[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
U.S. INDIA RELATIONS: DEMOCRATIC PARTNERS OF ECONOMIC OPPORTUNITY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ASIA AND THE PACIFIC
OF THE
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
MARCH 15, 2016
__________
Serial No. 114-159
__________
Printed for the use of the Committee on Foreign Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.foreignaffairs.house.gov/
or
http://www.gpo.gov/fdsys/
______
U.S. GOVERNMENT PUBLISHING OFFICE
99-469PDF WASHINGTON : 2016
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON FOREIGN AFFAIRS
EDWARD R. ROYCE, California, Chairman
CHRISTOPHER H. SMITH, New Jersey ELIOT L. ENGEL, New York
ILEANA ROS-LEHTINEN, Florida BRAD SHERMAN, California
DANA ROHRABACHER, California GREGORY W. MEEKS, New York
STEVE CHABOT, Ohio ALBIO SIRES, New Jersey
JOE WILSON, South Carolina GERALD E. CONNOLLY, Virginia
MICHAEL T. McCAUL, Texas THEODORE E. DEUTCH, Florida
TED POE, Texas BRIAN HIGGINS, New York
MATT SALMON, Arizona KAREN BASS, California
DARRELL E. ISSA, California WILLIAM KEATING, Massachusetts
TOM MARINO, Pennsylvania DAVID CICILLINE, Rhode Island
JEFF DUNCAN, South Carolina ALAN GRAYSON, Florida
MO BROOKS, Alabama AMI BERA, California
PAUL COOK, California ALAN S. LOWENTHAL, California
RANDY K. WEBER SR., Texas GRACE MENG, New York
SCOTT PERRY, Pennsylvania LOIS FRANKEL, Florida
RON DeSANTIS, Florida TULSI GABBARD, Hawaii
MARK MEADOWS, North Carolina JOAQUIN CASTRO, Texas
TED S. YOHO, Florida ROBIN L. KELLY, Illinois
CURT CLAWSON, Florida BRENDAN F. BOYLE, Pennsylvania
SCOTT DesJARLAIS, Tennessee
REID J. RIBBLE, Wisconsin
DAVID A. TROTT, Michigan
LEE M. ZELDIN, New York
DANIEL DONOVAN, New York
Amy Porter, Chief of Staff Thomas Sheehy, Staff Director
Jason Steinbaum, Democratic Staff Director
------
Subcommittee on Asia and the Pacific
MATT SALMON, Arizona Chairman
DANA ROHRABACHER, California BRAD SHERMAN, California
STEVE CHABOT, Ohio AMI BERA, California
TOM MARINO, Pennsylvania TULSI GABBARD, Hawaii
JEFF DUNCAN, South Carolina ALAN S. LOWENTHAL, California
MO BROOKS, Alabama GERALD E. CONNOLLY, Virginia
SCOTT PERRY, Pennsylvania GRACE MENG, New York
SCOTT DesJARLAIS, Tennessee
C O N T E N T S
----------
Page
WITNESSES
Alyssa Ayres, Ph.D., senior fellow for India, Pakistan, and South
Asia, Council on Foreign Relations............................. 5
Mr. Sadanand Dhume, resident fellow, American Enterprise
Institute...................................................... 18
Mr. Richard M. Rossow, senior fellow and Wadhwani Chair in U.S.-
India Policy Studies, Center for Strategic and International
Studies........................................................ 28
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Alyssa Ayres, Ph.D.: Prepared statement.......................... 8
Mr. Sadanand Dhume: Prepared statement........................... 20
Mr. Richard M. Rossow: Prepared statement........................ 31
APPENDIX
Hearing notice................................................... 48
Hearing minutes.................................................. 49
Alyssa Ayres, Ph.D.: Material submitted for the record........... 50
U.S.-INDIA RELATIONS: DEMOCRATIC PARTNERS OF ECONOMIC OPPORTUNITY
----------
TUESDAY, MARCH 15, 2016
House of Representatives,
Subcommittee on Asia and the Pacific,
Committee on Foreign Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 o'clock
p.m., in room 2172 Rayburn House Office Building, Hon. Matt
Salmon (chairman of the subcommittee) presiding.
Mr. Salmon [presiding]. The subcommittee will come to
order.
Members present will be permitted to submit written
statements to be included in the official hearing record.
Without objection, the hearing record will remain open for 5
calendar days to allow statements, questions, and extraneous
materials for the record, subject to the length limitation and
the rules.
The U.S.-India relationship can be characterized simply as
one of enormous potential. It is in the interest of this
subcommittee and the United States to see democratic societies
prosper, and it is because of this view that India is a natural
partner for the United States. The 1.3-billion-person nation
has become the focus of U.S. trade and business opportunity.
People-to-people connections between the two countries
undergrid and bolster this relationship.
As a growing military power, India is also a critical
global security partner with the potential to help avert
military confrontation and conflict in the Indo-Pacific region.
Indeed, both the United States and India recognize the
potential partnerships between the world's fastest-growing
large economy and the world's most powerful economy.
In light of this, we should expect that bilateral trade has
much more room to grow. We convene this hearing today to
discuss the U.S.-India economic relationship. Trade in goods
and services has ballooned between 2005 and 2015. Both
countries have prioritized the economic relationship, aiming to
reach $500 billion in bilateral trade in goods and services by
2024, a fivefold increase from the 2014 level.
To achieve this, it is greatly important that India
continue substantive economic reform by opening its markets,
but substantive challenges remain, including speculation about
India's domestic growth products, prospects, limits to market
accessibility, and concerns about intellectual property rights
protection.
When Prime Minister Modi came into power in 2014, he
shouldered high expectations for an economic transformation.
While his leadership continues to hold the promise of a new
economic era for India, observers have become frustrated with
the slow pace of reform. India's economic growth rate at 7.6
percent will not be enough to generate sufficient jobs for
India's exploding population of young people.
On top of that, these issues are exacerbated by an
overbearing and corrupt bureaucracy, insufficient
infrastructure development, heavy regulation, and high social
spending. Meaningful reform has been hindered by domestic
policies and parliamentary gridlock.
A critical component of India's economic reform will be its
involvement in multilateral economic institutions. India has
for 20 years shown an interest in joining the Asia-Pacific
Economic Cooperation, or APEC, a regional organization that
supports economic growth through free and open trade and
investment, promoting regional integration and encouraging
economic cooperation, among other things.
This has been an ambition that our Executive Branch has
welcomed and encouraged. To assist in accelerating the
relationship toward this goal, I plan on introducing a bill to
support India's membership in APEC this week. Thanks to my
colleague Mr. Bera, who has been working with me on putting
this bill together.
Our two countries are also in the midst of discussions on a
high-standards Bilateral Investment Treaty, or BIT. If
achievable, the BIT would deepen our economic relationship and
support economic growth and job creation in both countries.
These sorts of positive currents and potential achievements
for Indian economic policy would illustrate a movement toward
greater openness and harmonization with global free market
principles that will be beneficial to India and the U.S.-India
relationship and both of our economies.
