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'Need to take steps for stronger US-India trade ties'

March 14, 2013 15:28 IST

US flagPushing for stronger India-US trade ties, an Indian economist in Washington has said that American companies should focus on long-term goals and not on short- term hurdles, as working towards that objective is more of ‘a marathon’ than ‘a sprint’.

Besides, he has said that it is important to ensure that China remains open, non-discriminatory and follows the policies that the US wants.

Acknowledging that he is well aware of the concerns of the American business community with regard to what they allege as the protectionist and restrictive Indian polices, Arvind Subramanian told lawmakers at a Congressional hearing On Wednesday that the US and its companies should set their eyes on the long-term goals and not on short-term hurdles.

"Go big. This is a marathon, not a sprint.

“This is multi-dimensional, not uni-dimensional.

“And sometimes going big is the best way to address even the small.

“You can't resolve chickens by talking only chickens," he said in his oral testimony.

"Above all, I think it's very important to realise that a US-India trade relationship is absolutely vital for the other big prize, which is China and keeping China tethered to the multilateral trading system and ensuring that China remains open, non-discriminatory and follows the policies that we want," he said.

Subramanian, who is the senior fellow at the Peterson Institute for International Economics, emphasised on dialogue with India on the localisation-protectionist measures and the regulatory environment.

"If that doesn't work, use the WTO to resolve conflicts as much as possible for two reasons: One, you can test the validity of claims about India being way out of line on many of these issues, IPRs, agriculture.

And second, India has a great record of complying with WTO rulings," he stressed.

"A factoid that I think is worth pointing out is that India's biggest trade reform came after the US initiated a dispute against US quantity to Indian quantity to restrictions on consumer goods.

"That went through, India complied with it, and you had the biggest change possible," he said.

On the uncertain regulatory environment, he acknowledged that this is not going to get resolved very soon.

As such US business has a challenge to adapt to the Indian environment, because if not, it risks losing ground to other countries, other competitors that are getting in despite the challenging environment.

Noting that in 2012, India became the world's third- largest economy in purchasing parity terms, surpassing Japan and now behind only the US and China, he forecast that this $4.7 trillion economy will double every 7-10


"The US has benefited immensely and it's worth emphasising that India-US trade and investment are balanced so that you don't have the kinds of tensions with other countries from imbalanced trade," he added.

Subramanian said the sectoral and the micro should not obscure the broad macro developments.

He told the lawmakers: "Despite India's transitional turbulence that's happening now -- slower growth, mounting macro vulnerabilities -- the predominant trend has been towards opening," he said, adding that in the last two-three years, few countries have opened up to foreign direct investment and foreign capital across the board -- stock markets, equities, debt instruments, among others -- like India has.

"That's because it reflects a deep and fundamental bipartisan consensus within India that the way forward is greater openness and globalisation."

Responding to questions from lawmakers, Subramanian argued in favour of removing India from GSP (generalised system of preferences).

Even though this would not effect India much, but New Delhi would see such a US move as retaliatory.

"I would be highly doubtful whether actions like that, you know, would really change the regulatory environment in a way that we all want to see change," he said in response to a question from Congressman Devin Nun, chairman of the Trade Subcommittee of the House Ways and Means Committee at the hearing on India-US trade.

"My sense is that the loss of GSP, in quantitative terms, will not be huge for India, you know. India, basically exports a lot of high tech, you know, more advanced goods and, apart from a few things here and there, I think the quantitative impact will not be great," he said.

"So it doesn't make for a very strong lever vis-a-vis India. "But I think you're going to incur the diplomatic cost because this can be symbolically seen as a kind of, you know, retaliatory reaction or so.

"That's why I think on the balance of costs and benefits, I would be a little hesitant about using that," Subramanian said in response to another question from Congressman Ron Kind.

GSP, which expires in July, would come up before the Congress for re-authorisation.

GSP is a programme designed to promote economic growth in the developing world by providing preferential duty-free entry for up to 5,000 products, when imported from one of the 127 designated beneficiary countries and territories.

Lalit K Jha in Washington
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Tags: GSP, India, WTO, US, China