, where India has large reserves, Bio-fuels, Hydrogen and Wind energy. Action: US Government (USG) and GoI. (iii) In the Petroleum and Natural Gas sector an early enactment of the proposed Petroleum and Natural Gas Regulatory Board Bill (‘Regulatory Bill’) and draft Natural Gas Pipeline Policy (‘Pipeline Policy’) is recommended. The sector also needs greater transparency and market driven pricing in petroleum products and natural gas and upgrade of retail marketing practices. Action: GoI. (iv) The opening up of civil nuclear technology supplies from the US to India, which is currently on a government to government track, will not only bring the prospects of energy self sufficiency to India but open up a significant flow of technology exchange and build mutual trust between the two countries. Action: USG and GoI. This could act as a vehicle for US investment into Indian infrastructure. It is proposed that a corpus of $ 5 billion be targeted, with minority Indian Government participation, and leveraging the expertise of the World Bank/ IFC/ ADB and other financial institutions in the selection and monitoring of investments. 3Technology ExchangePromote Technology Exchange in Agriculture, Biotechnology and Nanotechnology3.1Technology ExchangeTechnology Exchange Across all sectors Technology and R&D are key determinants of business prosperity and national competitiveness. India and the US are already cooperating in Technology and R&D. Based on a special effort to evolve closer ties in Technology, the future could witness an explosion of such activity. In addition, India is a major buyer of high technology equipment from defense to avionics to engineering components/systems. It needs however, reliable, long-term sources of supply and simple and rational export licensing measures that carry a guarantee of stability and continuity. These will ensure that the US companies are not competitively disadvantaged in the Indian marketplace. Regulations permitting the export of technology sensitive items will mean that US companies can export to India or partner Indian companies to significantly accelerate various science and technology programs. India, on its part, needs to create the appropriate policy and regulatory climate to encourage adoption of technology in sectors of national importance such as "green environment", "safety and security" and "energy efficiency". Specific incentives (lower taxes and/ or import tariffs) could be geared toward fostering increased use of such technologies. Specific initiatives proposed in this area are: (i) The Forum supports the excellent progress made by the US-India High Technology Cooperation Group (HTCG) in simplifying US export licensing policies and procedures. These should continue to be supported, especially by legislative action where required, to: • Further relax restrictions on transfer to India of high technology and equipment e.g. extension of COMSAT rules to India/ ISRO • Accelerate transfer of dual use items/categories including material sciences, advanced electronics, semi-conductor technology, aviation related technology, key software systems and equipment Action: USG and GoI. (ii) Removal of restrictions on R&D collaborations by the US and encouragement for establishing product design and development centers that would forge stronger and mutually beneficial ties between the two countries in this area. The setting up of an India-US R&D center for Industrial R&D is recommended. Action: USG. R&D Center by US and Indian businesses and their associations working with USG and GoI. (iii) Promote technology exchange in agriculture and commodity markets by setting up an Indo-U.S. R&D center for Agricultural R&D and encouraging collaborations and exchange of scientists in agricultural research by leveraging the capability of US agriculture universities. This could be part of the "US-India Knowledge Initiative on Agricultural Education, Teaching, Research, Service and Commercial Linkages" Action: USG and GoI. (iv) Partner in Biotechnology by jointly developing a regulatory pathway to ensure regulations surrounding the sector are based on sound science, are transparent and supportive of policies that encourage investment in and commercialization of biotechnology, and promote trade in biotech goods and services. Both countries (i.e. US FDA working with the Indian FDA) should harmonize legislation to provide opportunities and protection for US as well as Indian companies in biotech related IPR. Extend the scope of the US-India R&D partnership to Nano-technology as well. Action: USG and GoI. For Biotechnology - US FDA and Indian FDA. Through a combination of exchange of scientists between Universities/Labs in the two countries and by setting up Centres for R&D in these fields supported by the two Governments. 