Such reforms would pave the way to the accelerated growth
India needs, and the increased openness would allow our
countries to exploit our comparative advantages. Experts
estimate that a successful BIT agreement, for example, could
increase U.S. goods exports to India by 50 percent or more and
could double service exports. A successful BIT could even pave
the way forward toward a free trade agreement with India.
Despite the slow pace of reform, India's economy remains a
bright spot amidst global economic troubles, particularly for
developing nations. It is still the world's fastest-growing
large economy, and I look forward to hearing about the U.S.-
India economic relationship and the opportunities and
challenges that encompass it, and how the United States can
best support and nurture the bilateral economic relationship.
I would like to recognize Mr. Sherman for any opening
statement he would like to have.
Mr. Sherman. Thank you, Mr. Chairman. Thank you for holding
this important hearing.
With a population of 1\1/4\ billion people, India is the
world's largest democracy, the largest democracy in history.
Some 550 million people voted in the last nationwide elections.
When you look at the people of India, you see that many
have moved outside India to create a diaspora. Everywhere in
the world that diaspora is considerably more educated and
considerably wealthier than the country in which it is located.
In fact, the only place you can go to find a poor person of
Indian heritage is India. I am confident that, as India gets
better governance, it will emerge as one of the richer
countries in the world.
The United States and India share many core values,
including religious pluralism, individual freedom, the rule of
law, and electoral democracy, and both have rejected and are
working together against radical Islamic extremism. The Indo-
American community in the United States is a vital link between
the two countries and has helped build bridges. New Delhi has
played an important role in regional peace and security. Its
growing economic power adds to its ability to deal with
strategic issues.
India's growth path shows that it can be compared to China.
I used to be a business advisor and now and then give free
business advice to those of my constituents foolish enough to
ask me for it, and I pointed out that an investment in India
makes a lot more sense than one in China. In India you have the
rule of law. In India you also have the long-term stability,
messy as it is, of governing institutions.
The United States during the Great Depression showed that
democracy can survive a 20-, 30-, even 40-percent decline in
GDP. I do not think that a system of government built around a
party that got power by claiming to be the vanguard of the
proletariat, but now says it is not, could survive even zero-
percent economic growth for a year or two. So, while China
gives this image of stability, it does not have a system which
could explain to its people why certain individuals hold
positions of power.
Over the past decades, we have seen the U.S. work to bring
India out from nuclear isolation and, of course, increase
defense and security cooperation. The International Energy
Administration estimates that India will require $2.1 trillion
of investment in its power sector. Of course, India is looking
to develop its own oil and natural gas resources and is seeking
$25 billion of investment there. I want to do everything
possible to make sure that the tremendous amount of equipment
that is necessary for this power expansion is produced in
America by American workers.
I was one of 83 Members of Congress, along with at least
several people in this room, to urge that this House provide
Prime Minister Modi with the highest honor we can provide a
foreign leader, and that is an invitation to address a Joint
Session of Congress. While the schedule couldn't be worked out
last time, I look forward to hearing Prime Minister Modi while
sitting on the House Floor.
We look forward to expanding our trade relationship, which
is now at only $110 billion. I believe the Vice President and
others have announced the goal of expanding that to $500
billion of bilateral trade.
But I will point out that this has got to be balanced
trade, that the people of this country have, in case we haven't
noticed, risen to totally repudiate the trade policies that we
have followed so far, which are misnamed ``free trade.'' Every
single Presidential candidate with over 150 delegates has
absolutely repudiated the trade policy that has guided us over
the last 20 years. Now some of them have done it rather
reluctantly, but all of those who are still significant
candidates have done so.
So, the people of this country look forward to expanding
trade around the world on a balanced basis, not with the United
States running huge trade deficits. It will take a completely
different model of trade to achieve that. Those who come to the
American people and just say all trade is good, no matter
whether it is balanced or not, will be, have been utterly
repudiated by the people of this country.
And I yield back.
Mr. Salmon. Thank you.
Mr. Bera, did you care to make an opening statement?
Mr. Bera. Sure. Thank you, Mr. Chairman and the ranking
member.
I had a chance to travel to India with the chairman of the
subcommittee as well as the chairman of the full committee last
year and, then, recently returned to India a few months ago.
And you still feel the sense of optimism in India, the sense
that the economy, while it is not a straight shot, is still
quite vigorous and vibrant.
I think the chairman's leadership on the resolution that we
will be introducing this week to really encourage India's
joining of APEC, that probably is the next logical step as they
undergo the economic reforms and undergo much of the agenda
that Prime Minister Modi has put out there.
For us to realize this potential that both the President
and Vice President have said of creating the defining
relationship in the 21st century and trying to take the
bilateral trade from $100 billion to $500 billion, you know,
APEC membership is a good next step. It will take us a little
bit longer to get that high-standard Bilateral Investment
Treaty, but that certainly is an aspirational goal for both
countries and really can set the framework for bilateral trade.
Now, on our side, I urge patience. The economic reforms in
India will take time. I think we have to look at this longer
time horizon. On the Indian side, we encourage the Prime
Minister to continue the economic reforms to ease the ability
of our companies to do business, to put in good intellectual
property and patent protections that don't hinder that
investment and, also, to open up and ease the ability for U.S.
resources and U.S. venture to help India realize its potential.
I mean, these are all achievable goals. It requires patience on
both sides of the Pacific. It requires open dialog. I remain
very optimistic that we can reach those goals.
I look forward to hearing the testimony of witnesses who
are all experts on this relationship.
Again, I will yield back.
Mr. Salmon. Thank you.
Ms. Meng, did you have an opening statement?
Ms. Meng. Thank you, Mr. Chairman and to our ranking
member.
Thank you to our witnesses who are here today to testify on
U.S.-India relations. I represent one of the largest Indian-
American diasporas in Congress.
The people-to-people relationship has been a driving force
behind bringing our countries closer together. Under this
President, our countries have grown closer and we share renewed
commitment to working together, particularly in the economic
sphere. Principles of our joint commitment were laid out first
in September 2014, when U.S. and Indian leaders committed to
expanding and deepening the strategic partnership in a vision
statement entitled ``Chalein Saath Saath: Forward Together We
Go.'' Following President Obama's second state visit to India
in January 2015, we released a joint statement outlining
extensive, detailed commitment in a variety of industries.
But, while it is clear that there is a deep interest and
commitment on both sides, there is still a lot of groundwork we
must do to realize this vision. I look forward to hearing from
you on how you see the status of this commitment from India and
how we can best address some of the existing challenges.
Thank you, and I yield back.
Mr. Salmon. Thank you.
Mr. Lowenthal?
Mr. Lowenthal. Thank you, Mr. Chairman.
And thank you, witnesses, for joining us today.
Sitting on this committee, I realize just what an
increasingly-complex world in which we live, but how
interdependent we are with our global neighbors, how we look
forward to working to promote peace, security, economic growth,
development.
