Strategic Economic Partnership”: Kowtowing
To American Big Business
By Prasenjit Bose
22 April, 2006
Report of the US India CEO Forum titled “US-India Strategic Economic
Partnership”, which was released during the recent Bush visit,
has not attracted much media attention in contrast to the hype over
the nuclear deal. The CEO Forum was formed during the Visit of the Prime
Minister Manmohan Singh to the US in July 2005 with “a mandate
to develop a road map for increased partnership and cooperation between
the two countries at a business level”. The roadmap unveiled in
the Report, however, goes much beyond partnership and cooperation between
the Indian and the American corporates. It seeks to rework entire policy
frameworks governing almost all the major sectors of the Indian economy.
The fact that a majority
of the recommendations of the CEO Forum are related to changes sought
in Indian laws and regulations and only a few are meant for the US Government
shows the unequal structure underlying the economic partnership. The
Indian corporates led by Ratan Tata (co-chair of the CEO Forum) have
happily accepted this junior partnership to US big business as the most
convenient means of their class development in the current global setting.
The joint declaration issued by the Prime Minister along with the US
President welcomed the CEO Forum Report, agreeing to consider its recommendations
and directed the Chairs of the Indo-US Economic Dialogue to “follow
up expeditiously with the CEO Forum”. The Deputy Chairman of the
Planning Commission (who co-chairs the Indo-US Dialogue) lost no time
in announcing the formation of twenty-six committees to carry forward
each of the recommendations meant for India. This zealous haste implies
that the Government wants to implement at least some of the recommendations
before the US visit of the Prime Minister later this year.
Being faithful adherents
of neoliberalism, the Prime Minister and the Deputy Chairman of the
Planning Commission seem to believe that what is good for American and
Indian big business is also good for the people of India and the Indian
economy. A closer look at the recommendations of the Report not only
exposes the fallacies of neoliberal thought but also points towards
several imminent measures which would take the UPA Government further
away from the vision underlying the National Common Minimum Programme.
Recommendations of the CEO Forum
The recommendations of the Report are summarised under the last section
of the Report titled “Enabling Environment”. The creation
of an enabling environment is premised upon the usual prescription for
greater liberalization: “tariff and non-tariff barriers to be
reduced in respect of all products, agricultural and manufactured, over
a specified period of time by the US and India”. Underlying this
formulation is the completely misplaced notion harboured by Indian corporates
that there is a convergence of interests between India and the US as
far trade liberalization is concerned. The role played by India during
the Hongkong Ministerial Conference of the WTO betrayed a similar understanding
currently prevailing within the Indian policy establishment that India
would benefit immensely from liberalization of services and therefore
it is justifiable to concede ground to the developed countries in return,
in terms of tariff reduction in industry and agriculture. This shows
that the Indian corporates are willing to trade off the interests of
the overwhelming majority of our people in their narrow self-interest.
A closer scrutiny of the
30 recommendations made by the CEO Forum reveal that only 4 recommendations
are directly related to some concrete benefit accruing to India and
its corporate sector. These are as follows:
1. Transfer of high technology to India to be relaxed by the US government
in extension of COMSAT rules to India and ISRO.
2. US government to allow/accelerate
the transfer of dual use items/technologies.
3. US to pursue transfer of civilian-nuclear energy technology to India
to enable India to meet its energy needs and achieve energy security.
4. Liberalize the US visa regime required for service providers in IT
(H1B/L1), nurses (EB3), i.e. wherever U.S. is facing shortages of trained
personnel. Also, ease quantitative restrictions/yearly quotas of such
visas. Other impediments such as attestation requirements, reduction
of periods of stay and prescriptive wage levels may be dispensed with.
These comprise most of what the Indian corporates seek to achieve through
the strategic economic partnership with US big business. If this ultimately
translates into actual policy changes in the US, which seems unlikely
anyway, benefits would be restricted to some transfer of technology
in space research and nuclear energy and a few thousand more US visas
for skilled personnel in sectors like IT, Healthcare etc.
