Thursday, August 5, 2021

Strengthening India-US Business Relations

Prime Minister Narendra Modi has asked US firms to invest in India, in various sectors including infrastructure, aviation, defence and space research. He was addressing the “India Ideas Summit”. The Summit was hosted by US-India Business Council. The theme of the summit was “Building a Better Future”.  The India Ideas Summit aims at attracting foreign capital to India as a post COVID-19 recovery agenda.

Prime Minister Modi highlighted that India got $ 20 billion in foreign investment during the first quarter of 2020-‘21. He also said, India’s “ease of doing business” ranking has improved. The investment optimism can further determine improvements in India’s key business ratings.  India has reached record high in foreign direct investment (FDI). The transition in foreign investment from FII portfolio investment to FDI is a welcome trend as FDI is relatively a stable investment than foreign portfolio investment. FII is ‘hot money’ and it can lead to flight of foreign capital based on the interest rate differentials. The hot money always responds to high interest rates.

Prime Minister said that “the rise of India means a rise in trade opportunities with a nation that you can trust, a rise in global integration with increasing openness, a rise in your competitiveness with access to a market which offers scale. And a rise in your returns on investment with the availability of skilled human resources.” He also mentioned the possibilities of investment in the frontier technologies of 5G, big data analytics, quantum computing, block-chain and Internet of things.

Mr. Modi said that India and US are two vibrant democracies, and as such are natural bilateral partners. The US-India partnership plays a significant role in helping the world to bounce back faster in the covid19 pandemic. 

During the pandemic, global economic resilience can be efficiently and optimally attained through domestic economic capabilities. Prime Minister emphasised the significance of self-reliant India in “Atmanirbhar Bharat” paradigm.  The diversification of international trade and strengthening of financial markets are other determinants of global resilience post pandemic. Policy uncertainty can make the progress slow. 

The investment options in agriculture sector includes FDI in food processing, organic produce and fisheries. In the health care sector investment – the pharma sector – India and US are forming robust business relations. In the energy sector, India is evolving as a gas-based economy. There will be big investment opportunities in clean energy. Yet another potential area of US-India business investment is in infrastructure including building housing for millions, or building roads, highways and ports.

Civil aviation is also identified as an important area of great potential growth. The Prime Minister highlighted that the number of Air passengers are expected to more than double within next 8 years. The top private Indian airlines plan to include over a thousand new aircraft over the coming decade.  In defence and space sectors India has revised the FDI cap up to 74 per cent. In the insurance sector, FDI cap is 100 per cent. India has introduced many insurance products including Ayushman Bharat – the health assurance scheme, Pradhan Mantri Fasal Bima Yojna, crop insurance scheme and Jan Suraksha and other social security schemes. Mr. Modi observed, the new avenues for insurance are health, agriculture, business and life insurance. The statistics shows that the FDI inflow reached record high in India. This is an increase of 20 percent from the previous year. 

In the midst of COVID-19, India has continued to attract foreign investment. The point to be noted is that along with foreign investment, there is an ardent need for India to strengthen on the domestic private corporate investment. The empirical evidence shows that public infrastructure investment is a major determinant that attracts private investment.  Prime Minister laid emphasis on strengthening infrastructure investment. Tackling infrastructure bottlenecks, ensuring policy certainty and macroeconomic policy co-ordination are very crucial to achieve this. To ensure economic recovery in post-pandemic era, investment in core sectors are indeed crucial.

Script: Dr. LEKHA S CHAKRABORTY, Professor, NIPFP & Research Faculty Associate, the Levy Economics Institute of Bard College,  New York

 

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