With India especially, representing such a huge population,
proportion of the world's population, I want to know how we can
both influence and effectively advance both our national
interest and at the same time do that in a way that improves
our relationships. You know, there are many challenges in front
of us in the world, on this globe, and this committee sees them
all. But I want to hear how we can in this committee and
Congress support better relationships with India, how we can
support their economic development, their democratic
aspirations, and not just of India, but really the democratic
aspirations of the entire region and how we can work together
for that.
And I yield back.
Mr. Salmon. Thank you very much.
We are very fortunate today to be joined by three very
distinguished panelists.
First, Alyssa Ayres, Ph.D., senior fellow for India,
Pakistan, South Asia, at the Council on Foreign Relations.
Welcome, Dr. Ayres.
Mr. Sadanand Dhume, resident fellow at the American
Enterprise Institute, and Mr. Richard M. Rossow, senior fellow
and Wadhwani Chair in U.S.-India Policy Studies at the Center
for Strategic and International Studies.
We will begin with you, Dr. Ayres.
STATEMENT OF ALYSSA AYRES, PH.D., SENIOR FELLOW FOR INDIA,
PAKISTAN, AND SOUTH ASIA, COUNCIL ON FOREIGN RELATIONS
Ms. Ayres. Chairman Salmon, Ranking Member Sherman, and
members of the subcommittee, thank you very much for the
invitation to appear before you today on U.S. economic ties
with India. I am honored to be part of this distinguished
panel.
I shared in advance with the committee a recent Council on
Foreign Relations Independent Task Force report for which I
served as project director. I respectfully request that the
report and my more detailed written statement be submitted for
the record.
In the last 15 years, India has experienced significant
economic growth, and the bilateral economic relationship has
changed substantially. After several years hovering below the
$100-billion level, in 2014 two-way trade in goods and services
crossed that threshold and last year reached $107 billion. U.S.
exports to India now support more than 180,000 American jobs,
as Secretary of Commerce Penny Pritzker said last year.
U.S.-India defense trade has increased from zero to around
$13 billion cumulatively. Technology and entrepreneurship are
increasingly a bridge between both countries. At the same time,
U.S.-India trade remains well below its potential, only a
little more than one-tenth U.S.-China trade in goods and more
on the scale of Taiwan or the Netherlands.
India and the United States also have market access
differences. I do not intend to minimize these concerns, for
they certainly exist, but I will focus my remarks on the future
strategic horizon we should bear in mind, India's future
potential.
According to International Monetary Fund data, India's GDP
crossed the $2-trillion threshold in 2014. At market exchange
rates, India was the world's ninth largest economy that year,
surpassing Russia. India is now growing at around 7.3 percent
annually, which in 2015 made India the fastest-growing major
economy in the world, given China's slowdown.
India, as you know, does not fare as well when looking at
per-capita GDP. When looking at per capita at market exchange
rates, India's nearly $1700 level ranks it in the bottom third.
Still, the prospect for India's middle class to grow
substantially in the coming decades is not in doubt. A strong
economic base will allow India to continue on its path of
rising global power, including by enabling its military
modernization, making the country a bulwark of democracy and
stability in an expanded region from the Middle East to East
Asia, where both are not always in ample supply.
I referred to the Council on Foreign Relations Independent
Task Force. One of its top findings was that, if India can
maintain its current growth rate, let alone attain sustained
double digits, it has the potential over the next 20 to 30
years to follow China on the path to becoming another $10-
trillion economy. Few countries have such potential.
India has its own political work to do to realize these
ambitions and it will not be easy. These are challenges that
the United States can do little about, but we have a clear
stake in India achieving its ambitions.
The Task Force recommended that the United States elevate
support for India's economic growth and its reform process to
the highest bilateral priority. I will provide several
recommendations for how to do this at the end of my testimony.
Preparing the United States for a more global India. We
have a problem of underinvestment and insufficient attention to
India in United States higher education, an economic
preparedness issue for our own country. The ranking of top
study-abroad destinations tells an obvious story about American
interest in Europe, but China has overtaken Germany as a
destination. Nearly twice as many American students head to
Costa Rica for an experience abroad than to India.
Language enrollment data is yet more dispiriting. Students
in U.S. colleges and universities do not sign up for Indian
languages at the levels they do for languages like Arabic,
Chinese, or Korean. Here is an example: Enrollments for Hindi
were only 1800. All Indian languages combined were around
3,000. This means that the total enrollments in all Indian
languages combined account for less than one-quarter those of
Korean.
Let me offer now a few recommendations for U.S. policy on
these issues. First, elevate support for India's economic
growth to the highest bilateral priority on the U.S. agenda
with India. Steps recommended by the CFR-sponsored Independent
Task Force report include leadership of a global diplomatic
effort to support India's entry into APEC; completion of a
Bilateral Investment Treaty; high-level discussion of bilateral
sectoral agreements such as in services; identification of a
longer-term pathway to a free trade agreement or Indian
membership in an expanded TPP as an equivalent; creation of
initiatives that respond to Indian interest in domestic reform
needs such as technical advice on infrastructure finance, and
continued emphasis on defense trade and technology.
Second, as India becomes an increasingly-central global
economy, the United States should work to integrate India in
global economic institutions. I mentioned APEC. There are other
institutions in which India should become a member, such as the
OECD and the International Energy Agency.
Finally, prepare our next generation for an India in the
global economy. Review Federal funding incentives to encourage
study abroad in India and study of Indian languages.
Thank you very much, and I look forward to questions.
[The prepared statement of Ms. Ayres follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
----------
Mr. Salmon. Thank you, Dr. Ayres.
Mr. Dhume?
STATEMENT OF MR. SADANAND DHUME, RESIDENT FELLOW, AMERICAN
ENTERPRISE INSTITUTE
Mr. Dhume. Chairman Salmon, Ranking Member Sherman, members
of the subcommittee, thank you for this opportunity to testify
before the subcommittee on U.S.-India relations, democratic
partners of economic opportunity.
I am Sadanand Dhume, resident fellow of the American
Enterprise Institute, based here in Washington, DC. My comments
today are my own and do not necessarily reflect the views of
AEI.
Since our time is limited, I would like to take this
opportunity to make four broad points on which I will then
elaborate.
Number one, the U.S.-India relationship is a pivotal
relationship for the future of the Asia-Pacific and, indeed,
the world.
Number two, at a time of political turbulence, it is
important for us not to lose sight of the economic principles
that have helped make this country the strongest and most
prosperous in human history. These include an openness to trade
and a welcome mat for talented professionals from around the
world.
Number three, after the election of Prime Minister Narendra
Modi 2 years ago, India is on the cusp of change. The U.S.
cannot determine the policies India will follow, but, by the
force of its example and its advocacy, it can nudge India in
the direction of the policies that will grow its economy,
eradicate poverty, and make it one of America's major global
trade partners.
Finally, number four, U.S. economic policy toward India
should be tethered to twin goals, to help India achieve its
economic potential and to strive to remain India's top trading
partner in goods and services.
I will spend the remainder of my time to expanding briefly
upon each of these four points.
The first, of course, is that the U.S.-India relationship
is pivotal. Sandwiched between a rising China and the turmoil
of Afghanistan and Pakistan, India represents an anchor of
democratic stability in an uncertain part of the world.
