Leveraged well, industry and partnerships could lead US-India relations into a powerful decade, affirms Nivedita Mehra, Country Director of the US-India Business Council (USIBC), the go-to resource on business in India for American companies. Here, Ms Mehra discusses the commercial foundations underpinning the strong relations between the two countries, as well as the challenges to be ironed out in the business environment, and why companies and investors still sitting on the fence shouldn’t ‘wait and see’ too much longer to get involved.
What added value does USIBC, provide to its members?
USIBC is headquartered in Washington DC. We just celebrated our 40th anniversary in 2015. We are the go-to resource on business in India for American companies. We work on perceptions and on how India is viewed in boardrooms to actually stimulate these investments to come to India. So it is the whole piece, from perception to marketing to problem solving that we are involved in. We are the voice of industry. The India office acts as a frontline. The entire advocacy, the relationships with the Indian government, and the day-to-day advisories are done out of the India office.
The other interesting shift that has happened is that a lot of the US companies have a very active and large presence in India. Decisions are no longer being made at headquarters alone. It is really happening on the ground. We work directly with the industry every day, on the frontline, and resolve their day-to-day issues.
How long has USIBC been in India?
The India office will be completing 10 years in 2016. We were the US-India Business Council for a long time without an Indian office! Indian companies are also an important part of the Council, so we are truly bilateral in nature,
What would you highlight is your milestone results and what are your priorities in 2016?
It was in fact Henry Kissinger who had the foresight to say that the commercial relationship between India and US would lead the way. And this is how we have seen it play out. If you look at how things have moved between both the countries, it has been industry led; it is about the partnerships. The Indian diaspora has moved to the US and are also employed by American industry. Indian companies have got a significant footprint in the US market. And both governments are noticing this. That is really where the rubber meets the road.
The US-India civil nuclear deal has been one of the biggest achievements to date. That was the signaling of a new era cast in our mutual friendship. President Obama is the first sitting American President to visit India twice in his time of duty; this is historic. We have had a lot of firsts in the last 10 years. There is no doubt that we have moved strategically together. The US also recognizes India as a natural ally in the region.
From the industry perspective, I would say that the next big hill for us to climb would be the bilateral agreements.
US Secretary of Commerce Penny Pritzker has stated that even though business is stronger than ever, India is only America’s 11th trading partner and 18th largest exports partner. According to her, the US-India relationship has simply not lived up to its full potential.
I agree with Ms Pritzker. We have grown to $100 million in exports, which is still significant, but the target is moving to $500 million in the foreseeable future.
USIBC, together with the Peterson Institute for Economics in Washington, released a study that was basically a roadmap for a US-India FTA in the future. This is an example of how the Council likes to think big. While nobody has the mind space to get this far right now, and an FTA is nowhere on the table, we put that study out just to get the idea out there. The study lays out the steps that have been already discussed in the bilateral treaty between the US and India. It is very early stages, but we believe that this is the actual path to follow and to reach something large in the future.
The US just completed the TPP. The message to India really is that as these trading blocs develop, and as India becomes a larger player in the global markets, you do not want to be left out. This is the kind of message on the trade agenda that the Council has been trying to provide.
Given that Indian Americans are highly educated, wealthy and at the helms of major corporations, how important do you consider the Indian diaspora for the socio-economic development in India and vice versa?
I think the Indian diaspora is very important. They are a critical piece of the puzzle. Their importance is two-fold. First, business in the US plays a very important role in terms of the government. The leaders of these big companies could thus play a crucial role becoming advisors to the US government on the US-India economic relationship. Second, they also play an important role from an Indian perspective because you can leverage some of the goodwill they have towards India to attract more investments into the country. I think this would be a very smart strategy.
Like brand ambassadors for India?
Exactly. Our Prime Minister has realized this as well. Out of five people at the Digital India event in California, three were of Indian origin. That was a very powerful message. How we leverage this is important. The goodwill that already exists is being harnessed.
What is your specific message to Indian companies who have business or trade in the US and also the US business community that is considering India as a destination for investment or trade?
There is huge potential and we are just at the beginning. If we are able to leverage all the internal and external factors that are playing out in India right now, I think it can be a very powerful decade. While the foundations are laid for business to succeed, I think that the good that business can do for India’s economic growth is tremendous. With the technology, sophistication and good business practices of US companies, Indian companies can learn enormously from US corporations.
