The United States and India: A Partnership for the 21st Century

The United States (US) and India are building the foundations of an historic partnership. President George W. Bush’s India policy is premised on the belief that no other relationship will be more important in shaping the world of the 21^st century. It is a relationship based on shared interests and shared values and touches a wide variety of areas.

Our defense and security relationship has expanded dramatically in just a few years as we work together to combat terrorism, a threat to both our countries. The bombings in New Delhi, Varanasi, Mumbai and, more recently, Malegaon underline the urgency of this task.

India is rising faster than many expected. Economic growth remains consistently strong; new investment is coursing in and our growing trade relationship has expanded 22 percent so far this year alone and 20 percent last year.

US-India Civil Nuclear Agreement

A key element of our recent cooperation is the US-India Civil Nuclear Agreement. The Agreement will help India meet its long-term energy needs and manage its rapidly growing demand for hydrocarbons, regularize India’s relations with other nuclear regimes and position India to play an enhanced role in the international system, stimulate opportunities for US and Indian businesses and enhance scientific cooperation between the United States and India.

India’s recent debates in Parliament and the legislative process in the US Congress show the power of democracy in forging an initiative that will fundamentally alter our relations. Prime Minister Manmohan Singh’s Parliament speeches reflect India’s growing confidence as a leader in international relations and a major player in civilian nuclear power.

Legislation is moving through the US Congress to implement this agreement. The House and Senate have both marked up bills and voted them out of Committee for floor action by large majorities from both parties. The House voted 359 “for” versus 68 “against” on the floor; we anticipate a large majority of the Senate will support the legislation when they vote this fall.

We are working with the Congress to produce an Act that reflects the spirit and terms of Prime Minister Singh’s and President Bush’s original agreement on civil-nuclear cooperation—an agreement made in the spirit of partnership and that will proceed in that same spirit.

In order for the change in law to become effective, the United States and India must complete negotiations on a bilateral Agreement for Peaceful Nuclear Cooperation (known by US lawmakers as a Section 123 Agreement) after which it will be subject to an “up or down” vote in the US Congress.

India and the United States must move forward on this legal framework expedi­tiously, working hard to complete the process before the present Congress completes its term this year.

The changes in US laws will bring about a cascade of revisions in India’s international status—opening the nuclear market not only for American companies, but also for the entire international community. This will require the Nuclear Suppliers Group to alter its rules to allow civil nuclear commerce with India. In addition, India will conclude a safeguards agreement and an Additional Protocol with the International Atomic Energy Agency (IAEA), a sign of its commitment to nuclear nonproliferation.

India is emerging from isolation and pioneering a new era for its energy needs. The Prime Minister has stated that nuclear reactors could generate up to 40,000 megawatts by the year 2020, an enormous increase in generating capacity that will help India meet its growing demand for electricity without relying on dirty, carbon-emitting coal. This will further improve India’s economy and the lives of all its citizens.

Economic Cooperation and Reform

While the civil-nuclear agreement may symbolize the growing cooperation between India and the United States, it is only one part of our accelerating partnership. The fundamentals of this partnership are people-to-people and company-to-company based, reflecting the partnership’s profound significance.

More than 80,000 students have chosen to study in the United States this year—an indication of the strength of India-US ties. A growing number of American scientists, academics and students are also choosing to focus their research and studies in India.

Other strong indicators of the health of our partnership are measured by the long-term business alliances being forged by Indian and American partners, customers and clients every day. Investments happening throughout India illustrate the synergies that occur when each economic actor truly benefits. Such collaboration has extended throughout India and across most sectors of the economy. US businesses long active in India’s services, IT, and manufacturing sectors such as Boeing, GE, IBM and Ford are making significant new investments.

New companies, not just established multinational companies, are entering the Indian market as well. Embassy New Delhi’s Foreign Commercial Service office was ranked number one in the world last year in helping close new deals and the same result is expected this year.

We are in the planning stages of a US trade mission to India in November that may be the largest such overseas mission ever to any country. US business is looking to India; an impressive array of corporate leaders will be coming for that event.