The U.S. stakes in India go beyond economics. But,
arguably, no aspect of the relationship is more important than
the economic one. Simply put, the U.S. ought to view the goal
of making India prosperous in a way similar to which it viewed
South Korea, Japan, and Taiwan during the Cold War. This is
part of a larger strategic goal which is important to the
United States, given what is unfolding in Asia.
In purchasing power priority terms, India is currently the
third largest economy, but, as a U.S. trading partner, it is
only number 10 in terms of goods trade. I think that gap
between those two numbers, number three and number 10, really
sums up the challenge that we face, but also the opportunity
for further growth.
In terms of India's own potential, though it has had 25
years of rapid growth of about 6 percent a year, in terms of
per-capita income it remains at $5,700 a year in purchasing
power terms, which is, to put it in perspective, less than half
of China. So, again, we have seen quite a dramatic success
story over the past 25 years, but there remains a lot of
potential for further growth.
I also think that we should keep sight of our larger
principles, particularly at a time of turbulence. Arguably, now
more than ever, we need to stand by the ideas that have been
the bedrock of prosperity for more than 200 years. This means
leading by example in terms of openness to trade in both goods
and services, while at the same time ceaselessly advocating for
greater economic freedom in India. I would like to say, in
particular, that some of the debates about Indian tech firms
tend to lose sight of the fact that they have been an asset for
U.S. competitiveness and Indian tech workers have been
productive members of society.
India is on the cusp of change. In 2014, Narendra Modi was
elected Prime Minister with India's first single-party majority
in 30 years. Mr. Modi earned the reputation as an efficient
business-friendly administrator. He has embarked upon reforms,
but those reforms have not gone fast enough for many observers.
Nonetheless, he is less than 2 years into a 5-year term and he
remains the single best bet for India to achieve the economic
transformation that it ought to achieve. And it remains in the
United States' interest to back him as he makes these efforts.
Finally, to sum up, I would say that all U.S. policy goals,
including some of those mentioned by Dr. Ayres, such as backing
India's APEC membership, supporting a Bilateral Investment
Treaty, I would add to that finding a way to work with India's
most dynamic states such as Gujarat and Andhra Pradesh, and
also working to enlarge global economic institutions, all of
these exist within a larger framework, and that larger
framework is two twin ambitions. The first is to help India
achieve its economic potential, and the second is to continue
to be India's top trade partner in goods and services in the
foreseeable future.
Thank you very much.
[The prepared statement of Mr. Dhume follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
----------
Mr. Salmon. Thank you.
Mr. Rossow?
STATEMENT OF MR. RICHARD M. ROSSOW, SENIOR FELLOW AND WADHWANI
CHAIR IN U.S.-INDIA POLICY STUDIES, CENTER FOR STRATEGIC AND
INTERNATIONAL STUDIES
Mr. Rossow. Thank you, Chairman Salmon, Ranking Member
Sherman, members of the committee. Thank you for the
opportunity to testify at this hearing on U.S.-India economic
relations.
I will focus my remarks on two main issues that I think
must be addressed in order to deepen our economic partnership
with India and create new opportunities for American firms.
First is that we have to bridge this gap that exists in our
approaches to global trade, and the second is we must engage
India's regional leaders more directly.
Since Prime Minister Modi took office in 2014, our
bilateral relationship has strengthened mightily, though I
think in surprising ways, ways that we didn't expect to see. We
expected the Modi government to have a strong economic focus,
which it has within political limitations. But I think what you
could have expected was the establishment of a stronger
ideological framework guiding the continued expansion of our
strategic partnership. We now have a big disparity, shared
security goals that guide that strategic partnership,
highlighted I think by the Joint Strategic Vision on Asia-
Pacific and the Indian Ocean Region signed last year. But we
don't have a similar ideological construct that guides our
economic engagement.
Now kind of following on what others have stated before me,
but a few examples that highlight the lack of a common ground
on global economic issues, today we are no further along than
we were 8 years on signing this investment treaty; in fact, a
little bit further away, since both the United States and India
have amended our model treaties which I think take them further
away than they were at the outset.
India is not part of any of the wider trade agreements that
the United States is a party of, and a wide chasm remains
between our positions on many issues in the World Trade
Organization. Now, in truth, I think it is likely that the
Indian Government will only begin to approach global trade
talks more proactively once their agriculture and manufacturing
industries become more globally competitive. The two sectors
make up 70 percent of India's workforce, yet contribute only
about 45 percent of India's GDP.
But there are a wider range of shared interests. Both
countries are hotbeds of innovation. We both have strong
services economies. Both have large net trade deficits,
particularly with China. We face similar challenges in the way
that we have been engaging on global trade issues, and our
firms bring complementary to markets like sub-Saharan Africa. I
think there is actually a foundation of issues that could
create a bit of a more powerful economic narrative on why we
should be partners rather than constantly fighting on these big
global issues.
The second issue I want to highlight is the importance of
developing a more robust whole-of-government strategy to engage
India's powerful state regional leaders. State governments--I
mean, I have already heard it a number of times today about
Modi reform, has he done enough; has he not done enough?--state
governments actually have a much deeper control on India's
business environment outside of things like high-level market
access than national leaders do. Issues like electricity,
water, sanitation, infrastructure, industrial licenses, and law
and order, these are all issues that the states actually govern
far more than the Federal Government has a hand in.
India's two national parties, Congress and BJP, combined
only control 16 of India's 29 states right now. With a few
notable exceptions, most of these state leaders actually have
very little vision today for what partnership with the United
States looks like.
In addition to the strong impact on the local business
environment, regional parties in India also have a strong
influence on central government policymaking. Regional parties
hold the majority of seats in the upper house of India's
Parliament.
Also, while we talk about the BJP's electoral victory in
the 2014 national election, it is the first time in 30 years
that any party won a single-party majority in the lower house
of Parliament. We can expect that in the not-too-distant future
we will see coalition governments again, and these regional
parties played a dramatic influence on policymaking in the last
government under coalition governments.
Now taking a step back, I think the Modi government's track
record on reforms is somewhat underappreciated. From the U.S.
viewpoint, the day that he stepped into office there were four
main areas of contention in our economic relationship:
Contentious taxation policies; lack of progress on new market
access reforms, particularly foreign equity caps; treatment of
pharmaceutical patents, and the establishment of forced local
content rules in several manufacturing sectors. Those are the
four that I saw as really kind of driving the negative
sentiments and the hope when Modi stepped into office.
I think 2 years later we have actually seen robust movement
on cross-border taxation policies and at the same time dramatic
improvement on foreign equity limitations. About 30 sectors
have actually seen foreign equity limitations removed or
lessened somewhat since he came into office, but we have seen
less movement on local content rules in manufacturing and
patent laws.
Now these are, of course, the economic agenda as it matters
to American firms and policymakers. There are also other
reforms that I think haven't been appreciated on this side of
the ocean, but in terms of growing the Indian economy and
providing new opportunities for American firms would do so.
