India

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India U.S. Trade and Economic Relations.Dr.
V.S. Seshadri, Minister (Commerce), Embassy of
India, Washington DC.
Prepared for Virginia Governor Mark Warner and
the Commonwealth of Virginia Trade Delegation to
India.
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Introduction

• Positive and growing relations between worlds
  two largest democracies
• Trade, Investments and technology issues are
  increasingly playing an important role in
  bilateral relations
• Institutional framework for cooperation gathering
  substance and momentum.

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INDIAN ECONOMY HIGHLIGHTS

• Worlds largest democracy in action
• Fourth largest economy (US 3 trillion GDP) in
  terms of Purchasing Power Parity
• Second fastest growing economy of the world at
  present.
• Share of India in the World economy is estimated
  to rise from 6 to 11 by 2025
• Current Foreign Exchange Reserves at 140
  billions
• By 2050, India is slated to emerge as the worlds
  third largest economy.
• During 2004-05, Indian economy is expected to
  grow at 6.9 against the advance estimates of
  6.2. This is over 8.5 growth achieved in
  2003-04.
• The present government set a target of 7-8
  economic growth per annum in a sustained manner.
• Growth accompanied by continued price stability

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Commitment to liberalisation

• Since 1990, steadfast commitment to economic
  reforms and steady progress on liberal economic
  and trade policies
• Peak customs tariffs came down in a space of two
  years from 29 to 15
• Foreign Direct Investment welcomed with some
  exceptions
• 3.32 billion FDI in first nine months of
  Current Fiscal Year compared to US 2,81 billion
  in whole of FY 2003-04
• Hike in FDI caps
• Telecom from 49 to 74
• Banking FDI in private banks raised to 74
• Civil Aviation sector increased from 40 to 49
• 100 FDI allowed in construction sector
• FDI in insurance is under active consideration

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INDIAN ECONOMY IN TRANSITION

• FDI in India
• From US 143.6 million in 1991 to US 38.98
  billion as on August 2004.
• Portfolio flows accounted for nearly 77 of net
  foreign investment inflows in 2003-04.
• Forex reserves of more than 140 billion (March
  18, 2005 )
• Foreign Exchange Reserves now exceed Foreign
  Debt.
• External debt to GDP ratio has come down from
  38.7 in 1992 to 20 in 2003
• Since July 2003, India has become a net creditor
  to IMF, after having been a borrower in the past
• Inflation has been contained at 4.6 in 2003-04.
  Presently it is around 5.3 particularly due to
  global increase in oil prices.
• Indias imports to exceed US 100 billion in
  2004-05 and exports to exceed US 75 billion

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India-US Bilateral Merchandise Trade (2001-04)

• Steady rise in the two way trade double digit
  growth rates for the last two years (US 22 and
  India 19)
• USA is Indias single largest trading partner
• In USAs global trade, India is the 18th largest
  exporting Partner 24th largest export
  destination
• Share of India-US trade in US Global trade is
  less than 1

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US Exports to India (2001-2004)
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Composition of US Exports to India (Merchandise
goods)
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Issues affecting Merchandise Trade

• US trade defense measures
• Anti Dumping (CVP 23, Shrimp, PET Resins)
• CVD investigations (PET, CVP 23)
• Administrative Review (Five cases)
• Impact on trade, Shrimps decline by 60
• Sanitary Phyto Sanitary (SPS) measures
  (mangoes)
• GSP regime IPR
• WTO Related issues
• Textile monitoring

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Trade In Services

• Nature of trade
• Statistics have a time lag (2003 figures come in
  October 2004)
• Compilation is more complex in nature trade
  takes place in four modes cross border,
  consumption abroad, commercial presence and
  movement of natural persons
• The trade in services is considered part of
  invisibles.
• it is difficult to fully track the figures for
  services trade.
• The US figures for trade in services include wide
  basket of services, of which software and IT
  related services form one component.

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Trade In Services

• As per US Bureau of Economic Analysis (BEA), US
  enjoyed surplus in trade in services during
  2002. While US exports were 6.8 billions,
  Indias exports to the US amounted to 3.5
  billions.
• As per NASSCOM, the Indian exports of the
  software and IT related services to North America
  (which includes USA) were 6.6 billions during
  the period 2002-03.

