January 27, 2015
Prime Minister Narendra Modi, US President Barack Obama and Indian President Pranab Mukherjee at the Republic Day celebrations in New Delhi on Monday.
January 27, 2015
Prime Minister Narendra Modi, US President Barack Obama and Indian President Pranab Mukherjee at the Republic Day celebrations in New Delhi on Monday.
New Delhi: India and the US moved to deepen their economic engagement, both striking a conciliatory note on divisive issues such as intellectual property rights (IPR), taxation and a bilateral investment pact, a day after Prime Minister Narendra Modi and President Barack Obama broke the stalemate on the civil nuclear deal between the two countries.
The US committed itself to starting a dialogue that may lead to a so-called totalization agreement that would eliminate dual social security taxation, a situation that occurs when a worker from one country works in another and is required to pay social security taxes to both on the same earnings.
India, for its part, signaled flexibility on its IPR regime. Prime Minister Modi also signaled his willingness to reverse retrospective taxation introduced by the Congress-led United Progressive Alliance (UPA) that had prompted concerns among foreign investors.
The moves to deepen trade and investment ties came on the second day of Obama’s three-day visit to India, his second in five years. On Monday, Obama became the first US President to be in attendance at India’s annual Republic Day parade as chief guest, an occasion marked by a display of India’s military might and cultural diversity.
On Sunday, Obama and Modi had decided to make the US-India civil nuclear deal operational, opening up a market potentially worth billions of dollars to US companies and giving India access to important technologies in another sign of warming relations between the two countries.
Both leaders addressed business leaders on Monday at the India-US CEO Forum and the India-US Business Summit.
Modi told the summit that his government will provide a non-adversarial tax regime and may even reverse the retrospective tax clause introduced by his predecessor Manmohan Singh’s government.
Modi’s government was criticized for not doing so in its first budget despite having a majority in the Lower House of Parliament.
“Our immediate target is to bring us from the rear ranks of the world into the top 50. You will find a tax regime that is predictable and competitive. We have removed some of the excesses of the past. We will now soon address the remaining uncertainties,” he added.
On the contentious IPR regime that US companies have been critical of, Modi said he agrees it is an important issue and everybody should work together to sort out the problem. “We have constituted a joint working group on this—US-India working group; whatever suggestions come up form this forum, we will implement this,” Modi said at the CEO forum.
An Indian CEO present at the closed-door CEO forum said Walt Disney chairman and CEO Robert Iger raised the issue.
“He said his company has a lot of investment in India, but a lot of their films are being pirated. He said the laws are there, but they are not being implemented. Finance minister Arun Jaitley said ‘we have to look into it’. Modi also acknowledged that there is piracy, both in information technology (IT) software and films and we have to tackle this and take strong legal action,” he said.
India also raised the issue of the totalization agreement. India has been demanding such an agreement, claiming it loses more than $1 billion every year in the absence of such a pact.
“In the joint statement, the US made a commitment that we will have a dialogue with the Indian government on totalization. We have said that we need a time-bound programme on totalization so that there is a definitive agreement reached within some time,” Deepak Parekh, chairman of Housing Development Finance Corp. Ltd, said after the meeting.
Chanda Kochhar, managing director of ICICI Bank Ltd, said the US side raised the issue of a bilateral investment treaty.
“Bilateral investment treaty is going to be a very important building block for expanding the relationship. The point that was made in the CEO forum is that we take feedback from both sides before concluding the treaty so that the treaty becomes meaningful,” she added.
At the business summit, Obama said the relationship between the two countries is defined by much untapped potential.
Obama said that while the US does about $560 billion trade with China, its trade with India stands only at about $100 billion. “That may give you some sense of both the kind of growth that India might unleash and the potential for greater trade between our two countries,” he said.
Obama said both sides had agreed to resume discussion that would move the two countries towards a bilateral investment treaty “that would facilitate India businesses making more investments in the United States and US businesses making more investments here in India”.
Obama announced that in next two years the US Exim Bank will commit up to $1 billion in financing to support “Made in America” exports to India. The US will also facilitate lending to small and medium businesses across India, which may result in $1 billion in loans in both the under-served rural and urban markets.
This, Obama said, will generate more than $4 billion in trade and investment to India and support thousands of jobs in both countries.
Obama said India needs to incentivize trade and investment, not stifle it. “We need to be fostering a business environment that is more transparent and more consistent and more predictable. In knowledge-based economies, entrepreneurs and innovators need to feel confident that their hard work and in particular their intellectual property will be protected,” he added.
Obama announced an “Indian Diaspora Investment Initiative”, a new-public private partnership to help Indian-Americans to directly invest in India’s future. Obama said this will generate a new stream of financing for Indian businesses that are investing in non-traditional and often overlooked markets.
“Whether it is providing healthcare to rural communities or improving water and sanitation, to opening up some of those new bank accounts, this can be another spark in india’s economic engine,” he said.
After a lull in the bilateral trade relationship, both sides resolved their differences on the food security matter to seal a deal at the World Trade Organization in November. Later that month, both sides held a Trade Policy Forum meeting after a gap of four years.
Soon after, India’s trade ministry announced a committee to identify bottlenecks faced by US firms wanting to invest in the country and fast-track investments. During Modi’s visit to Washington in September, the two sides announced a working group on IPR issues to resolve differences.
Courtesy: Live Mint
