USIBC Director of Operations Rick Rossow
 
'I am quite bullish on trade between our countries'

INDIA is in the early stage of economic revolution and the opportunities for increased trade and investment between the US and India are unprecedented, says Mr. Rick Rossow, Director of Operations, US-India Business Council (USIBC) in an interview with Amitabha Sen. Mr. Rossow who is "quite bullish on trade between our countries" would like to attribute the better relations between the countries today to a number of factors, most effectives of them being appointments by President Bush of a number of senior officials in the administration that are personally committed to strengthening the Indo-US relations; having avenue of trade that is advantageous to both the countries in offshore services; increasing knowledge of the US companies about  those Indian industries where good investments can be made; and India's stability vis-à-vis Pakistan. The Strategic Partnership Agreement underscores the US government's commitment to India and "that will certainly help reassure" American investors, he feels. On the prospects of India as the BPO destination for US firms, Rossow says: "India is still the destination of choice for BPO services".

AS: The Indo-US relations including Trade relation have made remarkable strides in last two-three years. What could be the chief reasons you would like to attribute to for such a significant improvement in bilateral relations between world’s two largest Democracies? 

RR: Better relations between our two countries can be attributed to a few different factors- I can speak most effectively to the reasons on the U.S. side. 

 
First, President Bush appointed a number of senior officials in the administration that are personally committed to strengthening the relationship.  Most important among these was President Bush’s first choice as Ambassador- Robert Blackwill.  Amb. Blackwill’s closeness to President Bush began an unprecedented period of high level of sustained contact between our governments and militaries.
     
 
Second, we finally have an avenue of trade that is advantageous to both our countries in offshore services- that builds a link that can survive small “bumps” in the road to strong relations.
     
 
Third- American companies are learning more about where they can make good investments into India.  You don’t have any new Dabhols coming up (however, there are still a number of as-yet-unresolved disputes from America’s early investors, particularly in Tamil Nadu).
     
 
Fourth- India’s stability vis-à-vis Pakistan cannot be underestimated. 

AS: The Strategic Partnership Agreement announced by President George Bush and former Indian Prime Minister AB Vajpayee early this year, has given a new dimension to the Indo-US relations. The US offer on high-tech cooperation including nuclear energy and missile defence is seen as unprecedented. What could be the probable impact of such a move on the US business and industry? Would it help increase their confidence in Indian govt. policies and Indian market as business destination? 

RR: I think the real benefit of the Strategic Partnership agreement is that it underscores our government’s commitment to India, and that will certainly help reassure investors. 

AS: Talking about US investment in India, we have case like Dabhol that, according to many, sent wrong signals to the outer world so far as foreign investment is concerned. To avert such a disaster what do you think should be done by the Indian government not only to dispel any apprehension about the future of their investments, but to increase their confidence in Indian investment policy? 

RR: You really can’t say “cases like Dabhol” because no other dispute that has come up could be compared to Dabhol.  However, that being said, there are other disputes that have come up.  Five U.S. energy companies are engaged in a dispute in Tamil Nadu.  Another has had problems with a pair of investments in Orissa.  The list goes on… most of the biggest problems are state-level issues.  So to answer your question, the Center could become more active in resolving problems at the state level.  Obviously, with coalition politics and the relative strength of state-level parties, this is not an easy task. 

Another thing the Indian Government can do is to move forward with the reform process, and further open up other sectors where U.S. investors are eager to become more deeply involved in the Indian market, including retail trade (FDI is not permitted), print media (26% FDI), insurance (26% FDI), telecom (49% FDI) and also by adopting a stronger patent regime and lowering customs duties. 

The Prime Minister and Finance Minister have both made announcements in several of the areas I noted above. 

AS: Could you identify the Indian business and industry sectors where the prospects of US investment look brighter than what they were few years back? 

RR: I think American companies are getting more serious about manufacturing in India.  Automotive companies and some consumer durable companies led the way, and others are planning to follow.  This is vitally important since, as vibrant as India’s IT market is, growth in manufacturing will be able to absorb a much higher number of workers, bringing them into the formal sector.

 

Media & Entertainment- With the two largest movie industries and two of the most developed cable TV networks, there are plenty of areas for cooperation.  Indian cinema has dramatically increased the quality of production, and Indian movies have a growing following in the States.  At the same times, more American movie studios are releasing their films earlier in India than ever before.

     
 
Pharmaceuticals- On January 1, 2005, per the WTO patent agreement, India must adopt full patent protection.  That will help India in two ways- foreign companies will bring more high-end pharma products into the Indian market, and India is expected to scale up its research & development programs for new drugs.
     
 
Textiles- On January 1, 2005 the WTO’s multi-fibre agreement comes into force, whereby countries must drop quantitative restrictions.  The QR’s had allowed the U.S. to import only a limited quantity of textiles from each country.  It is expected that India will benefit tremendously from having foreign markets open further, and U.S. companies will benefit through being able to import more textiles from Indian manufacturers.
     