Liberalizing the oil and gas sector; they liberalized the coal
sector; transparent auctions for the first time with public
resources like spectrum and mining licenses; delicensing
defense production of the private sector.
These reforms and India's relatively-high growth rates
compared to other countries I think make it an important market
to American firms, as has already been stated. Now our economic
relationship going forward will benefit from forging a set of
shared principles behind global economic issues and for better
engagement with India's powerful state leaders.
I was also asked by the committee to offer a couple of
recommendations for this committee and for Congress. And so,
two things that I have in mind on that.
First, I think the pipeline of congressional visits is
terrific, and I think using that kind of an opportunity to
engage some of these regional leaders, as what happened with
Prime Minister Modi, in fact, before he became the leader of
the country, is important to maintain and build on, not just
Delhi and Bengal and Bombay, but some of the other regional
capitals as well.
Second, we have an election coming up. As I like to joke,
you don't become Secretary of State based on your policy toward
India. So, we don't really know what the next administration,
whoever it is, what their position is going to be on key issues
in India. But Congress will still be there, and there is going
to be an important role to make sure that we maintain quickly
and deeply with India after the election takes place.
So, thank you again for inviting me to appear before the
subcommittee.
[The prepared statement of Mr. Rossow follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
----------
Mr. Salmon. Thank you very much.
I think the reason that nobody gets to be Secretary of
State based on their policy on India is they are not big enough
troublemakers. So, I guess we ought to be thankful for that.
My two questions center on foreign direct investment. First
of all, Prime Minister Modi recently launched efforts to boost
India's domestic manufacturing base and promote economic growth
from within with programs like Make in India Campaign. Does the
Make in India Campaign program discriminate against U.S. and
foreign manufacturers and imports? Will this policy hinder
foreign direct investment? Do you think that it will have an
adverse effect maybe on securing the kind of foreign investment
it needs?
Then, secondly, related to their existing foreign direct
investment policy which prohibits foreign-owned businesses from
selling items directly to the Indian consumers over the
internet, should that policy be one that Modi looks at
reforming? Is that going to hurt foreign direct investment as
well?
So, Mr. Rossow, do you want to take a stab first?
Mr. Rossow. Yes. Let me start with the second one on sales
via the internet. I am actually working on a piece right now to
try to break down the various and strange ways that companies
have to contort in order to sell something to a consumer in
India.
So, if you are selling to businesses, there is one
regulatory regime. You know that, yes, broken down. They have
already started to liberalize on e-commerce to some extent.
The idea about marketplace, kind of like eBay, where
individuals sell to individuals via an administered platform,
that is already allowed. Or just say that it is not
discriminated against. So, that is one model that is allowed.
If you manufacture in India, you are allowed to sell online
directly to consumers. And if you have single-brand investment
in India, so like a Nike store or Apple store, you are allowed
to sell directly to consumers.
Those changes have been made largely under the Modi
government so far. So, they have incrementally, I think, been
chipping away at the ban on foreign investment in e-commerce.
But, still, the big opening I think on a multi-brand, you know,
the kind of e-commerce platforms that we see here in the United
States where you buy directly from businesses carrying multiple
brands over the internet still isn't there.
Now my conversations with Indian officials, it is on the
cusp. I suspect that is one of the reforms I think in the next
year or two you are going to see. They have been, as I
mentioned, kind of incrementally moving their way in that
direction. So, I think it is on, I would say, the short list of
next FDI reforms. But, as to the timing, is it 6 months from
now or a year from now, I can't be sure.
Mr. Salmon. Do you think that it could be a substantial
left reform? So, a company like let's say Amazon could actually
sell directly to consumers? Do you think that it might
liberalize that much?
Mr. Rossow. Yes, I think it might. But what you have to
watch out for is are there going to be provisions on local
sourcing rules, things like that that in other areas where they
have opened up retail trade have proved to be a bit of a poison
pill. So, you always look for what are the qualifiers that will
attach to a policy like that. Some policies get opened up to
100-percent foreign investment with very few restrictions.
Other policies you see things in there that would actually
preclude investors coming in.
Amazon, though, is actually one of the largest e-retailers
in India right now, but it is on the marketplace model.
Mr. Salmon. Right. It is on a marketplace model and,
otherwise, they can sell to businesses, but they can't sell
directly to consumers.
Mr. Rossow. Yes, it is a strange tree, watching the
different ways you try to get something in consumers' hands.
Mr. Salmon. What about the other question? And, Dr. Ayres,
you could address it or Mr. Dhume, whoever feels more adequate.
But the Make in India policy, does that have the potential to
discriminate against foreign manufacturers, foreign investors?
Is that something we should be maybe chatting with them about?
Ms. Ayres. I think, first of all, having the platform of
Make in India is, first and foremost, designed to attract
foreign direct investment into India. A lot of American
companies that are manufacturing in India are taking advantage
of that. So, it is actually helpful to the larger revenue of
some American companies.
For example, General Motors announced $1-billion investment
and a relocation of a factory last summer. Ford has one of
their largest manufacturing facilities anywhere in the world in
Gujarat. There is a long list of others.
Since the Make in India initiative was announced in
September 2014, there has been a trickle of major investment
announcements. And so, I think we would have to look at kind of
individual sectors to see if there was anything that would
preclude or prohibit or limit U.S. exports to India. So, I
don't think it is possible to answer that in a blanket, kind of
umbrella statement.
But, certainly, it is the case that this is a platform that
is helpful to some American manufacturers who are looking to
produce for this huge and growing Indian market.
Mr. Dhume. Let me take a quick stab at both of those. On
the e-commerce, I would agree with what Rick said. It is
important to keep in perspective that India's e-commerce market
is one of the most interesting and one of the fastest-growing
in the world. There was a statistic recently I saw which said
that the top three e-commerce sites in India do more business
than the top ten offline retailers combined. One of those top
three is Amazon.
Mr. Salmon. Okay.
Mr. Dhume. So, it is definitely there. It is a player.
There is certainly room for further reform over there. I agree
that it is probably coming down the pike, but the situation
now, it is already we do have--there is a stake.
On Make in India, I think your question, it is a very
important question because there is a philosophical difference
and there is a difference between a Make in India which says we
are going to make India a more attractive place to do business
and a Make in India that says we are going to make it hard to
do business unless you make in India.
Mr. Salmon. Right.
Mr. Dhume. I think that is what the question is driving at.
I would say that, so far, the emphasis of the government has
been on the former, but it is certainly something that we
should continue to watch and continue to pay attention to. But,
if you look at FDI over the last 20 months, the first 20 months
of the Modi government, FDI in India has risen by 33 percent.
Mr. Salmon. Right.
Mr. Dhume. So, it has definitely been very foreign-
investment-friendly.
Mr. Salmon. Thanks, Mr. Dhume.
Mr. Sherman?
Mr. Sherman. Thank you.
In evaluating trade relationships, we all too often focus
on revenue for American corporations or profits for American
corporations, and all too little emphasis is put on jobs for
American workers.