In addition there are a few
recommendations, which are meant either for the US or to be jointly
acted upon by the US and the Indian Government. These are:
1. US to consider instituting a new business facilitator proposal to
support US companies.
2. Both countries need to make tourist visas easier to obtain.
3. India-US Dual Taxation Treaty to be revised to include state taxes
and federal social security/Medicare deductions.
4. Indian IT firms should be permitted to bid for US technology programs
after receiving appropriate clearances.
5. The Indian & US economies to be opened up further for freer trade
in services and products. Dialogue to be initiated on a US–India
FTA to take bilateral trade and investment to a new level.
These may provide some benefits to the Indian corporates, especially
the IT and Tourism sector. The effort is clearly to lure India into
greater trade liberalization by making some concessions to some of the
successful Indian exporters in the Services sector.
The rest of the 21 recommendations
are all exclusively for India. Most of them are in the form of demand(s)
for policy changes related to specific sectors of the Indian economy
to the obvious benefits of the US corporates. They are as follows:
Infrastructure: i. Need to foster speed, efficiency
and transparency in the bidding process for BOT contracts in infrastructure
Power: i. Need for Indian power sector reforms to ensure
sanctity of contracts, encourage competition, promote market-driven
tariffs and separate regulatory and adjudication authorities.
Insurance: i. Insurance Industry FDI cap to be reviewed and raised by
Banking: i. Consider allowing FDI in Indian private
sector banks; schedule for liberalization to be advanced from 2009.
ii. Restrictions on expansion/new branches by Indian banks in the US
to be removed/norms liberalized.
Retail Trade: i. Further liberalization of FDI in retail
in India to be considered.
Oil & Gas: i. The proposed Petroleum and Gas Regulatory
Board Bill to be enacted in India. ii. The Indian Natural Gas Pipeline
Policy to be adopted.
Real Estate & Urban Development: i. India to consider
reducing restrictions on FDI in the Real Estate Sector. Also move ahead
on urban land reforms, streamline the regulatory, tax and duty structure,
revamp stamp duty and title registration regimes and reconsider change
of use restrictions as was done in the US for decaying cities.
Telecom: i. India to pursue truly technology-neutral
policies in telecom, and ensure a level playing field so as to allow
the full range of private telecom companies and public sector(Government
owned) companies to compete fairly and fully.
IT: i. Licensing requirements for certain information
sector products and for services, which support business activity, should
be reviewed and eliminated by the government of India.
Media: i. Elimination of
FDI caps in sectors such as print media, broadcasting, cable and satellite
systems and e-commerce to be considered by government of India.
Defense Procurement: i. The Offset Policy of India
needs to be framed considering global best practices and the use of
The other recommendations
of the CEO Forum seek changes in the Indian judicial system, and the
Intellectual Property regime along with changes in tax and company laws.
Judicial Reform & Regulatory Framework: i. Strengthen
the Indian judicial system to address case backlog, expedite legal proceedings,
address the issue of no limit on the number of adjournments, inadequate
number of judges, large number of court holidays and civil infrastructure.
ii. Strengthen the regulatory environment in India, to be clear and
consistent with legal enforcement through special courts at both Central
and State levels. iii. Need to resolve commercial and contractual disputes
quickly through an independent tribunal under the Arbitration and Conciliation
Intellectual Property Regime: i. Specialized IPR courts
to be established to enforce IPR laws. ii. India needs to develop a
TRIPS compliant IP system and IP protection, especially for software
and published materials, print or electronic.
Company Law: i. Review the Indian Companies Act, with
respect to provisions relating to private companies, as many US companies
are privately held.
Taxation: i. India to consider treating dividends received
from overseas companies in the hands of an Indian resident at par for
tax as domestic dividends, so as to make outward FDI no less attractive.
Visa Regime: India to consider providing visas for
up to five years and removal of FRO/FRRO requirements for US citizens
to report physically once a year.
One of the reasons that have
prompted the Indian corporates to endorse such a skewed ‘partnership’
heavily loaded in favour of the US corporates is the perceived need
to attract more FDI from the US. Ratan Tata, who co-chairs the CEO Forum,
also chairs the Investment Commission set up by the Prime Minister.
