Turbulence in an enduring partnership

Madeleine Albright (Ambassador to the United Nations, 1993-1997)

Cross-posted from Ambassador Albright’s August 19, 2013 special to to LiveMint and The Wall Street Journal.

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As Prime Minister Manmohan Singh looks forward to his US trip in September, the two countries continue to make rapid strides towards strengthening what President Barack Obama has called the “defining partnership of the 21st century”.

During my recent trip to India, I was encouraged to see Indians and Americans working together more closely than ever before in such fields as defence, diplomacy, science, education, medicine, and the development of clean energy.

Like all close and complex relationships, however, the US-India partnership has areas of turbulence, most notably in the business sector. American and other foreign companies continue to face unnecessary regulatory burdens and restrictions on market access. Investors worry about the impact of unpredictable changes in regulation on their Indian investments. Concerns about the inadequate protection of intellectual property have also raised tensions, prompting 170 members of the US Congress to sign a letter complaining that Indian policies “could have a significant negative impact on jobs and investment in the US”. These issues were a central part of the agenda during vice-president Joseph Biden’s visit to New Delhi in July, and will likely be explored further when Singh travels to Washington next month.

Navigating around the obstacles to such a partnership will never be simple because both India and the US are large, noisy, and pluralistic societies. At times, the tone of political discourse in the world’s largest democracy sounds distinctly similar to that of the world’s oldest democracy. In India’s Parliament, as in the American Congress, the work of lawmakers has been undermined by bitter partisanship and legislative gridlock. Such strains make it all the more important that national officials exercise strong leadership to help democracy deliver on the promise of a better life for its citizens.

In India’s case, economic reforms have generated more than two decades of rapid growth that has lifted millions of families out of poverty and enabled the country to play an increasingly prominent role on the global stage. India’s relative youth, coupled with the energy and education of its people, give it the potential to maintain a high level of expansion for many years to come. Recently, however, there have been signs of a slowdown; growth rates have dropped from an average of 8% annually to roughly 5%. The reason is no mystery: the world investment community is unsure whether India values its presence or not.

Despite its impressive record, India is but one of many emerging markets that must compete to attract a steady stream of capital inflows. To succeed over a period of time, New Delhi must offer investors greater policy and regulatory stability, which will allow private capital to develop growth opportunities.

Notwithstanding the political atmospherics, India would be well-advised to implement structural reforms to build confidence and challenge the perception that it is either hostile to—or thoroughly ambivalent towards—foreign investors. For example, India has been slow to raise the caps on foreign direct investment (FDI), deciding only recently to liberalize norms across a dozen sectors, while still leaving some capital-starved areas untouched. This lethargy has frustrated those with capital and may have the effect of depriving India’s large middle class of higher quality, lower-cost goods and services.

One logical next step would be to raise the FDI cap in insurance from 26 to 49%. Parliamentary approval of this change will enable international companies to help meet the burgeoning demand for affordable insurance products, especially in currently underserved rural and semi-urban communities. In addition to these direct benefits, insurers and pension funds are significant investors in infrastructure, a critical component of long-term economic growth (full disclosure: an international consortium of insurance companies is among the clients of the Albright Stonebridge group, which I chair).

Insurance reform may seem to be a relatively small piece of a much larger puzzle, but a change in one sector can have a disproportionately positive impact on overall investor perceptions. During my recent visit to New Delhi, I found that this is an area where leaders from both major parties agree that increasing the FDI cap would be beneficial. The challenge now is to transform this consensus in principle into the reality of legislative action.

In the months ahead, India’s decisions will determine for better or worse the level of investor confidence; this, in turn, will decide whether the country’s economy returns to high growth rates or continues to stall. The outcome of this process will have immediate implications for millions of Indian workers who are eager to improve living standards for their families.

I am hopeful that the US and India will support and reinforce one another in making these important, but difficult, decisions. While our democracies will surely remain contentious and at times exasperating, the strength of our shared political ideals should facilitate our ongoing cooperation.

 

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