4SkillsPartner in Skills Development4.1Human Resource DevelopmentHuman Resource Development Human Resources are the drivers of competitiveness and innovation and a strong foundation on which the Strategic Economic Partnership can be built. India needs to improve the quality of education to its broad mass of people, outside of the few Indian Institutes of Technology (IITs) or equivalent universities. Unmet education needs extend from primary school to advanced research, but the greatest benefits would possibly come from relationships between leading US institutes and Indian institutions (with special emphasis on PhDs) in advanced research. (i) Sponsored participation in establishing institutions of higher education for research and PhD programs with leading US institutes like MIT, Lincoln Labs, Bell Labs, John Hopkins and Carnegie Mellon could become focal points of excellence in high technology. The intellectual capital developed and exchange of talent and ideas would benefit both countries. Action: USG and GoI/ Knowledge Commission. (ii) India needs to encourage the setting up of new institutions of higher learning and give private educational institutions a free hand in terms of fees, course structure and affiliations. Action: GoI/ Knowledge Commission. (iii) India’s Industrial Training Institutes (ITIs) need to be upgraded and their curricula continuously made relevant and current. US companies could work with Indian companies to promote this skill building for industry and could also partner in the setting up of new institutes. Action: US and Indian businesses and their associations. US and Indian companies could work together for joint sponsorship of select Industrial Training Institutes (ITIs) in India and/or in the setting up of new institutes. 5Industrial R&DSet up an Indo-US Centre for Industrial R&D in product design and developmentWith support from US and Indian industry and government. 6Dispute ResolutionEstablish a Dispute Resolution Mechanism6.1Intellectual Property ProtectionIntellectual Property Protection Intellectual Property Rights (IPR) protection has separated and divided US and Indian businesses in the past but there is an increasing convergence in the approach to IPR and supporting legislation. There is now a mutual, agreed agenda to frame laws, rules and processes to sustain the highest standards of protection to the inventor or the organization, which invests in IP. The next ten years can witness a new surge in partnership in IPR between the U.S. and India which includes mutual cooperation in IPR implementation and enforcement as well as building a "patents" culture. Specific initiatives proposed in this area are: (i) National coordination of IPR enforcement efforts in India must be stepped up. Today, enforcement is handled on the state level, and the results vary dramatically. Many of the specialized police units set up by the states are barely active and lack training, manpower and resources. Actions by the Ministries of Information and Broadcasting and Human Resources Development (HRD) to co-ordinate state enforcement efforts are important first steps. The goal should be a national unit dedicated to IPR enforcement and with powers to enforce across state borders. As a first step, a single centralized body should be designated to coordinate IPR enforcement efforts, identify and publicize best enforcement practices at the state level, and direct national resources to IPR enforcement. Action: GoI. (ii) Specialized intellectual property courts should be established to handle both civil and criminal matters. Establishing such courts is a practical first step toward whittling down the huge backlog of cases and making the enforcement system functional. To handle the piracy docket efficiently, judges, prosecutors, and other court personnel need specialized training. Specialized IP court divisions could also adopt their own rules to expedite the handling of cases. This approach, which has proven successful for several other countries in the region, such as Thailand, should be initiated in India. Pilot projects in select state court systems could be the first step. Action: Ministry of Law and Justice, GoI. (iii) A national initiative to crack down on piracy in the educational and research sectors should be initiated. The Ministry of Human Resource Development (and other relevant ministries, such as Health, for medical schools) could issue directives to all public and private educational and research institutions to stop using unauthorized photocopies of books and journals; take action against on-campus copy-shops engaged in illegal activity; and report periodically to the Ministry on what steps have been taken. This data would form the basis for more targeted efforts in the future. Action: Ministry of Human Resource Development, GoI. (iv) Agreement should be reached between India and the US on cyber security to include data privacy, IPR etc. Create universal standards in data privacy to build confidence in Indian IT providers. Action: USG and GoI. A dispute settlement mechanism that has the power and jurisdiction to resolve commercial and contractual disputes quickly could be set up by India. Continued government focus at both center and state levels is also required to resolve legacy issues.