[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



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                      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

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                        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:]
   
   
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    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:]
    
    
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    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:]
   
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    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

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         Material Submitted for the Record
         
         
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Material submitted for the record by Alyssa Ayres, Ph.D., senior fellow 
   for India, Pakistan, and South Asia, Council on Foreign Relations


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[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]

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