Why U.S.-India Ties Require Patience, Spur Hopes

In May, when President Barack Obama criticized U.S. tax laws for encouraging companies to shift jobs from Buffalo to Bangalore, it set India's business community on edge. Indian exporters and service providers worried that they might face new, protectionist U.S. laws. Some Indian business leaders have come to believe that only Republican-led U.S. Administrations are pro-India. After all, it was a Democratic Administration that imposed sanctions against India in 1998 following India's underground nuclear test-explosions in the Rajasthan desert.

This unease is misplaced. When Obama took office he faced an unprecedented domestic financial crisis and a tough global economic situation. So a slow start to U.S. relations with India wasn't unexpected. What's more, India was to hold general elections, and Washington might have wanted to wait until results were in before it decided how to approach New Delhi.

But I believe that, years from now, we will view this time as an inflection point in U.S.-India relations. Here's why I am so optimistic: Days after it became clear that India's Congress Party-led bloc was going to win the national election, President Obama took action. He quickly dispatched Under Secretary of State for Political Affairs William Burns to New Delhi for immediate high-level bilateral discussions relating to defense and nuclear collaboration. As a result, trade agreements on defense and nuclear technology appear to be in the offing.

Two months ago, Obama announced he had tapped Dr. Tim Roemer, a former member of the September 11 commission, to become ambassador to India. Roemer was confirmed by the Senate this week. While there is concern in India about Roemer's lack of expertise, Roemer can contribute in ways that would be far more important. Among them: fresh thinking and a keen mind. Many India experts in the U.S. have viewed Washington's strategic policy with India too narrowly, either through the lens of terror in Pakistan or India's past alignment with the former Soviet Union. Roemer could forge diplomatic relations that more accurately reflect the realities existing in the business world.

How to Strenghthen the Bond While conducting research for my book, Doing Business in 21st Century India, I interviewed dozens of U.S. executives who had worked in India (many of them are still there). I found that it usually takes more than two years for most Americans to begin to appreciate the complexities and subtleties of Indian society. Yet over the past six decades, most American ambassadors to India have stayed for just two years or less. Ambassador David Mulford was among the few who stayed longer. If Roemer sticks around for as long as Mulford did, he could further strengthen the bond between the U.S. and Indian business communities in ways not seen since the Kennedy Administration.

Behind the scenes, top U.S. officials appear to be working to remove legacy rules that date back to when India was lumped in with so-called rogue states. It may take a decade to eliminate these barriers entirely, but we could see significant progress soon, perhaps even this year.

On the business front, there's also been substantial progress so far this year. In January, Boeing (BA) announced that India would be the first overseas customer for the P-8 maritime reconnaissance aircraft, a deal estimated at $2.1 billion. Field trials of Lockheed Martin's (LMT) F-16 and Boeing's F/A-18 Super Hornet fighter aircraft are starting now and could lead to a multibillion-dollar bonanza for one of these American defense contractors. Both General Electric (GE) and Westinghouse have signed memorandums of understanding with India's Nuclear Power Corp.. Those deals could help pay for tens of thousands of U.S. jobs, according to estimates by the U.S.-India Business Council, a Washington-based industry group.

As American companies look to expand globally, many have turned to India. So far this year, India's economy is growing at a pace that's faster than 5%; economists and analysts are forecasting 6% for 2009. The Indian government's ambitious new budget]aims to restore annual growth of 9% in the near future. India now ranks as the 20th largest U.S. trading partner. Given the pace of business deals this year, it's not hard to imagine India breaking into the top 10.

The Problem with Protectionism Yet major obstacles remain. American corporations continue to attract many of India's best and brightest. They might be working in Bangalore or Buffalo at IBM (IBM), Boeing, Google (GOOG), or Microsoft (MSFT). The risk is that protectionist U.S. laws could make Indians less enthusiastic about working for U.S.-based multinational companies and prevent those companies from hiring the talent they need to be globally competitive. It could also seriously damage business relations between the U.S. and India.

Some U.S. regulations have already put American companies at a competitive disadvantage. Global rivals can often skirt U.S. regulations—notably the Sarbanes-Oxley Act, Foreign Corrupt Practices, and International Traffic in Arms Regulations (ITAR). By making it harder for U.S. companies to hire Indian workers, either as employees or through contract suppliers, Washington could strip those companies of a competitive weapon. That would be unfortunate.

India has to shed some of its old-fashioned ways, too. For example: Barriers against U.S. companies, such as import tariffs, still make it hard to do business in India. Harley Davidson (HOG) has faced hurdles selling its motorcycles in recent years. And while Paramount Farms, the world's largest supplier of pistachios and almonds, has made some inroads with California pistachios in India, Indian growers of cashew nuts and walnuts have freer access to U.S. markets. India could give more U.S. companies a fairer shake by reforming import taxes. (Full disclosure: Paramount Farms is one of my clients.) The two countries need to work together to ensure there's progress on the Doha round of international trade agreements.

Despite the concerns of Indians about trade ties with a U.S. Administration led by Democrats, many in India have high expectations for improving ties. One reason: Indians view Secretary of State Hillary Rodham Clinton favorably. In several official and personal visits to India, Hillary, Bill, and Chelsea have won the hearts of their hosts. Secretary of State Clinton's impending visit to Delhi and Mumbai, beginning on July 19, could quiet the lingering concerns about the current Administration.

I usually coach my U.S. clients to be patient with India, since decisions there can take longer than they might have initially anticipated. But here I advise readers from India to be patient with the Obama Administration. I believe we could see some serious and substantial results by the end of the year. President Clinton did not visit India until the final year of his second term, reflecting India's standing with the U.S. back then. Things are different now. Obama may take a few more months to flesh out his India strategy, but I expect him to be more aggressive in his outreach than past Democratic Presidents.

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