Opinion Ask not what the US can do for us
Obama needs to create American jobs. Indian companies might not help but our government should open up markets,or risk throwing the relationship back
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At a roundtable with leaders of Indian industry in Mumbai on Saturday,President Obama concluded by saying that just around this table youre seeing billions of dollars in orders from US companies,tens of thousands of jobs being supported. There was real business happening while he was here,he insisted: an opportunity to both put Americans back to work,and see India grow its infrastructure,its networks,its capacity to continue to grow at a rapid pace. That is not just a placatory nod to the domestic constituencies of the presidents Democratic party; it was a real appeal to Indian business and government. But will it be answered as much as Obama would want? Government should; but will business?
The value of China to a jobless US is rapidly plummeting,and,as Obama made clear,the US finally needs India,its markets and its investment in US jobs. Much of Indian business,however,has already hitched its boat to the east wind from Asia. This means,a decade since the US and China almost conjoined their economies,trading low inflation in the US with massive support for the expanding supply of dollars from China,a similar level of engagement with India might not be possible.
The president might disagree,referring you to a partnership signed early this year by his treasury secretary,Timothy Geithner,and Indian Finance Minister Pranab Mukherjee the India-US Financial and Economic Partnership. But a decade of missed opportunities has steered Indian industry to other destinations basically,Asia. Tata,Bharti,TVS and software companies Infosys,Wipro and TCS have invested big elsewhere. The list includes PSUs too. The only ones with demonstrable big investment plans in US are Mahindra and Reliance Industries Limited both,therefore,at the high table for that Saturday meeting.
The USs intentions make perfect sense in the post-crisis world,where the value of Chinese manufacturing might have become questionable for Washington. Before the crisis,the US used low-cost manufactured goods from China to keep inflation low. This also allowed a low interest-rate regime for US consumers and companies after 9/11 to beat recession.
But thats changed with the USs double-digit unemployment,which,as Raghuram Rajan has pointed out in his book Fault Lines,no US government can countenance. Obama needs to find jobs,and they will not come from cheap imports from China. The Middle Kingdom exports low inflation,of questionable value to the US right now. The jobs in China-based plants and firms,often owned by US companies,obviously go to Chinese nationals.
For Obama,the jobs have to now emerge from the factories and services located in the US. These in turn can only come from companies with plants based onshore that are near full production and thus willing to invest more. Such robust numbers for US-based companies cannot emerge from domestic sales or recession-hit Europe. The companies can expand sales only in Asian countries expanding fast,like India.
The $10 billion and more of deals signed on Saturday are,however,concentrated on the aviation sector,for which there are no rival sellers in Asia,and power. No wonder the US presidential pitch is a push to India to open up its huge market to US-based companies. Obama needs to offer more jobs for the domestic economy out of his Asian tour.
He will not make the mistake of thinking of India as another low-cost manufacturing outpost. Instead its attraction is a growing middle class that provides a strong market for US goods. He is,of course,right that it is unfair to expect the US to keep an open door for trade while India restricts overseas investment,even as the two economies become comparable in size.
Among the things Obama will not promise is a strong dollar. Yet that is one thing India would love to see. A strong dollar immediately helps boost Indian exports and also improves the return on the over $300 billion forex reserves,a big chunk of which is invested in US treasury papers. The other great announcement could have been a change in the totalisation scheme: all Indian companies sending personnel to the US have to pay a social security surcharge on their salaries. Few employees complete 10 years with any company at a stretch,the minimum period required to benefit from that social security contribution,most get nothing out of that contribution. But for a local job-obsessed US,a relaxation of the totalisation rules will be interpreted as one more benefit offered to an expatriate,the last thing Obama will want to show at home.
Does this mean the Indian government should refuse to do more on foreign investment rules? That would be a throwback to the small boy-being-bullied-by big-boy game we played for too long. Instead,as a potential giant economic power,India will suffer no harm from US companies getting more play here. Politically this will give India plenty of leverage with the White House. It is just that this will not be a very significant moment of economic history for India. That point was early on this decade. The Obama agenda is a disappointing bit of news now; and nor does it seem much of a positive reference for the future.
We should have expected no fireworks but those of Diwali; Obama has nothing remotely as explosive to offer.
The writer is Executive Editor (News),The Financial Express subhomoy.bhattacharjee@expressindia.com
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