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Eye on the market

Print edition : Dec 03, 2010 T+T-
President Barack Obama with Reliance Anil Dhirubhai Ambani Group chairman Anil Ambani (left) and General Electric CEO Jeffrey Immelt at Trident Hotel in Mumbai on November 6 during the U.S.-India Business Council and Entrepreneurship Summit.-RAFIQ MAQBOOL/AFP

President Barack Obama with Reliance Anil Dhirubhai Ambani Group chairman Anil Ambani (left) and General Electric CEO Jeffrey Immelt at Trident Hotel in Mumbai on November 6 during the U.S.-India Business Council and Entrepreneurship Summit.-RAFIQ MAQBOOL/AFP

Obama exploits India's desire to strengthen ties with the U.S. to secure material concessions in return for mere signals of partnership.

PRESIDENT Barack Obama's visit could not have been more badly timed from India's point of view. Instead of bringing the promise of wealth during the festival season, Obama came to see what the United States could sell to India. Having just lost ground in the elections to the Senate and the House of Representatives, the U.S. President, whose popularity chart has been downward-bound, needed to show that he was not going to sacrifice the interests of American workers, burdened with a higher than 9 per cent unemployment rate, at the altar of friendship with India.

So, even before he left Washington, the President declared that his four-nation tour of Asia, which would take him to India, Indonesia, South Korea and Japan, would open up new markets for U.S. companies and create jobs at home. The primary purpose is to take a bunch of U.S. companies and open up markets so that we can sell in Asia, in some of the fastest-growing markets in the world, he reportedly said. In India, this seems to have been an easy objective to pursue, given the Indian government's desire to strengthen substantially the strategic India-U.S. friendship launched with the civil nuclear agreement of 2008. Obama seems to have managed to exploit that desire to obtain substantial material concessions in return for more intangible signals of partnership.

To give substance to his endeavour, India was host to one of the biggest U.S. business delegations to visit the country, consisting of around 200 chief executives of American corporations big and small. Much groundwork had already been done, and what followed was deal-making that is expected to deliver $9.5-billion worth of exports and a projected 53,670 jobs to the U.S. From C-17 Globemaster III military transport aircraft and Light Combat Aircraft engines to Harley Davidson motorcycles and technology for the Unique Identification Project, the list of potential exports from the U.S. to India is long. Whether the American people will be impressed is yet to be seen, but there is no reason for India to celebrate.

Concessions to the U.S. are not restricted to the export trade alone. India has once again declared its intent to relax regulations of foreign direct investment and create a new economic partnership in the 21st century. For example, the cooperation in agricultural research is to be extended in new directions. This, despite the fact that the earlier India-U.S. agricultural initiative has been extremely controversial, with questions raised about the lack of concern for protecting India's biodiversity and about commercialising agriculture in ways that have adverse implications for the nature and fallout of agricultural research and agricultural growth.

The exact form this collaboration is likely to take has not been made clear. But the joint statement from Prime Minister Manmohan Singh and Obama suggests that the agenda is far-reaching and open-ended. The collaboration will, it is claimed, (i) develop, test, and replicate transformative technologies to extend food security as part of an Evergreen Revolution; (ii) be in the areas of weather and crop forecasting system, improvement in the food processing and crop productivity, and optimum uses of natural resources like water; and, perhaps ominously, (iii) enhance the agricultural value chain and strengthen market institutions to reduce post-harvest crop losses.

And these are the declared concessions. It is known that the U.S. has been pressing for, and the Indian government has been signalling, liberalisation in areas such as financial services and retail trade. To prevent controversy during the visit, this has been kept for settlement on another date. U.S. Secretary of Commerce Gary Locke put it thus in an interview to The Economic Times: We did not raise those specific concerns. Our position on the issue has been fairly known. We were talking in more general terms, including barriers for FDI in India.