I would point out that Japan runs a $5-billion surplus or a
$4-billion to $5-billion surplus with India. Germany runs a $5-
billion surplus with India. There are two possible explanations
of why we are running a deficit. One is that our workers are
not as good. The other is that our Government is not as good at
representing the interests of American workers. I think that
the elites in Washington should plead guilty because it is the
second and not the first.
Mr. Rossow, what changes in U.S. law, policy, or regulation
is India seeking?
Mr. Rossow. Changes on this side, that is a great question,
rarely asked, I think, in our bilateral relationship. They want
more visas. They want lower visa fees. They would like a Social
Security agreement that allows Social Security payments made by
H-1B-holders to be exempted from payment or reimbursed at the
other end. So, they do have, I think, a short number of issues.
Mr. Sherman. So, all of those things relate to how
immigrants and/or diaspora workers are treated. Anything on
trade?
Mr. Rossow. On trade, there are still some technology----
Mr. Sherman. Investment? Any of the things that we usually
negotiate? Anything that our Trade Representative's Office
would actually deal with?
Mr. Rossow. Right now, we are looking at an investment
treaty as probably the biggest thing that is on the agenda.
Mr. Sherman. Yes, it is on the agenda, but is there
anything that India is seeking in that investment treaty or are
they just kind of talking to us because it is one of the things
we like to talk about?
Mr. Rossow. Yes, every meeting I have with Indian
Government officials, they have a difficult time articulating
what is kind of in it for them, because they have got access to
our market. So, it is really is, will that be attractive enough
to bring new investors to India in the sectors they desire,
rather than it being a market access opportunity for Indian
firms on our side.
Mr. Sherman. And that investment may deprive Americans of
work. Indians watch a lot of movies. A lot of movies are made
in India. What are the restrictions on American firms,
Hollywood, having their movies exhibited on screens and TV sets
in India? Mr. Rossow?
Mr. Rossow. I am not aware of any restrictions based on
American movies being there. There are some restrictions on TV
channels, foreign ownership of TV channels and things like
that, which could be a pipeline for more American contents
coming into India, but, otherwise, unrestricted.
Mr. Sherman. Is any of the other witnesses aware?
Mr. Dhume. I was just in India last week and I watched The
Revenant with my parents, and they absolutely loved that bear
scene. So, a lot of Hollywood movies in India.
Mr. Sherman. Yes, there are a lot of Hollywood movies in
China, but they restrict us to 30 or 40 movies. There are no
similar restrictions in India?
Mr. Dhume. Netflix has just come to India also, and I
expect it to do quite well. It is a large market.
Mr. Sherman. What are the primary barriers to U.S.
companies exporting goods and services to India? Mr. Rossow?
Mr. Rossow. Well, there still are a number of sectors where
they have put up restrictions on foreign companies selling in
the market. So, for instance, let's talk about defense trade.
There is a 30-percent direct offset requirement for defense
sales. You have to produce some portion of that locally.
The solar policy, which demands local content to qualify
for certain tax benefits, there were policies developed during
the last government, which this government hasn't removed,
which look at local content as well for government contracts on
electronics, on communications, things like that.
So, there are a wide range of sectors where there are, I
think, more explicit rules that limit American trade or force
some of it under local content to be able to qualify for
certain deals. Those are the main ones that I am aware of.
Mr. Sherman. India will be building nuclear power plants.
We in Congress stepped forward and approved the Nuclear
Cooperation Agreement. The thinking in India is that there will
be some plants built by the United States. But, as a practical
matter, Russian and French firms are government-owned and,
therefore, they have sovereign immunity and could never be
sued; whereas, a U.S. firm could be. We have turned to other
countries to have liability protection, which really just puts
our companies in the same position as the French and Russian
companies. Obviously, Bhopal is still remembered in India.
We voted for the U.S.-India Energy Cooperation Agreement.
Are we going to get any jobs out of it? Mr. Rossow?
Mr. Rossow. I think we will. I mean, talks about actually
creating a liability regime in India that will accommodate
American interests for developing are ongoing. American
companies aren't allowed to actually invest in the plants
there. So, it is going to be contracts as suppliers. Will the
material be built in India? Probably not anytime soon for
American companies. So, I think so, but it depends upon whether
or not they get this workaround for the liability issue done in
a way that accommodates American trading concerns. So, it looks
like it is headed in the right direction, but nothing is done.
Mr. Sherman. I will ask one other question.
Mr. Dhume. Can I just add?
Mr. Sherman. Yes.
Mr. Dhume. I will just add to that very briefly. I think
that it is a completely valid concern. I think that there is
reason to be concerned that this has taken so long and that,
despite many years after the agreement, there hasn't been
concrete----
Mr. Sherman. Is it well understood in India that they are,
in effect, providing liability insulation for the French and
Russian companies?
Mr. Dhume. I think it is viewed, as you alluded to in your
question, mostly through the prism of Bhopal, which is why you
had that liability law passed in 2010 which was very tough.
But I think there is something that we sometimes lose sight
of when we are discussing the nuclear issue, which is that,
though there may not have been sufficient progress on that
particular issue, the nuclear deal really has unlocked the
relationship in many other ways.
Mr. Sherman. Thank you for that. I am going to try to sneak
in one more question with a two-word answer from each witness.
Pick two states in India where you think it is easiest for
Americans to do business.
Mr. Dhume. Gujarat and Andhra Pradesh, I would say.
Mr. Rossow. Yes, Andhra Pradesh. I will say Maharashtra,
just to be a little bit different.
Mr. Sherman. Is Gujarat one of your two or----
Mr. Rossow. I probably would pick that. If you would give
me three, I would say those three, Maharashtra, Gujarat, and
Andhra.
Mr. Sherman. And Dr. Ayres?
Ms. Ayres. I agree. I would say either of those three.
Mr. Sherman. Okay. We have got three instead of two.
I yield back.
Mr. Salmon. I turn to Mr. Chabot. But, before you get to
ask the witnesses questions, we are all kind of wanting to know
from you who is going to win in Ohio tonight. [Laughter.]
Mr. Chabot. I have no idea.
Mr. Salmon. Mr. Chabot?
Mr. Chabot. Thank you. Thank you, Mr. Chairman, for holding
this important hearing.
Many consider the U.S.-India relationship an indispensable
one, and I tend to believe that myself. India is already a
regional economic powerhouse and could potentially become one
of the most important powers in the world. I think the U.S.
has, for the most part, succeeded in fostering this
relationship over the years.
For more than a decade, the U.S. has committed to working
with India to ensure a lasting strategic relationship. Both
countries identify our bilateral trade ties as an integral
component to our relationship moving forward.
I would stress, as I have in past hearings on this topic--I
chaired this committee in the previous Session of Congress, not
Session of Congress, but previous Congress--that it is
essential for the administration to continue proactive
engagement with India. Many of us in Congress and in the
administration welcomed Prime Minister Modi's ascension to
power with pretty significant enthusiasm.