Given that India has been growing at over 7.5% recently, what is your opinion on the country’s economic performance and do you think that India will have the power to become the global growth engine as China once was?
I think this is a huge opportunity in terms of timing for India. We have got the right leadership in place and we are focusing on the mantra of economic development. This is the first time we have witnessed election campaigns where economic development has been the grounds for victory. This in itself is a big mind shift. That being said, if we can harness the energy of the youth, if we can skill the young people and create enough jobs for them, I think that the 21st century will definitely be India’s century. We have got a lot of things moving in our favor but I think it is really up to us at this moment to seize the opportunity.
How would you evaluate Modi’s reform program and would you agree with some of his critics who say that given the mandate he was given, he is moving far too slow?
I believe it is important to look back. India’s perception in the business world has changed dramatically since the time Prime Minister Modi assumed office. The Prime Minister has focused first on building perception first. I believe this has been a smart move. He is basically telling the world that we are open for business and that India is laying out the red carpet.
The Prime Minister has put India back on the map. No boardroom was talking about India 18 months ago. Today we are back on the list. This is an incredible achievement.
Now we have reached the time where implementation has to start. The phrase we often hear from USIBC members is “cautiously optimistic”. Most companies in the US are still in the wait-and-watch mode. If they have already invested in India, they now want to see some of the bottlenecks cleared and insist on tangible progress on ease of doing business before investing further. Others are waiting for their competitors to experience success before moving in. The numbers make sense and everyone knows that India is just too big to ignore. I believe it is above all about removing red tape and improving the business climate. If the government can deliver on some of the promises they made, we will be in good shape for the future.
What are the most pressing needs if we are talking about ease of doing business?
I think the most pressing issue today is the lack of predictability in policy frameworks, especially in the area of taxation. Therefore, that is the principle of USIBC’s work – at the Council, we facilitate a dialogue between various bodies of the government and industry leaders, acting as the principle interlocutor between industry and the government to build a more predictable business environment in India.
For instance, we had a draft encryption policy put out by the government that was withdrawn within a week due to a negative reaction from industry and stakeholders. A predictable environment for investors is crucial for investors.
The second important aspect in regards to easing business would be abiding by global standards. If India wants a big piece in the global supply chain, it needs to find a way to abide by global standards rather than trying to develop its own. This would be a very strong move towards the Make in India campaign.
Do you think that it is embedded in Indian culture to think that it is big enough and that it can do things its own way’?
I would say that it has to do with our democracy. When you are constantly fighting elections, be it at the state or central level, electoral prerogatives often dictate the decisions that are being made. There is a lot of activism in India. We have a very active media and it is getting more and more persistent. In other words, there is a lot of pressure from different angles.
How would you evaluate the government’s objective to bring the manufacturing sector from 15% to 25% in only a couple of years?
It is a very ambitious target, but realizable. Looking at our demography, there is a growing middle class. Creating jobs and employment is a must; otherwise there will be major social issues and what may seem an enormous opportunity today might become a liability for the country tomorrow. It is therefore imperative to move towards a stronger manufacturing environment.
Another important factor to take into account is that India has a federal structure. More and more power is being delegated to the states. What the government is doing is encouraging competition among the states. At USIBC, for example, we find ourselves many times working at the state level to resolve problems.
Having states compete is nothing new…
Indeed, and India has understood that competition between the states will improve the overall business climate. The Prime Minister comes from a state (Gujarat) that has been hailed as one of the most progressive states in India. He is taking that experience and really getting the states to compete. You see this also in the US. Virginia competes with Delaware for investments. The same thing has started happening in India. In India you will notice that the individual states are organizing Global Investment Meets. Maharashtra had one; West Bengal, Karnataka, Rajasthan are organizing theirs. This is definitely a first and a very positive trend. If India wants to achieve its manufacturing goals, the states are going to play a very important role.
The government has defined 25 sectors for the Make in India campaign. If you look specifically at the US, what would you define as the most promising sectors for investors?
There are two main sectors. Defense ranks at the top of the list, because of the offset requirements and because of the growing strategic relationship between US and India. Defense manufacturing is at the higher end of the scale and fits in with the government’s desires; this sector can be very productive.
The other area where we see a lot of potential for action is electronics and hardware manufacturing. We have been trying to work with the US in the electronics space, which has a well-defined supply chain. It is important now to put the regulatory mechanisms in place to encourage this business to come to India. That is a much more competitive environment with huge potential.