 
Agriculture- The Congress Party came to power on a platform of extending the benefits of liberalization across India- and they plan to enact a new green revolution in agriculture.  This means some new opportunities for American companies that have the latest farm products- from fertilizers to seeds to farm equipment, and, of course, cold chain storage. 

AS: At the Asia Society seminar last year, the then Indian Commerce minister Arun Jaitley observed that being a Democracy, one of the constraints in implementing reforms in India is the need for popular sanction of a large mass of people. With the installation of Congress-led UPA government in India that to a great extent depends on the support of the Left, the speed in the reforms process as expected by the US trade and business may not speed up. Do you think this changing scenario may put India in the reverse gear of development? Is it possible to implement reforms without tears?

RR:
I don’t think the reform process will go into reverse gear.  The path may change somewhat (i.e., more focus on agriculture and rural development), but will not go backwards.

I personally believe that Democracy is changing to become a driver of reform in India.  Both of the major national parties can campaign on positions of economic reform, and will be measured by the electorate on the reforms they enact while in office.  That is a full turnaround from India’s electoral history where one party typically ran on a reform platform while the other ran on a platform of rolling back reforms.
  

AS: Reforms in sectors like Banking, Insurance, Civil Aviation, Law where the scope of foreign investments and joint ventures are very high, are somewhat not on the expected rate. Indian government on one hand has to think about the massive public sector structure being built over the decades since Independence and on the other keeping pace with globalization, India has to reform its trade and economic policies but how such reforms could speed up in a situation where poverty, illiteracy hugely influence a country’s economy? Your observation please?

RR: Not sure what you are asking with this question… something on how the Government can expedite reform when, at the same time, India needs improvements in poverty reduction & illiteracy?  I think these two issues are indivisible.  The point behind opening the economy is that an open market economy offers more opportunities for individuals to improve their stations in life.  No economic model ever adopted by a nation has proven as effective in improving overall economic welfare as capitalism.  Decreasing poverty and increasing literacy takes money, and money can only be generated by successful business ventures. 

If you look at India’s most successful sectors, three of them have historically not been burdened by heavy regulation or Government competition- media, pharma, Info Tech- and they thrived.  Two others have recently de-regulated, and are growing fast- insurance & telecom services.  And in these areas, it is generally not the foreign firms that have benefited most- it is Indian firms.  The discussion about liberalizing the economy isn’t about opening the door for foreign firms to dominate the market, as was originally the fear.  The reform experiment has benefited India’s private sector more than international firms.  That being said, American companies look forward to the growth of new opportunities to engage in the market and offer new products and services to India’s citizens.

AS: What would be your specific suggestion to the Indian government to facilitate the process of foreign investment without adversely affecting the basic structure of the Indian economy? 

RR: I don’t think you can bring in foreign investment without affecting the structure of the economy. I mean this in a very positive sense.  Most foreign companies operate in markets around the world, and have learned & adopted some of the most effective business practices around the world. As industries were opened for American companies, Indian companies have shown a phenomenal aptitude for evolving their own business practices to compete. As companies begin to compete with each other at such a high level, government institutions must be ready to adapt to the new business environment. In short, India is in the early stage of a revolution that will affect every business and government institution, resulting in new opportunities for India’s citizens and has already resulted in the first Indian companies to begin making their stamp on the world. 

AS: One of the major issues that is occasionally punctuating now the otherwise smooth relationship India has with the US is the hue and cry over “Outsourcing”. Not only because of cost cutting also due to non-availability of adequate technical skills are prompting many US corporations to outsource their requirements and India being  in an advantageous position is having the biggest chunk of outsourced works. How do you look at this? What is the prospects of India as BPO destination from US point of view? 

RR: India is still the destination of choice for BPO services. The growth of offshore services has certainly elicited an uproar in the United States, but many American companies must find the lowest-cost suppliers for internals services because all of their competitors are doing the same.  

AS: The Indo-US trade has grown substantially over last three/four years but exports to India from US did not grow at commensurating rate and that is causing concern. Could you highlight areas where there is immense scope for US to increase its exports? 

RR:
I have not heard much concern on this issue; U.S. exports to India are growing steadily- by nearly 19% from 2002 to 2003, and appear poised for a similar increase in 2004.

As far as increasing US exports to India, the primary area is in high-tech goods. Telecommunications equipment. Defense items. High-end pharmaceutical products. 


AS: All said and done and under the given situation how optimistic you are about the Indo-US trade relations? What is your projection? Where the Indo-US trade relations would stand five years from now?

RR: I am quite bullish on trade between our countries.  Indian companies have largely embraced global markets, and found opportunities on every continent. At the same time, the Indian Government continues to open their economy for foreign trade & investment. As I noted before, India is in the early stage of an economic revolution, and the opportunities for increased trade & investment between our countries are unprecedented.


October 14, 2004

 


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