This Commission has recently submitted a Report, which has underlined
the need to attract FDI over $ 70 billion in order to sustain a GDP
growth rate of 8% over the next five years. Given the fact that India
has attracted FDI worth around $ 38 billion between August 1991 to January
2006 (of which FDI from US is less than $ 5 billion), the target set
by the Investment Commission seems totally over-ambitious.
India has not been able to
attract larger volumes of FDI, especially in comparison with countries
like China, South Korea or Malaysia, despite having a much more liberal
FDI regime. India has foreign ownership restrictions in very few sectors
and 100% FDI is permitted in most sectors through the automatic route.
China, which has a far more restrictive regime where FDI proposals are
approved on a case-by-case basis and foreign ownership is restricted
in many sectors, has been able to attract more than ten times the volume
of FDI that India attracts annually. Rather than reviewing this experience
properly, Indian corporates are prodding the policymakers to move towards
lifting whatever little regulation that exist in India vis-à-vis
foreign capital. The effort is to increase the share of FDI not through
greenfield investments like in China but by facilitating the takeover
of Indian companies by US based MNCs through mergers and acquisitions,
a policy that was followed by Brazil in the late 1990s to its own detriment.
Besides failing in its objective to meet the over-ambitious FDI target,
the adoption of such a policy course would neutralize the benefits of
FDI accruing to the Indian economy in terms of technological advancement
and generation of skilled employment.
“Strategic Economic Partnership”: Implications for
The Forum has identified
6 major areas for cooperation. These include Physical Infrastructure
Development, Energy Security, Human Resource Development, Technology
Exchange, Trade and Industry Promotion and Intellectual Property Protection.
Cooperation in Physical Infrastructure Development involves setting
up of a $ 5 billion private sector Infrastructure Fund (minority Government
participation) with the participation of US companies to fund infrastructure
projects under the supervision of multilateral agencies like the World
Bank, ADB and IFC. There are further proposals to involve the US in
the development of Mumbai into a ‘Regional Financial Centre’
and the setting up of large scale Special Economic Zones. The Forum
has called for a change in the bidding process for infrastructure projects
to foster ‘speed, efficiency and transparency’. What this
implies is that the development of infrastructure in India, especially
key infrastructure projects like roads, sea and airports and Special
Economic Zones etc will be undertaken by the private sector with US
corporate lending through the Infrastructure Fund.
Besides the fallacy in assuming
that the Government of India lacks adequate resources to develop such
infrastructure through public investments, which underlies the logic
of such ‘Private-Public Partnerships’ (PPP), the problem
with such a model of infrastructure development lie in the conditionalities
that come along with private funding in terms of high cost borrowing
which are passed on as high user charges (higher toll taxes for roads
for example). Moreover, the fact that ‘flexible, internationally
competitive labour laws’ have been demanded for the Special Economic
Zones to be set up under PPP also point to such objectionable conditionalities.
In the area of Energy Cooperation also the conditionalities have been
clearly specified. The precondition set for further infusion of US capital
into the Power and Oil sector is the promotion of a ‘market driven’
structure of power tariffs and pricing of petro products. A US-India
private sector Task Force comprising power companies has been proposed
to work with the Central and select State Governments to “facilitate
on-time implementation of investments being made and resolution of legacy
disputes in the Indian power sector”. An early passage of the
Petroleum and Natural Gas Regulatory Board Bill has been advocated.
It is clear that further neoliberal reforms in the Power and Oil sector
to benefit the US corporates have been accepted as a quid pro quo to
cooperation in civilian nuclear energy and ‘clean fuel’
between the US and the Indian Governments.
