India
- U.S. Economic
Relations
November 01, 2001
Economic
Reforms introduced in 1991 have radically changed the course of the Indian
economy and led to its gradual integration with the global economy.
Benefits of the reform process are visible in the form of better growth
rates, higher investment and trade flows. The effects of these reforms on
trade and investment relations with the United States have been profound.
It is now not only the largest investor country in India, but also its
largest trading partner.
USA accounts for about 20 percent of all foreign direct investment (FDI)
approved (excluding
Euro issues and NRI investments)
from 1991 – July 2001. Out of the total Foreign Direct Investment
Approvals between 1991 and July 2001 of about $71 billion, approvals from
USA constituted nearly $15 billion.
(Source: SIA)
* Jan-Jul.’01
The U.S. is also one of the largest investors in terms
of actual FDI inflow into India. U.S. FDI Inflow was about $3 billion
between 1991 and July 2001 whereas the total FDI Inflow to India for this
period was about $19 billion. The FDI inflows from the US constitute about
16 percent of the total actual inflow into the economy. The overall U.S.
FDI inflow-approval ratio is 19 percent. But during the last three years,
the ratio has improved to an average of 39 percent.
(Source: SIA) *
Jan-Jul’01
Sector–wise Break-up of US FDI
·
Fuel (Power
& Oil Refinery) - 39%
·
Food
Processing Industries - 11%
·
Telecommunications
- 10%
·
Service
Sector (Financial & Non Financial Service) - 9%
·
Electrical
Equipments (Computer software & Electronics) - 8%
The
US is the leading investor in India in Portfolio Investments also.
Out of the 538 Foreign Institutional Investors (FIIs) registered
with SEBI, 220 are from United States. As of February 05, 2001, an
investment of nearly $ 7 billion out of a total of $13 billion by FIIs in
the Indian capital markets was from the United States. This accounts for
about 47 percent of the net investments made by the FIIs since 1993.
Year-wise
Investment made Total and US Based FIIs
*
Feb. 04, 2001 (Source: SEBI)
India
has a population of one billion, including a large middle class, and is
therefore a major market in itself. US companies in India are involved in
every sector that is open to private investment, and a large number of the
Leading Fortune 500 companies have invested in India. From infrastructure
to consumer goods, and from information technology to consultancy
services, American companies are represented in India as never before.
During President Clinton’s visit to India in March 2000, a Memoranda of
Understanding worth about $3.5 billion was also signed by, among others,
Motorola, Hughes Network Systems, Bank of America, IBM, Enron and Ogden
Energy.
There
are several areas where economic cooperation between India and the US can
progress further. These include IT, Telecom sector, energy and other
knowledge industries such as pharmaceuticals and biotechnology. The U.S.
investor community is today increasingly sharing confidence in the future
of the Indian economy. As the Indian economy grows and second generation
reforms are implemented, Indo-U.S. bilateral ties are bound to strengthen
further. The growing synergy between the two countries in the technology
sectors and mutually shared respect for democracy, rule of law and well
established business practices make the two countries natural business
partners.
Institutionalizing
the growing economic relationship
The
highly successful visit of the Prime Minister Atal Bihari Vajpayee to the
U.S. in September 2000 preceded by the equally successful visit of the
former President, Hon. Bill Clinton to India in March 2000 are important
milestones in this growing relationship between the two countries.
The
“Vision Statement” signed by the Prime Minister of India Atal Bihari
Vajpayee and the former U.S. President, Hon. Bill Clinton in March 2000,
envisions a broader dialogue between the two countries on economic policy
issues. Pursuant to this Yashwant Sinha, Finance Minister of India and
Hon. Lawrence Summers, the former U.S. Treasury Secretary, signed an
agreement in April 2000 setting up the India-United States Financial and
Economic Forum. The objective
of the Forum is to strengthen the financial and economic relationship
between the two countries through regular government-to-government
meetings of economic policy makers. The
Forum envisages Cabinet level meetings between the Indian Finance minister
and the U.S. Treasury Secretary, who are expected to meet on an annual
basis. These meetings are to be supplemented by sub-Cabinet level meetings
of the officials of the two governments with participation of associated
agencies like the Securities and Exchange Commission, Federal Reserve
Board, office of the Comptroller of Currency on the U.S. side and the
Reserve Bank of India and the Securities and Exchange Board of India on
the Indian side. The first
sub cabinet level meeting of the forum was held in June and the second
Cabinet level meeting was held in Washington D.C. in September 2000. The
next sub-cabinet level meeting of the Forum is also expected to be held
this year.
Waiver of Sanctions against India
In
keeping with the close relationship developing between the US and India,
the U.S. government recently announced the waiver of sanctions imposed on
India after the Nuclear tests conducted by India in May 1998. These
sanctions were lifted by removing the license review policy of denial of
exports and re-exports of Nuclear Proliferation (NP) and Missile
Technology (MT) items and restoring the use of License Exceptions for
these items for entities not listed on the Entity List. In addition,
several Indian entities have been removed from the Entity List. The
license review policy has also been revised. The policy now presumes
approval for all Indian entities.