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Issues Relating to Trade in Services

• Concern in some US quarters about outsourcing
• Data and Privacy protection

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Indian IT Industry Approach

• NASSCOM interaction with US trade bodies and
  relevant US agencies
• Appropriate amendments to India IT Act of 2000
  in terms of privacy protection and cyber crimes
  under consideration
• Strengthening the enforcement regime
• Cooperation with like minded organizations (US
  industry and business councils) in dispelling
  myths about Offshoring

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India-USA Investment RelationsFDI from USA to
India

• USA is one of the the largest foreign investors
  in India.
• FDI inflow from U.S. ( 3.9 billion) constitutes
  about 13 of total FDI inflows into India.
• Top sectors attracting FDI from USA are
• Electrical Equipment (Computer Software
  Electronics),
• Fuels (Power Oil Ref.),
• Food Processing Industries,
• Transportation industry,
• Service Sector (Fin. Non-Fin. Services) and
• Telecommunications

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FDI from USA to India (Upto July 2004)
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FDI from USA to India (upto July 2004)
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Some of the Major and Successful Fortune 500
Companies of USA in India

• Coca-Cola
• Ford Motor Company
• GE Capital
• Merill Lynch Co.
• J.P. Morgan Co.
• The Procter Gamble
• COMPAQ Computer
• Hewlett Packard
• AT T
• Citicorp
• Bank of America
• Hughes Electronics Corp
• Johnson Johnson
• Qualcomm
• Sprint

These are just examples. There are many others
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FDI from USA to IndiaFurther Scope

• Although foreign direct investment from USA to
  India is rising, Indias share in the total FDI
  outflow from USA was only 0.24 in 2002.
• This leaves a large scope for attracting higher
  investments from USA particularly in priority
  areas like infrastructure, IT, Telecom, energy
  and other knowledge industries such as
  pharmaceuticals and biotechnology

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India-USA Investment RelationsPortfolio
Investment from USA to India

• USA has emerged as the leading investor in
  Portfolio Investment in India as well.
• As of June 30, 2004, US based FIIs have made a
  net investment of nearly 10.2 billion in the
  Indian capital markets accounting for about 40.5
  percent of the total net investments made by the
  FIIs since 1993.
• The portfolio inflows witnessed a rapid rise in
  2003-04. This has been due to buoyant state of
  Indias capital markets and greater FII
  participation.

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PORTFOLIO INVESTMENT FROM USA TO INDIA
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Indias Investments in USA

• Since 1996 and upto June 2004, the total approved
  Indian investment abroad amounts to US 10891.26
  mln. of which 57.4 has been the actual outflow
• US share ( 2047.63 mln.) constitutes 18.8 of
  the total approval
• Several of Indias IT companies have offices in
  US
• In addition, Indian companies have also begun to
  make investments in other areas including in the
  manufacture of tractors (Mahindras),
  pharmaceuticals (Ranbaxy, Dr. Reddys, etc),
  laminated tubes (Essel Propack), Tea (Tata tea),
  etc.

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Indias Investments in USA

• Indian Companies in USA in IT Sector
• WIPRO, INFOSYS, TCS etc
• Bombay's Datamatics Technologies Ltd.
• Indecomm Global Services
• Godrej Group
• Essar Group 
• SSI Ltd
• Subex Systems
• E4E
• Indian Companies in USA in other Sectors
• Indo Rama - PET plant in North Carolina
• Amtek Auto acquired 100 equity in New Smith
  Jones Inc in US, which makes ring gears and flex
  plates.
• Ranabaxy has set up two subsidiaries Ranbaxy
  Pharmaceuticals Inc. (RPI) and Ohm Laboratories
  Inc. (OLI)
• DR Reddys Labs
• United Breweries acquired 6 micro breweries in
  the US
• Essel Propac in Virginia
• Mahindra Mahindra

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Institutional Framework for India-US Commercial
Economic Cooperation
 
 
High level Coordinating Group (to develop common
economic agenda and prepare for Heads of
Government meetings) Prime Minister Office (PMO)
with MEA (India) White House with State
Department (USA)
US-India Financial (to focus on strengthening
cooperation in the financial sector to mutual
advantage and review developments in the capital
markets for promoting economic cooperation)
  Finance Minister(India)  Secretary of
Treasury (US)
US-India Commercial Dialogue (to facilitate
trade, maximize investment opportunities across
various sectors and to provide a forum for
discussing the emergent issues affecting
bilateral trade.) Minister for Commerce
Industry (India)  Secretary of Commerce (US)
US-Indian Working Group on Trade (to enhance
cooperation on trade policy, examining individual
trade issues in greater depth with the
participation of other agencies having
corresponding responsibilities and through
creation of sub-groups)   Ministry of Commerce/
other Deptts. (India)   US Trade Representative
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Some more forums for bilateral cooperation.

• In addition to the above,
• (a) Joint Consultative Group on Clean Energy
  and Environment
• (b) US-India Science Technology Forum and
  (c) High Technology Cooperation Group (HTCG)
• Objective Promoting cooperation in High
  Technology So far three meetings held since 2003.
  The fourth meeting is scheduled to be held in May
  2005

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• THANK YOU