India’s merchandise exports to the USA increased from about $ 5 billion
in 1994/95 to around $ 8.5 billion in 2001/02. This, of course, excludes
some $ 4-5 billion of software exports in that year. But India’s imports
from the US in 2001/02 was virtually at the same level as in 1994/95
at about $ 3 billion.

The Ambassador also says that India compares very unfavourably with
China in regard to US investment. Not quite. If both foreign direct
investment (FDI) and foreign institutional investor (FII) inflows from
the US are considered, China is ahead by a factor of probably two, at
most three. This excludes the $ 4 billion or so of remittances that
we get from the USA annually.

Not true, although for a number of American companies like GE, Boeing,
Motorola and McDonalds, the Chinese market is expanding at a more scorching
pace than India’s. Where India scores over China is in software exports
and IT-enabled services (like call centres, back-office processing,
medical transcription, etc). But the Chinese are determined to catch
up.

Why are India’s imports from the USA not rising? Sluggish economic expansion
and industrial deceleration in India since the mid-1990s is certainly
one reason. High import duties are another. The average trade-weighted
import duty in India is well over twice that in China and East Asia.
And till last year we had quantitative restrictions on imports as well.
Regulatory uncertainties are deterring American investors, although
insurance is one exception. Our FDI policies are still non-transparent.
However, US policies themselves could be a stifling factor. A panoply
of export controls in the high-technology sector are choking sales to
India valued at least $ 300-400 million annually in diverse areas like
nuclear power, space, defence, electronics and computers, chemicals
and food processing.

India defence procurement is perhaps around $ 2 billion every year.
Most of our defence purchases are from Russia. In recent years, Israel
has emerged as an important source. This again is an area where American
exports to India could expand. In fact, the most vibrant aspect of Indo-US
relations presently is military cooperation. Joint military exercises
have been held in Agra and Alaska. The Indian navy recently escorted
American ships through the Straits of Malacca. Whether the growing bonhomie
will actually result in increased US military sales to India remains
to be seen. But clearly, there is a new perspective evidenced, for example,
by the aggressive lobbying being done by Boeing to bag the lucrative
billion dollar contract to supply trainer aircraft to the Indian Air
Force by elbowing out the UK.

The volume of Sino-US merchandise trade is now about ten times that
of Indo-US trade. There is a very close nexus between foreign investment
and foreign trade in China unlike in India. That is entirely because
of China’s single minded focus to emerge as a global powerhouse in labour-intensive
mass manufacturing, a focus lacking in India because of rigid labour
laws, small-scale reservation policies, awful infrastructure and an
antediluvian mindset based on the false dichotomy of mass production
versus production by the masses. However, already 10% of China’s exports
to the US comprises high-tech goods and with the growing economic integration
of Taiwan and Mainland China, this proportion will increase.

Negative sentiment on India on account of the nuclear stand-off with
Pakistan and because of our continuing failure to translate policy intentions
into actual actions is growing. A country with a historic past is in
danger of being condemned to remain a country with a great future.