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India not oversold, but over-hyped: America Inc

April 17, 2012 22:17 IST

Corporate America does not believe that the United States-India relationship has been oversold, but that it's certainly over-hyped. However, it is more concerned over New Delhi's recent actions such as retroactive taxes and predicts all this will lead to foreign direct investment drying up at a time when India needs it more than ever.

This is the first of a four-part series.

Diane Farrell, executive vice president and senior director of policy advocacy at the US-India Business Council, who described herself as "representing the transactional side of the relationship," at the 'Is the US-India Relationship Oversold?' conference, said, "I actually don't think India is oversold when you look at the medium and long-term prospects and you look at the rise of the Asian economy generally. But I do believe it has been over-hyped."

She listed her complaints over recent actions of the Indian government, including the budget.

She said the USIBC had even brought up the issue at a recent meeting with Indian Ambassador Nirupama Rao.

"We went through aspects of the budget that were problematic, especially when it comes to tax issues," she added.

Farrell said that cases such as the Vodafone tax case where the Indian government wants to take retrospective action had "sent a chilling (message) -- is probably too light an expression -- in terms of how that's going to impact the investment community, especially when it comes to foreign direct investment".

She said this and other tax provisions "that are equally as concerning although they are just not quite as high profile," signalled "some of the stresses that the current United Progressive Alliance government is experiencing."

Farrell saw these as consequences of the Congress party being pummelled in states such as Uttar Pradesh, "which created a tremendous setback, which has been part of why we saw the budget that we saw, in addition to certain fiscal demands."

She said the withdrawal of the decision to open up multi-brand retail, even though a vote wasn't even required in Parliament to do this, was the other extremely chilling action that was taken.

Another setback, Farrell said, was related to compulsory licensing -- "a decision that was first made against Bayer, relative to a small usage cancer drug."

"This was the first time that the Indian government's regulatory system has seen fit to force specific pricing on to the pharmaceutical market -- again, very chilling," she said.

She added, "Another issue that's very difficult for us right now -- and we are still looking for clarification -- is the Indian government's overarching desire to want to create indigenous manufacturing as part of their inclusive growth strategy. But they are now looking at IT procurement and are wanting to impose what are called local content rules. And, that's not limited to IT, but it happens to be a recent decision that's one of great concern to our companies because what this means is giving favour to indigenous companies."

Farrell warned that some of these big policy decisions were being made with a limited viewpoint, without taking into account the impact on the investment community.

She said, "No one is going to come into India, either as an investor or want to actually sign on to a project if they have concerns about things like retrospective actions, if they have concerns about local content rules and if frankly, they have concerns about being paid -- this is the other major issue that goes on with some of these projects."

"The only bright spot that you can talk about right now is trade," she added.
Aziz Haniffa in Washington, DC