Cooperation in Human Resource
Development, besides involving US institutions of higher learning like
MIT, Lincoln Labs, Bell Labs, John Hopkins and Carnegie Mellon to set
up research institutions and Phd programmes in India has also proposed
to upgrade the ITIs with the cooperation of the US companies. However,
such cooperation also comes with the precondition of giving private
educational institutions a “free hand in terms of fees, course
structure and affiliations”. While the CEO forum has called for
relaxation of US norms for transfer/export of high technology to India
including dual use categories (like advanced electronics, semiconductor
technology, aviation related technology, key software systems and equipment),
removal of restrictions on R&D collaboration by the US companies
and encouragement to R&D collaboration in product design and development
as well as agricultural research, such transfer of technology and R&D
collaboration is envisaged only under a drastically restructured Intellectual
Property Protection regime in India. For instance, on cooperation in
biotechnology the Report says, “Partner in Biotechnology by jointly
developing a regulatory pathway to ensure regulations surrounding the
sector are based on sound science, are transparent and supportive of
policies that encourage investment in and commercialization of biotechnology,
and promote trade in biotech goods and services. Both countries (i.e.
US FDA working with the Indian FDA) should harmonize legislation to
provide opportunities and protection for US as well as Indian companies
in biotech related IPR.”
of legislations related to Intellectual Property Protection between
India and the US has serious implications for India. The CEO Forum Report
says, “Intellectual Property Rights (IPR) protection has separated
and divided US and Indian businesses in the past but there is an increasing
convergence in the approach to IPR and supporting legislation. There
is now a mutual, agreed agenda to frame laws, rules and processes to
sustain the highest standards of protection to the inventor or the organization,
which invests in IP. The next ten years can witness a new surge in partnership
in IPR between the U.S. and India which includes mutual cooperation
in IPR implementation and enforcement as well as building a ‘patents’
culture.” (Emphasis added). The key institutional changes which
have been suggested by the CEO Forum in order to usher in a ‘patents
culture’ in India includes setting up a national unit dedicated
to IPR enforcement (HRD and I&B Ministries have been asked to take
the first steps in coordinating the IPR enforcement efforts as a first
step) and setting up of specialized Intellectual Property Courts to
handle both civil as well as criminal cases related to IPR. A particularly
significant recommendation calling for a “national initiative
to crack down on piracy in the educational and research sectors”
has been made in the Report. The report says, “The Ministry of
Human Resource Development (and other relevant ministries, such as Health,
for medical schools) could issue directives to all public and private
educational and research institutions to stop using unauthorized photocopies
of books and journals; take action against on-campus copy-shops engaged
in illegal activity; and report periodically to the Ministry on what
steps have been taken. This data would form the basis for more targeted
efforts in the future.” Whether such an initiative is at all possible
in India is another matter; but the fact that the Indian corporates
could agree to such a proposal show how much they are out of sync with
the Indian reality.
The seriousness with which
the IPR regime and the policy framework is sought to be restructured
by the CEO Forum is evident from the section on the pharmaceutical sector
in the Report. A Report recently prepared by a Task Force under the
Chairmanship of Dr. Pronab Sen of the Planning Commission has recommended
that price controls be expanded to every medicine on India’s Essential
Drug list. It has further recommended that patented medicines be subject
to a price monitoring system with mandatory price negotiations and compulsory
licensing if agreement on the price cannot be reached. Also, the task
force has suggested that if a medicine reaches a certain volume it should
be genericized. Besides calling for a review of the pharmaceutical price
controls policy the CEO Forum Report has specifically challenged the
Task Force recommendations. On the recommendation of genericization
of an essential drug once its sale exceeds a specified volume the CEO
Forum Report says, “Although the industry is confident that this
particular recommendation will most likely not be adopted, it is troubling
as it could portend future anti-industry actions by the government”.
The lopsided nature of the
Indo-US business partnership is best manifested in the cooperation on
Trade and Industry Promotion. The most important demand is for reducing
restrictions on foreign investment. The demands to expedite the decision
to allow FDI in the Retail sector in India as well as an accelerated
timetable for raising the FDI caps in the Insurance and Banking sectors
have been specifically articulated vis-à-vis the Government of
India. These have been demanded along with a call for liberalizing the
US visa regime for service providers, particularly for IT (H 1B/L 1)
and nursing staff (EB3). This bargain between the Indian and the American
corporates also underlies the ongoing collaboration between the Indian
and the US Governments on the GATS negotiations in the WTO. For a few
thousand more US visas for IT professionals and nurses in India, which
would solely benefit the IT and private healthcare sectors, the Indian
corporates are arguing on behalf of the US multinational retail giants
like the Walmart and US based transnational banks and insurance companies
for the further opening up of these sectors in India. The interests
of the millions of Indians who are employed in the retail sector, especially
in unorganized retail, or the security of the savings of millions of
Indians in the banks and insurance companies, which have so far been
protected by extant Indian regulations, are being sacrificed.
