Secretary of State John Kerry and Secretary of Commerce Penny Pritzker are in India this week to participate in the fifth U.S.–India Strategic Dialogue. The meeting marks the first major encounter between high-ranking U.S. and Indian officials since Prime Minister Narendra Modi’s election in May; it will also be a precursor to Modi’s expected visit to the United States in September. Kerry’s comments on July 28 appear to have set the tone for the diplomatic mission to India.
“India has a decision to make about where it fits in the global trading system. … India’s willingness to support a rules-based trading corridor and fulfill its obligations will help to welcome greater investment from the United States and around the world,” Kerry said, further noting that, “If India guarantees the free flow of capital, limits subsidies that stifle competition, and maintains strong intellectual property rights protections, not only will more U.S. companies come to India — they may even race to India.”
{mosads}After waging an election campaign based on promises of a new, business-friendly India, Modi’s election was met with wide praise throughout the world. During the 1990s, the United States and India enjoyed a strong economic relationship but, in recent years, India’s adoption of “innovation mercantilist” policies, such as domestic manufacturing requirements, patent revocations and limiting foreign direct investment (FDI), has significantly inhibited a deepening of U.S.-India ties.
Modi has held office for a little over two months, but he has yet to deliver the sea change he promised. Modi’s administration unveiled its first budget earlier this month and, while it did contain several promising elements, overall it was viewed by many as a missed opportunity for Modi to show real initiative. On the positive side, it set a year-end target to complete the long-pending implementation of a national goods and services tax; reduced barriers to FDI caps in the e-commerce, defense and insurance sectors; and bolstered infrastructure investment. However, Modi’s budget did not commit to any substantial funding increases for science and technology (India’s national research and development intensity of 0.9 percent is less than half of China’s); to reforming stringent labor laws that deter hiring, especially in manufacturing industries; or to scrapping retroactive taxes applied to foreign enterprises such as Vodafone.
In the meantime, America has taken significant steps to ameliorate relations with India. Considering that bilateral trade between the two countries has the potential to reach $500 billion annually, the United States has handled repairing ties with India delicately, making it a point to give Modi the benefit of the doubt. In April, before Modi was even elected, the Office of the United States Trade Representative opted to not downgrade India to a “Priority Foreign Country” in its 2014 Special 301 Report — an annual index of the quality of U.S. trade partners’ intellectual property (IP) protection regimes — in a gesture of goodwill toward the soon-to-be elected government.
However, India has yet to reciprocate and the country’s more recent actions are not indicative of the “fresh start” that U.S. policymakers had in mind. In July, India’s High Court ruled in favor of a domestic manufacturer which had been granted a compulsory license for Bayer AG’s cancer drug Nexavar. And this week, India’s Minister of Commerce and Industry, Nirmala Sitharaman, who was appointed by Modi, stated that America’s Special 301 process is a “unilateral measure” by the United States meant to pressure other nations into accepting U.S. IP laws. These remarks do not align with the economic liberalization promised by Modi in his party’s election manifesto, and instead have caused many to wonder if the prime minister was only “talking the talk” in order to be elected and accepted by the international community.
India’s unwillingness to follow through on its promises is also having a significant impact beyond its relationship with the United States. India has blocked approval of language for the World Trade Organization’s trade facilitation agreement. The agreement could lower global trading costs by more than 10 percent and add as much as $1 trillion dollars a year to global trade. India’s arbitrary decision to hold up this deal will only hurt developing countries, who have been anticipating it as a critical measure to reinvigorate their economies.
As the world’s largest democracy and second-largest country, India must play more of a leadership role within the global economy. The world celebrated Modi’s election because he embraced a plan that would help India realize its full potential; however, that dream is far from becoming a reality. As ITIF writes in The Indian Economy at a Crossroads, with 13 million young people entering India’s workforce each year, India has to make reforms that will restore and sustain its economy or else the country risks falling even further behind.
Kerry is correct: India does have a decision to make. While other nations, including the United States, remain optimistic, a “meet the new boss, same as the old boss” approach won’t work for much longer. It’s time for Modi and his team to get to work and take more concrete steps demonstrating his administration’s commitment to protecting the intellectual property rights of both foreign and domestic parties, to facilitating greater liberalization of global trade, and to embracing the difficult but necessary reforms that can unlock India’s economic potential.
Atkinson is president of the Information Technology and Innovation Foundation (ITIF).