Now, however, I am beginning to hear skepticism about the
Modi government's follow-through in some areas; for example,
its commitment to promoting stronger economic relations. I am
particularly concerned with India's commitment to respect
intellectual property rights, and the administration should
take the necessary steps to ensure that American innovations
are afforded the safeguards that they deserve, and that our
American businesses, particularly our small businesses--I
happen to the chairman of the House Small Business Committee
now--that our small businesses can rely upon this
administration and the Federal Government to do everything it
can to protect their interests. After all, if we want to
continue to be the world leader in international trade, we must
continue to prioritize these kinds of issues.
Now for a couple of questions. Last fall the International
Trade Commission found that the Modi government had made no
changes to its laws to address longstanding intellectual-
property-related trade barriers. Moreover, India's long-awaited
IPR policy is rumored to be far less of an improvement than
hoped. Is India backsliding on these issues? What can we do to
get India to create a level playing field for our exporters and
our investors? I would be happy to hear from any of the panel
members on this. Dr. Ayres?
Ms. Ayres. I will offer some initial thoughts on that.
First, I think in the IPR conversation we should probably
split the discussion to talk first about copyright issues and,
then, secondly, IPR concerns in other industries. The
pharmaceutical industry in the United States has some deep
concerns about India's IPR regime.
On the copyright side, there has actually been a lot of
good news. That has been an arena where you have seen Indian
industry, particularly India's media and entertainment
industry, step up and request its state-level governments and
its government at the Federal level to put in place stronger
protections for copyright. So, that has actually happened, and
I think you now have seen over the course of the last decade a
real convergence of views in the entertainment space. So,
whether it is songwriting or a script or a film, we have now, I
think, got agreement with the regime in India on copyright.
IPR, as you referred to, is much more difficult. I don't
believe that India is backsliding, but I don't believe that
their patent law has moved in any way in a direction that would
be satisfactory to what people in the United States are looking
for.
I know that the Indian Government recently received an
opinion from the World Trade Organization that supported
India's patent law. So, I do not anticipate that that positive
opinion they received from the WTO would suggest to Indian
lawmakers a necessity for them changing their own law. What
that tells me is I think we are going to continue to see a lot
of fireworks over the IPR issues, particularly in the
pharmaceutical industry, for the next several years. I don't
see this as an issue that is going to be easily remedied.
Mr. Chabot. Okay. Thank you.
Mr. Dhume?
Mr. Dhume. I would just add very quickly that I would share
the characterization that there has been neither concrete
forward movement nor visible backsliding. I think that on the
positive side, some of the fears that people had 2 or 3 years
ago about, for instance, compulsory licensing have not come to
pass. Things have sort of been frozen in place. But it
certainly does seem that the area of concern would probably be
things like drug pricing where it is a very live political
issue in terms of how much companies should charge. And that is
the area that I would be paying the most attention to.
Mr. Chabot. Thank you.
Mr. Chairman, my time has expired. Do we have time to hear
from Mr. Rossow?
Mr. Salmon. Yes.
Mr. Chabot. Thank you.
Yes, sir?
Mr. Rossow. I agree with, actually, what both said. Areas
like development of film and content and things like that where
India has an offensive interest, we have got a lot of
alignment. But, on pharmaceutical, our industries are based on
different models. And so, it is very difficult for us to kind
of bridge that gap. It is absolutely night and day. So, to find
common ground in that scenario is extremely difficult.
But Sadanand had mentioned on pharmaceutical pricing, it is
kind of a new issue that we see, I think, new attempts to
regulate pricing. Also, medical devices is another issue that
is kind of like related to that that we are seeing. So, nothing
further than what my colleagues had said on that.
Mr. Chabot. Thank you.
I yield back.
Mr. Salmon. Thank you.
Mr. Lowenthal?
Mr. Lowenthal. Thank you, Mr. Chair.
I am going to follow up some of the questions I thought in
terms of India's relationships to its neighbors per se. Can you
tell us how it is improving trade or what its trade
relationships are with Pakistan, with China, with Sri Lanka?
Where is that moving? And maybe explain to us how India is
dealing with its regional partners.
Ms. Ayres. Perhaps I will take a stab at that and, then, my
colleagues might have some additional thoughts.
China is India's largest trading partner in goods. We have
heard earlier the United States is India's largest trading
partner in goods and services, but China is India's number one
in goods. So, it has a very robust economic relationship with
China.
India is not happy with the balance of its trade with
China. India feels that it is sending out raw materials and
importing finished goods. So, it is unhappy about the trade
balance and the composition of trade.
Mr. Lowenthal. Yes.
Ms. Ayres. With Pakistan, India is in an extremely-limited
trade relationship. In 1994 or 1996--I would have to check my
notes--India granted Pakistan most favored nation recognition.
Pakistan has never reciprocated that. So, they don't have free
and open trade.
There have been some studies done that suggest that they
have got trade diversion that goes through the Gulf, through
the United Arab Emirates, instead of going across the border by
land, where it could be carried out quite easily.
Previous Indian Governments and the Indian and Pakistani
private sector have tried to use trade initiatives to try to be
a kind of leading edge to improve ties. But, without that most
favored nation recognition and some sort of larger push on
trade, it is hard to see larger improvement on the trade ties.
With the smaller countries around India, there is an open
border with Nepal. So, they have free and open trade and
movement of persons anyway. India has a free trade agreement
with Sri Lanka that has expanded their trading relationship
significantly. And India recently completed a boundary
reorganization with Bangladesh, and they have significantly
expanded the trade with Bangladesh. So, economic ties with
Bangladesh have been a big focus for the Indian Government.
Mr. Dhume. I agree with all of that. I would just say that,
if you were to look at India and you look around, basically,
with all the smaller countries, trade relations have been
improving, deepening. Barriers have been lowered.
The two problems are China and Pakistan, for different
reasons. The India-China relationship in some ways is like the
U.S.-China relationship in terms of trade. It is lopsided.
India has market access issues. Nonetheless, it is a very large
economic partners.
With Pakistan, it is really a question of access. The key
over there is that India would like to see trade dealt with as
a separate issue and trade to be pursued; whereas, Pakistan
would like trade to be linked to other issues, such as
security, and that has been a sticking point.
Mr. Rossow. I will just tie in a loop your question and the
chairman's question, actually. The sectors that I mentioned
where India has restrictions on foreign trade, whether it is
solar, electronics, IT, telecom equipment, this is pretty much
China's top exports to India.
So, when these issues came up, it wasn't reaction because,
of course, we have a trade deficit. It is exactly not
explicitly, but going after the areas where China has major
exports to India.
India's trade balance overall is declining in the last
couple of years, as a lot of countries are, but their trade
deficit with China continues to go up. So, that has even been
augmented while they have been reducing oil imports and other
things as prices come down.
Mr. Lowenthal. Thank you.
I just have one other question. You have all touched on it.
I think, Dr. Ayres, you talked about it also, about some of the
legal protections, or lack thereof, in India. I am just
wondering, is the legal system or the rule of law attractive
enough for foreign investment into India now? Do companies
believe that they have the kinds of legal protections that they
need? Anyone?