In the past, concessions of this kind were presented as a quid pro quo for the access expected to be provided to Indian firms in sectors such as software and the business services industry, for which the U.S. is an overwhelmingly dominant market. But Obama, by ideology and under pressure, is not keen on encouraging any expansion of either offshore or onshore delivery of such services. He gave no sign that there would be any rollback of the restrictions on H1B visas or of the higher fees imposed recently for such visas. All he did was distance himself from the view that Indian services exports were harming U.S. workers. There still exists a caricature of India as a land of call centres and back offices that cost American jobs. But these old stereotypes, these old concerns, ignore today's realities, he reportedly said.

Whether the persistence of unemployment and the rise of the Right will now pressure Obama to change his view and extend restrictions on services exports, as has been done by some states with respect to government contracts, is yet to be seen. But such a move is possible, especially as the next presidential election nears. In sum, the reciprocity argument can hardly be used to justify the substantial gains that the U.S. makes.

What then has India got to warrant the official celebratory response to the U.S. President's visit? Largely, a set of intangibles that will deliver no exports or jobs. If there is a quid pro quo at all, it seems to be political and/or strategic. One example of that is the date-undefined (in the years ahead), still-tentative (look forward) endorsement of India's potential permanent membership of a reformed United Nations Security Council.

The United Progressive Alliance (UPA) clearly sees this as one such gain, as suggested by reports of the enthusiastic response to Obama's statement on the issue in his speech to Members of Parliament. That such membership would hardly make India an important global player so long as its workers are without jobs and its children are out of school hardly bears stating. Yet such signals seem to be extremely important for a section of India's elite.

So there was no dearth of them. Another declaration by the President was U.S. support for India's full membership in four multilateral regimes the Nuclear Suppliers Group (NSG), the Missile Technology Control Regime, the Australian Group and the Wassenaar Arrangement. This alone, however, does not guarantee membership since other members are involved and it may require some bending of the rules in certain cases.

It needs to be noted that some of these gains are not really concessions by the U.S. but rather (i) new ways of opening up markets in India for U.S. exports; and (ii) an implicit request calling India to become a strategic partner and military ally of the U.S. in international politics. For example, there are good reasons to believe that the decision to lift the restrictions on the export of supposedly sensitive equipment to India and remove Indian firms from the sensitive target list was geared to drive U.S. exports to India and to be presented as an effort to expand U.S. employment (even if marginally).

The point to note is that this process has been under way for a long time. From more than 200 categories of firms in the list of India's defence and space entities that were subject to severe technology licensing restrictions, the number had come down to four. Three more sets of these, consisting of organisations under the Defence Research & Development Organisation (DRDO), four subordinates under the Indian Space Research Organisation (ISRO), and Bharat Dynamics Limited, have now been taken out.

This has been presented as a major victory for India since it has been pressing for this relaxation for quite some time. But one must note that this comes at a time when the government has been seriously thinking of reducing restrictions on private participation in defence research and military production. Given the huge military-industrial complex in the U.S., where it does have substantial technological and competitive advantages, it is bound to be eyeing the opportunities that any such transition would afford. Not surprisingly, the U.S.-India Business Council hosted a high-profile meeting of the Seventh U.S.-India High Technology Group just before Obama's visit.

There are political gains projected for the U.S. too. Winning India as a strategic ally not only would help in its efforts to contain China's rise, but could have implications for the positions that India will take on issues such as the soured relations between the U.S. and Iran and West Asian geopolitics. If the trajectory of India's position on Israel is any evidence, this could lead to a further dilution of India's meticulously constructed autonomy and independence in the international arena. This is politically too high a cost to pay.

The belief that a declaration of friendship by a superpower under siege at home and faced with waning influence abroad is benefit enough to offer a range of economic and political concessions is, therefore, hard to understand. It could hardly be argued that jobs and employment are not a problem in India.

Given the overwhelming presence of surplus unemployed labour in agriculture and services and the stagnation of employment in organised manufacturing, some advance on the manufacturing employment front is crucial for India as well. However, India's rulers do not appear to be under the kind of pressure that the U.S. government seems to experience to at least make a show of trying to protect and expand employment.

Instead, the government basks in the glory of being among those chosen as friends by a superpower that is bruised even if still standing, not knowing what that friendship may imply.