NEW DELHI - Following a series of unpublicized
negotiations with the US Department of Commerce, the
Treasury Department, Department of State and the
Pentagon, India feels the time has come for a
comprehensive bilateral treaty with the US in the
service sector.
This development
comes as Delhi announced its new long-term foreign trade
policy late on Tuesday. This will replace the country's
half a century old exports-imports policy, which has a
tenure of only one year and deals with excise and taxes
without any long-term trade strategy. The new policy
contains far-reaching measures for large
employment-generating export sectors like agriculture,
textiles and handicrafts, all part of efforts to capture
2% of global trade by pushing up annual exports to
US$300 billion by 2009. At present, India contributes a
mere 0.8% to global trade.
Aimed at achieving
over 16% annual trade growth on the back of 25% growth
in the first quarter, the policy contains a slew of
measures to boost India's special economic zones, 27 of
which have already been approved for operation.
Given India's lofty goals, it makes strategic
sense for New Delhi to sign a comprehensive bilateral
trade agreement with the US, regarded as the most
preferred trading destination for Indian industry and
outsourcing companies by the Confederation of Indian
Industry (CII). At stake is $1.5 billion in outsourcing
business and $5 billion in textiles and other trading,
beyond January next.
That is not all. A
bilateral trade agreement, which by all indications is
welcomed by the US, will beat hands down the 122
formidable and pending federal and state legal cases
involving India against business process outsourcing
(BPO) before US legislators.
India is also
encouraged by the US gesture to finally release
sensitive defense equipment and systems such as radars
and airborne early warning systems worth $3.5 billion -
a figure that nearly equals that of the military
hardware recently sanctioned for Pakistan by the US.
Surprisingly, the announcement was made by US charge de
affaires Robert Blake while addressing officers of the
Indian army last week at one of the country's premier
training centers for tactical warfare.
In
addition, with the Pentagon outsourcing the CAD
(computer-aided design) for its next generation
supersonic F35 fighters to a Pune-based company in
collaboration with Dell, India has a strong case as a
BPO destination for hi-tech jobs that do not necessarily
"steal" employment from the US.
According to
government sources, the bilateral agreement will address
India's concern over tariff and non-tariff barriers
imposed on off-shore BPOs by the US. In return, the US
is asking India to open services sectors such as
accounting, auditing, legal and insurance - a request
strongly opposed by the communist allies of the
Congress-led United Progressive Alliance government. But
India also believes a bilateral agreement will open new
technology horizons for its technology savvy companies,
as the US has the largest outsourcing economy in the
world, covering diverse sectors such as financial, human
resources and design.
Another reason India is
pushing for the agreement is the directionless progress
being made in World Trade Organization negotiations.
India feels it is worthwhile to sign a bilateral
agreement with the US, which in spite of ups and downs
in diplomatic relations has been India's largest trading
partner for nearly a decade and a half.
With an
unbelievable 57% of India's gross domestic product (GDP)
contributed by the services sector, and commercial
services accounting for another 25% of the country's
exports, India feels a long-term re-assuring trade
policy is essential for securing its future economic
growth, says Professor Tapas Mazumder, former dean of
economics at the Jawaharlal Nehru post-grade university
in Delhi.
With an 18% growth in exports, and the
country's top 10 information technology companies
posting an average profit rate of 25% in the 2003-2004
financial year, combined with a lower debt-equity ratio,
Indian industries are ready to take aggressive moves in
boosting the country's exports, while the government is
trying to address the remaining trade-related anomalies
in taxes, infrastructure and delivery.
Meanwhile, to further reduce complaints from
trade and industry sectors, the Indian government has
broken the rigid rule of keeping the country's planning
commission under strict government hegemony, and agreed
to include its industry representative in the
commission.
And in another first, Prime Minister
Manmohan Singh is planning to address Wall Street
hot-shots during his upcoming visit to the US and
project India's moves towards increasing its status as a
global economic player. The Prime Minister's Office
refers to this as "a professional talking to other
professionals". Singh is an acclaimed economist from the
London School of Economics and holds a degree from
Harvard, where his daughter is now studying economics.
However, it will be a gigantic task for the
government to hone India's competitiveness to match
global demand. For instance, World Competitive Year Book
2004 of the International Institute for Management
Development placed India 34th out of 60 countries by
using 287 criteria, and the World Economic Forum placed
India 53rd after a survey of 59 countries, and a World
Bank survey of 46 countries for competitiveness placed
India at 40th position.
Yet India has achieved
faster growth in services exports than any other country
in the world, posting an average annual growth of 17%
during the 1990s and today accounting for 1.4% of global
exports in services.
While premier institutions
such as Deloitte Research regard India as a distant
leader in "lane one services exports", an estimate by
the Economist stipulates that "if half of India's 50
million English-speaking population start earning
$10,000 annually from IT and IT-related services, it
will more than double the country's GDP from the current
$450 billion." Not a wrong assumption, as nearly 60-70%
of India's IT professionals earn an average of $9,600
annually.
But there are many hurdles that India
needs to cross first, an important one being political
consensus among its allies, including the communists,
who, failing to prevent the decision to privatize
India's airports, are now trying to stop the country's
insurance sector from being privatized. India's
organized trade unions and non-privatized infrastructure
sector are controlled by the communists, the effects of
which were demonstrated by a recent nationwide strike by
all bank employees and a strike by India's truckers,
which brought the country's economy to a standstill for
a day. The Congress Party relies on communist support in
its governing coalition.
This is why not
everyone feels consensus is possible. As a senior
bureaucrat in the Commerce Ministry commented, "Don't
worry, with the communists as our friends, the present
government does not need enemies."
Arun
Bhatttacharjee, post graduate in mass communication
from the University of Calcutta and Minnesota.
Authord Indian Press From Profession to Industry,
Dateline Mujibnagar (Indo-Pak war of 1971),
Chasing the Missing Link, Communication Technologies,
Gender Bias in Reporting: A Journalist's Handbook.
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