The role of the American
and Indian corporates in the Defence sector has been increasing under
the ongoing Indo-US Defence Cooperation. The CEO Forum report states
that “with the opening of defense supplies from the US to India,
there are new opportunities emerging for private sector defense cooperation”.
In order to address the insecurity about the reliability of US Defence
supplies, the CEO Forum has envisaged the integration of “Indian
private sector companies into the global supply chain of US defense
manufacturers, combined with co-production”. In return the adoption
of a “liberal offset regime” in India has been demanded,
which would imply a dilution of the current Indian policy which requires
direct offsets for defence purchases over Rs 300 crores. Thus the lure
of cooption of some Indian corporates as junior partners into the military-industrial
complex of the US is being used to make India a major buyer of US defence
The setting up of a Dispute
Settlement Mechanism in India, with the “power and jurisdiction
to resolve commercial and contractual disputes quickly” has been
proposed in the Report. The Report says that “An independent tribunal
formed through the Arbitration and Conciliation Act 1996 should be a
forum for dispute resolution. Specific focus on resolving legacy issues
such as those impacting Dow/ Bhopal tragedy of 1984 and the Tamil Nadu
IPPs would send a strong positive signal to US investors.” It
is clear that a parallel judicial system favourable for the corporates
and unaffordable for the bulk of Indians has been envisaged. Far from
providing any justice to the victims of corporate negligence and crimes,
like the Bhopal Gas tragedy, this is meant to refashion the judicial
system to preempt any possibility of litigation against any company
by common citizens in the Indian courts in future.
The Report of the CEO Forum on “US India Strategic Economic Partnership”
has brought out clearly the class basis of the “strategic alliance”
that the UPA Government seeks to cement with the US. This junior partnership
to the US, especially American big business, while serving the interests
of the Indian corporates who have forsaken all pretensions of autonomous
development, would be severely detrimental to interests of the Indian
people. Indian big business, which had suffered a jolt in the aftermath
of the 2004 Lok Sabha elections when their darling, the NDA Government,
was booted out unceremoniously, is seeking to push forward the discredited
neoliberal policies in India in a direct alliance with American big
business. It has to be ensured that the cheerleaders of neoliberalism
within the UPA government are prevented from taking this anti-national
US-INDIA CEO Forum Members
JP Morgan Chase Tata Sons
Mr. William B. Harrison, Jr. Mr. Ratan Tata
Chairman of the Board Chairman
AES Corporation Apollo Hospitals
Mr. Paul Hanrahan Dr. Pratap C. Reddy
President & CEO Chairman
Cargill, Incorporated Bharat
Mr. Warren R. Staley Mr. Baba Kalyani
Chairman & CEO Chairman & MD
Citigroup Biocon Ltd.
Mr. Charles O. Prince Ms Kiran Mazumdar Shaw
Chairman & CEO Chairman & MD
Honeywell Inc. HDFC &
Mr. David Cote Mr. Deepak Parekh
Chairman & CEO Chairman
The McGraw-Hill Companies
ICICI One Source Ltd.
Mr. Harold McGraw Mr. Ashok Ganguly
Chairman & CEO Chairman
Parsons Brinckerhoff Inc.
Infosys Technologies Ltd.
Mr. Thomas J. O’Neill Mr. Nandan Nilekani
Chairman & CEO CEO
Pepsico ITC Limited
Mr. Steven Reinemund Mr. Yogi Deveshwar
Chairman & CEO Chairman
Visa International Max India
Mr. Christopher Rodrigues Mr. Analjit Singh
President & CEO Chairman
Xerox Inc. Reliance Industries
Ms. Anne Mulcahy Mr. Mukesh Ambani
Chairman & CEO Chairman & MD