Remarks by Franklin L. Lavin
Under Secretary of Commerce for International Trade
Confederation of Indian Industries
Hyatt Regency, New Delhi, India
December 4, 2006
Thank you, President Seshasayee for that kind introduction. It is a pleasure to be here. I would like to begin by thanking CII for your outstanding support for both the Mumbai Business Summit and our entire India Business Mission. From the outset, you have been with us, planning, coordinating and assisting us in making it the success it has been.
The active involvement of CII in this Mission and in extending the Commercial Dialogue matter a great deal. In particular, I would like to thank you for your invaluable sponsorship of the medical device harmonization and pharmaceutical anti-counterfeiting sessions here in New Delhi today and tomorrow.
Perhaps we should take a step back and remember 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. This Mission was our response on the promotion side. Along with me this week are some 250 American executives ready to do business, and I believe this Mission has been productive for them.
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 never been to India, so it’s clear that we’ve helped get them thinking.
Good News and Good Progress
In a sense, organizing a business Mission has not been overly difficult since now is the right time to be focusing on India. For some 15 years India has enjoyed high rates of economic growth. 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 is 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 which are making India a more inviting place to invest and do business:
1) In civil aviation, the U.S. and India signed an open skies agreement that has increased the number of flights and passengers traveling between our countries 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) And, in the past two years, India relaxed investment caps in areas like telecommunications, single brand retail and civil aviation.
5) I’m also pleased to hear that the Indian government has introduced legislation that would allow foreign educational institutions to offer courses in India. This should provide substantial benefit to Indian students and to the Indian economy.
At the same time, challenges exist. Let me suggest a few steps that will allow for a better environment for business and improve the lives of Indians.
- 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 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 that Indian consumers deserve.
Remember, these are as much of about infrastructure as it is a benefit to consumers. For example, it’s the long-term funding insurance companies provide that pays for infrastructure development.
- The same could be said for the telecommunications sector, where greater foreign participation will mean more choices and lower rates.
Overall, 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.
- 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. 4 percent average.
- Third, laws that protect patents and copyrightswill encourage Indian entrepreneurship and creativity. India’s patent law is not up to the standards of the 21 st century marketplace, and India’s copyright law is not up to WIPO standards. Robust intellectual property rights protection is essential to encourage the investment of foreign technology into India.
I hope I don’t undermine the upbeat mood of this lunch by reminding us of some unpleasant facts. 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;
- Eliminating non-tariff barriers to trade in areas such as medical devices; and
- Allowing open access to foreign broadcasting and cable TV.
In all these areas, CII and the U.S. industry should be working in common cause. American companies don’t want to just be competitors. They also want to be collaborators. Not only do they want to be investors in infrastructure, they want to help build it. They don’t want to just simplify tax obligations, they want pay taxes in a clear, consistent manner. And American companies don’t desire to just have their intellectual property protected, but to provide the latest technology and the best products and services. What we seek is both in America’s best interest and yours.
Every progressive policy change will help both U.S. companies and Indian companies, and, we should add, India, as a whole. That’s how it works – we all benefit from greater participation.
Let me conclude with this thought. 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 am concluding our 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 transactions result. The Department of Commerce will be tracking this and following up with companies that have participated in the Mission. I know that American companies have much to offer to Indian customers, and I’m pleased that I have been able to open 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.