Former U.S. Outcast Modi Inherits Trade Tension: Corporate India

Photographer: Sam Panthaky/AFP via Getty Images

Narendra Modi inherits disputes that cloud prospects for scaling up $65 billion in annual trade. Close

Narendra Modi inherits disputes that cloud prospects for scaling up $65 billion in annual trade.

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Photographer: Sam Panthaky/AFP via Getty Images

Narendra Modi inherits disputes that cloud prospects for scaling up $65 billion in annual trade.

Indian Prime Minister Narendra Modi, once barred from the U.S., now faces the task of easing trade spats with America ranging from protectionism to patent rights.

Modi, sworn in as premier yesterday, inherits disputes with India’s largest export market that cloud prospects for scaling up $65 billion in annual trade. In the backdrop is the U.S.’s denial of a visa to Modi over his handling of deadly riots in 2002 in Gujarat, the state he headed, a decision scrapped after he swept to power in parliamentary elections this month.

“Relations with such a big and complex trading partner aren’t all going to be sorted out in one day,” said Neelam Deo, a director of Mumbai-based think tank Gateway House and a former consul general for India in New York. The trade disputes are some of the worst with the U.S. in about two decades, she said.

Modi, who’s denied wrongdoing over the riots, led his Bharatiya Janata Party to India’s first single-party majority since 1984, fanning optimism he’ll use his experience of stoking growth in Gujarat to revive national economic expansion and spur trade ties. At the same time, India faces a U.S. review of copyright protections and an American complaint at the World Trade Organization alleging barriers to solar-industry imports.

India said May 1 that it’s open to talks with the U.S. on trade and patents. Yet the government has since escalated friction by recommending duties after claiming U.S. companies such as First Solar Inc. (FSLR), as well as Asian solar-equipment makers, dumped products locally.

Piracy, Patents

In April, U.S. Trade Representative Michael Froman said there are heightened concerns that India’s protection of intellectual property is deteriorating. An annual review cited counterfeit goods, piracy of music, movies and software, and challenges in securing and enforcing patents in the pharmaceutical, agro-chemicals and green technology industries.

The review kept India on a priority watch-list of 10 countries that are “the focus of increased bilateral attention concerning the problem areas.” The $1.86 trillion economy could face trade sanctions if another U.S. assessment due later this year designates India a so-called priority foreign country.

The U.S. Federal Aviation Administration in January lowered India’s airline-safety rating to the same level as Zimbabwe, a move that stops Indian carriers Jet Airways (India) Ltd. (JETIN) and state-owned Air India Ltd. adding flights to the U.S.

In pharmaceuticals, more than a dozen Indian companies are on the U.S. Food and Drug Administration’s import alert list over violations of manufacturing practices. Shipments are banned from four plants belonging to Ranbaxy Laboratories Ltd. (RBXY)

Obama’s Congratulations

Nirmala Sitharaman, who was appointed minister of commerce and industry in the Modi government yesterday, didn’t respond to phone calls and text messages seeking comment about Indo-U.S. trade relations.

U.S. President Barack Obama called Modi after votes were counted on May 16 to congratulate him and invited him to visit Washington to deepen bilateral ties. Obama congratulated Modi again yesterday after he was sworn in, according to a statement from the White House.

The new premier has posted gratitude on Twitter for felicitations from nations including Australia, the U.K., Singapore, Japan, Russia, Canada, Germany and South Africa. A May 19 post to Obama said they discussed strengthening relations. It didn’t say thanks.

“This is downright revealing,” said Sumit Ganguly, a professor of political science at Indiana University in Bloomington. “Modi may be pragmatic, but we don’t really know what his sentiments are about the humiliating manner in which he was denied a visa.”

Defense Market

Modi, the 63 year-old son of a tea-seller, led the election campaign of the BJP, a party rooted in Hindu nationalism. He was chief minister of the western state of Gujarat from 2001 until resigning last week.

Modi was denied a U.S. visa after being accused of failing to stop riots in Gujarat 12 years ago that killed more than 1,000 people, mostly Muslims. He’s denied the claims and an Indian Supreme Court-appointed panel found no evidence he gave orders that prevented help from reaching those being attacked.

For some, the BJP’s development agenda boosts the odds of better trade relationships and wider economic gains. That’s spurred a 16 percent climb in the S&P BSE Sensex (SENSEX) index in 2014, while the rupee has strengthened 4.8 percent versus the dollar.

India last year became the largest market for U.S. defense exports by companies such as Chicago-based Boeing Co., IHS Inc. data shows. The imports from the world’s biggest economy were worth about $1.89 billion, up from 2009’s $237 million.

‘Clear Mandate’

“We hope such a clear mandate for the incoming government will enable them to take decisions faster,” said Boeing India President Pratyush Kumar. “Timely decisions will rekindle economic growth and strengthen India’s defense services. We look forward to working with the new government.”

Modi has vowed better governance to spur growth. Morgan Stanley predicts India’s gross domestic product will rise 6.5 percent in the year through March 2016, up from a near decade-low of 4.9 percent last fiscal year.

“The tension between India and the U.S. on trade will be reduced significantly, if not disappear completely,” Asoke K. Laha, executive vice president of the Indo-American Chamber of Commerce, said in an e-mail. The disputes are isolated events and “just noise,” he said.

Still, the obstacles remain. The BJP’s election manifesto opposed genetically modified crops, an industry served by U.S. company Monsanto Co. (MON), without “full scientific evaluation.”

Entry Barriers

Wal-Mart Stores Inc. (WMT) has said India’s rules for foreign retailers “aren’t workable” even after the previous government eased entry barriers. The BJP has taken a tougher stance, saying it won’t allow foreign direct investment in supermarkets selling multiple brands. At the same time, the party has said it welcomes foreign investment in other areas as needed.

Merck & Co. (MRK) and Bristol-Myers Squibb Co. (BMY) face threats to patents from rules allowing local manufacturers to copy drugs under certain conditions. A 2008 U.S.-India civil nuclear pact remains stalled over concerns about who’d pay for accidents.

The friction extends beyond bilateral trade, which fell more than $2 billion in 2013, according to data compiled by Bloomberg. The arrest in New York last year of Devyani Khobragade, an Indian diplomat accused of lying on a visa application, roiled bilateral ties.

While Modi’s focus on faster development could create commercial opportunities, U.S. companies can’t assume they’ll be first in line, according to Indiana University’s Ganguly.

“Modi may be quite pragmatic, but I don’t think he’s in any hurry to accommodate the U.S.,” Ganguly said. “If the U.S. seeks to strong arm him, he’s a tough bargainer.”

To contact the reporter on this story: Natalie Obiko Pearson in New Delhi at npearson7@bloomberg.net

To contact the editors responsible for this story: Daniel Ten Kate at dtenkate@bloomberg.net; Reed Landberg at landberg@bloomberg.net Sunil Jagtiani, Abhay Singh

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