These breakthroughs reflect in part the results of new policies embraced since 1992 and supported by successive Indian governments. Today’s business environment in India is more favorable to trade and investment. However, there have been signs of a pause in the reform process in recent months. Privatizations have stopped, and political reality suggests that reform of other key sectors and policies of central interest to investors will take longer than envisioned.

It is important to bear in mind the serious economic costs of any loss of momentum on the reform front. The Prime Minister has expressed his hope for even higher than eight percent growth per annum for India. But he has also indicated that higher growth requires continued reforms. The World Bank still ranks India 134 out of 175 among countries for the difficulties of establishing or operating a business, and US firms have many unresolved legacy issues involving prior investments in India.

There is a substantial body of capital waiting to be invested in India if the right conditions materialize. One needs only to think of the positive impact on the future rate of economic growth from large-scale retail and financial liberalization to appreciate India’s potential.

India has one of the most rapidly growing stock exchanges in the world, attracting large foreign institutional investment inflows that reflect portfolio investor interest in India’s near-term performance. Slow growth of foreign direct investment, on the other hand, “bricks and mortar” investment, reflects continuing investor concerns about govern­ance issues and India’s reform process.

The United States is the largest foreign direct investor in India, a considered bet on this country’s future. US-Indian trade has increased by 22 percent this year, and we have agreed on a target of doubling Indo-US trade in three years.

India must advance in three critical structural areas in order to sustain the growth rates of recent years, create jobs and improve the lives of average Indians: energy, infrastructure and agriculture.

In agriculture in the past decade, India has decreased public investment (as a percent of GDP) and embraced policies that discourage private investment in the sector. These include an array of market regulations and licensing requirements that have discouraged private investors from investing in crop storage, transport of farm goods, food processing and retail distribution. The US-India Agricultural Knowledge Initiative formed in 2005 by Prime Minister Singh and President Bush aims to re-energize our earlier agricultural partnership by promoting teaching, research and commercial linkages to address contemporary challenges. It also supports joint efforts in grades and standards to move Indian agriculture more closely in line with international standards and certification. Private investment in agriculture would create many new jobs.

American firms can help India meet these structural challenges. In energy, India has set an ambitious goal of almost doubling energy production over the next six years.  American firms are world leaders in clean coal technology, power transmission and electricity production and can help India meet its future energy needs. The US-India energy dialogue and its five working groups—civil nuclear, coal, oil and gas, power and renewable energy—are working toward the goal of encouraging private sector participation in energy development.    

A sound physical infrastructure, whether in roads, industrial and office buildings, housing, telecommunications, or simply moving documents and products quickly, is essential for India in the 21^st century.

The solution to attracting much greater private sector investment in energy and infrastructure development is a blend of policies that includes better governance, market sensitive regulatory regimes, continued liberalization of the financial sector that enables foreign and domestic private capital to finance major projects, and the timely resolution of investor-state disputes.

A meeting of the US-India CEO Forum took place in New York on October 25. The purpose was to review progress made by both governments on the recommendations presented last March to the Prime Minister and the President targeting significant blockages to greater economic activity between our two nations. Both governments need to demonstrate tangible progress if the Forum is to remain relevant.

Ultimately, the pace of future growth in India will hinge upon the continued sound economic policies of the Indian government, and of those state governments who are seriously committed to attracting foreign trade and investment.

Conclusion

Despite the often baffling procedural movements and debates in American politics, the US-India Civil Nuclear Agreement will be honored. The goal posts are not being moved; it is a civil nuclear agreement and when finally implemented, it will mark a new level of trust and cooperation in the Indo-US partnership.India is drawing more serious attention from international capital than ever before in its history—a tribute to the ingenuity and dynamism of its people and institutions. To sustain the growth of trade and investor confidence, it is important for the government to stay the course with the reforms the Prime Minister and his team have mapped out.

India and the United States have come a long way together in the past two years—there is much more to come. Our progress is a result of the vision of our two leaders and the vision and energy of our people.