Mr. Dhume. I think large companies do. Large companies that
have the resources when cases come up to prosecute it
effectively, hire the best law firms, get it through the
appeals process to higher courts, where you know you are going
to get a very good hearing, they have managed to do fairly
well. Some major cases involving some of the biggest investors
in the country, recently Vodafone, a few years before that
Morgan Stanley with a big tax case, they managed to get those
all the way to the Supreme Court of India in just a couple of
years.
But the small and medium businesses I think, for them,
where maybe they don't have the kind of resources to put toward
the case, they would have to churn it out, just like Indian
companies would. That sometimes can take several years to get
through.
So, I think it moves fast enough and it is fair for large
companies with the resources to spend the time and energy to do
it. Small and medium companies, I think they continue to be
concerned about this. So, I will leave it at that.
Mr. Dhume. I mean, I think you could divide that into a
bird's eye view and a worm's eye view. From a bird's eye view,
it looks great, the British legal system, rule of law, and all
of that. From the worm's eye view, for firms it often depends
from case to case and it can be messy and time-consuming.
But, by and large, if you sort of look at India and compare
it to most of the developing world in Asia, I would say that
rule of law is generally seen as one of the positive attributes
of India.
Mr. Lowenthal. Thank you.
And I yield back.
Mr. Salmon. Thank you.
Ms. Gabbard?
Ms. Gabbard. Thank you, Mr. Chairman.
Aloha. Welcome.
Since 2008, the U.S. and India have signed more than $10
billion in defense contracts, and the Defense Trade and
Technology Initiative has been a priority in these bilateral
security relations. Especially now with Secretary Carter as our
Secretary of Defense, I think this has continued to be a
priority.
Can you speak to your assessment of how the DTTI is working
and, if there are impediments, what are they and how can they
be overcome?
Ms. Ayres. So, I will offer a couple of thoughts. I know my
fellow panelists have been thinking about this one as well.
The DTTI seems to be going very well. As with almost
everything involving negotiating some sort of agreement with
India, it is not happening overnight, and I don't think that
should surprise us. But the fact that we have seen an increase,
first, in the defense procurements, which is good for our
economy as well as good for India's developing its defense and
security capacity; the fact that we now have these pathfinder
projects that are moving ahead; the fact that we have seen a
change in India's FDI policy when it comes to the defense
sector, moving that FDI cap from 26 to 49 percent, with the
possibility of up to 100 percent on a case-by-case basis, these
are all positive movements that have been helpful to the
defense industry. I would anticipate that as discussion of the
projects, the pathfinder projects, continues, we will come
together and be able to produce something and develop something
with India. So, I consider that moving quite positively.
Ms. Gabbard. Okay. Before you respond, I will just add to
the question about these three foundational agreements that I
hear from Admiral Harry Harris and others frequently about
being so critical to enhancing U.S.-India partnerships and
their hope that India will sign those foundational agreements.
If you could add that to your response of where you think that
is at and if they will sign?
Mr. Dhume. On DTTI, I would add one other sort of broader
reason for optimism is the Make in India policy that was
mentioned earlier and, also, raising foreign investment caps in
India in the defense sector. So, there is genuine optimism that
there will be more U.S. investment and genuine partnership over
there, including in defense manufacturing, and there is
certainly a lot of interest in that in India.
On the logistical agreements, I don't know what the latest
on that is, but my understanding is that, with the new Defense
Minister Parrikar, there is greater interest in India going
ahead and signing those agreements than we had in the previous
administration.
Ms. Gabbard. Thank you.
Mr. Rossow. I think the previous administration and the
fact that they had such strong support from the communist
parties in India, they managed to tilt the discussions over the
foundation agreements, so that it sounded like India was giving
away the store, that a logistical sharing agreement meant that
we had open basing with India, that we had backdoor channels
where we can steal communications from the equipment we sold.
The fact that the communists are no longer a force, the BJP
is not reliant upon them, that voice I think that managed to
sink it last time around, when those talks began 8 years ago,
is gone. So, that leaves an open door.
I mean, it is in the press right now that these talks are
happening. You don't feel that kind of blowback against it. So,
I think the stage is set for progress on the foundation
agreements.
On the Defense Technology and Trade Initiative, I think
that exactly exhibits why long-term vision is critical, because
we have put forward more than a dozen projects to the Indian
side and got no response. But, as soon as we started talking
about aircraft carrier technology, jet engines, the things that
hit exactly on where India saw its future and strategic
interests, as soon as we put those on the table as longer-term
working groups, they came back and we got four project
agreements, well, we got four agreements and, then, two which
will result in project agreements. So, we have only got four.
Two of those don't look like they are moving very fast.
Hopefully, we can get some new ones added to the list now.
But I see tremendous progress. Even if there frustration
occasionally that two of them aren't moving that quickly, it is
talked about as one of the most tangible, cogent examples about
where partnership goes. So, in terms of a guiding star, I think
it has also provided a great opportunity for us.
Ms. Gabbard. Yes. Great. Thank you very much.
Thank you, Mr. Chairman.
Mr. Salmon. I would like to really thank the panelists for
giving us the opportunity today to learn more about the
bilateral opportunities that exist, predominantly in the trade
opportunities, but others as well.
It is clear that India is moving in leaps and bounds and
that, regardless of how these hearings turn out, they are going
to continue to progress. We need to figure out how to better
partner with them on different ideas because I think their
success globally as well as success in the region can be
enhanced by a strong U.S.-India relationship. I, for one, am
really hopeful that we can move forward with a Bilateral
Investment Treaty. I think that would be incredibly positive.
There are other things that we have heard expressed, that
the lawsuits tend to take a long, long time, on the average I
think 4 years, to get resolved. While big companies have the
resources to stay the course, that becomes difficult. And with
the pharmaceutical companies, the generic entry into the
markets has been a concern.
But, as we move forward, I think that most of the issues
are very resolvable between our countries. I would echo what
Mr. Bera said. When we were able to go to India, we were
afforded great courtesies as far as opportunity to meet with
Prime Minister Modi and virtually all of his Cabinet for
several hours. It showed me that they are keenly interested in
strengthening the relationships with us. And so, I think that
is a real positive thing.
I would like to really thank the panelists for coming
today.
I would like to thank the ranking member.
Mr. Sherman. May I join you in those comments?
Mr. Salmon. Yes, yes.
Mr. Sherman. I want to thank the panel for coming here, and
I look forward to the U.S.-India relationship not being our
10th largest trading partner in the future.
Mr. Salmon. Absolutely, and let's do a better job. I do
echo what Mr. Sherman says. Let's start doing a better job in
getting our products over there. China has really taken great
advantage of us when it comes to that lopsided agreement, and
we don't want to make the same mistakes with India.
But thank you very much for being here today.
This committee is now adjourned.
[Whereupon, at 3:26 p.m., the subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Record
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Material submitted for the record by Alyssa Ayres, Ph.D., senior fellow
for India, Pakistan, and South Asia, Council on Foreign Relations
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[Note: The above document is not reprinted here in its entirety but may
be found at: http://docs.house.gov/Committee/Calendar/
ByEvent.aspx?EventID=104671]
[all]