India is a viable alternative for businesses trying to escape the US-China trade war; but needs to resolve its own issues with the US.
HEAD SHOT
- Around 200 US businesses, with manufacturing base in China, intend to shift to India post-elections: USISPF
- US businesses want more transparency and participation in policy-making in India.
- Lately, India’s policies like e-commerce regulations and data localisation have been more country-centric than global.
- To leverage the situation between China and US, India needs to improve its relations with the western ally.
Around 200 US companies consulted the trade advocacy group USISPF about investing in India due to the strained US – China trade relations, Mukesh Aghi, President of the US-India Strategic and Partnership Forum (USISPF) recently revealed.
This presents a great opportunity for India to advance trade relations with the US, At the same time, more trade with US will help India match up the trade deficit between its developing and China’s thriving economy.
Accelerate reforms and bring transparency in decision-making
India’s recent e-commerce and IT policies are viewed as conservative to an extent by western multinationals. To become the centre of attraction for new investments, India needs to expedite the processes and alleviate gaps in bureaucracy.
As per Aghi, US businesses would like an approach where the government engages more with private companies and makes them a part of the policy-making process. He enumerated critical issues such as land acquisition, custom clearances and supply chain formulation as aspects where the government can help businesses with direct consultation.
What US firms want from India?
American companies want a backup strategy to help them initiate manufacturing in India. The Indian business environment is plagued with trivial issues and regulatory roadblocks, which often bogs down international business after they have invested millions in the country.
As per USISPF, many businesses are waiting for India to get over with the elections and new government to become functional. Companies don’t only intend to set up manufacturing base in India but many eye the domestic market as a great opportunity.
Aghi said that they have formed a high-level manufacturing council within the member companies, led by John Kern, Senior Vice President of Supply Chain Operations at Cisco. The council is formulating a document detailing what India needs to do to turn into a manufacturing hub.
“We plan to have the document ready by the time elections are over as part of recommendation.”
India set for substantial foreign investment
As per Aghi, USISPF member companies have invested over $50 billion in the last four years. Investments in India in the coming time depends on the potential shifting of US manufacturing from China.
In an October 2018 survey of US companies with bases in China, conducted by the American Chamber of Commerce in South China, one-third of the 219 firms surveyed were into manufacturing. Of them, 64 percent revealed they were contemplating shifting production lines from China. Only 1 percent suggested that they would move operations back to the US, with most favoring a new base in South East Asian countries.
The trouble with Trump and the opportunity
US President Donald Trump’s repetitive claims that India is a ‘tariff king’ nation which imposes ‘tremendously high’ tariffs on American imports.
This resulted in the US withdrawing import duty benefits to India under its GSP programme in March. As per Aghi, the solution to this scuffle between India and the US is free trade. He explained:
“When you look forward next five years, I believe India should sign an FTA with the US. Once you have FTA, all this issue of tariffs will go away.”
FTA key to resolving the growing trade deficit with China
An FTA with the US will help India to address concerns over import of Chinese goods.
While there haven’t been substantial talks between the two countries on this issue, Aghi said he believes a free trade agreement with the US is paramount for India’s future fortunes.
“You can put barriers to Chinese goods and still have the U.S. providing access to the Indian market and Indian companies having more access to the US market, and issues like GSP would diminish. Within the FTA, you can have BIT (bilateral investment treaty) also. It covers a lot of stuff. It takes the biggest irritants in the relationship out.”
USISPF will be making recommendations to the new government to start discussion around FTA with the US. Trump’s Presidency is a great opportunity as for the current US President trade is the paramount issue.
Free Trade between the nations can shift world economic order.
PARTING SHOT
- Recently, President Trump withdrew special trading partner benefits to India, claiming that India taxes US imports unreasonably.
- India should explore the opportunity of a ‘Free Trade Agreement’ with the US post general elections.
- As per a 2018 survey, 64 per cent American companies in China intend to shift their manufacturing base to another nation.
- Many of the companies find India’s domestic market a great opportunity to further their customer base.
