Obama's a friend, but Sangh may deny Modi ease of doing business with the US

The Americans are known to be highly transactional in the way they craft and implement their foreign policy. History bears witness to this tendency. Before they agreed to join UK in the war effort against Hitler in 1941, Americans asked Britain to dismantle its preferential trade arrangements with its colonies. And after Britain became hugely indebted to the US, American negotiators forced UK to accept the dollar as a reserve currency, marking the end of the dominance of pound sterling. In short, they always ruthlessly look at economic gains in every global collaboration. Today they see in India a great opportunity to do strategic business deals, especially in the area of green energy as the pressure of the horrific consequences of climate change grows by the day. The big opportunity in India is the bottom 800 million relatively poor possibly consume less than 200 units of electricity per capita annually as compared with the developed world whose population consumes more than 7,000 units of electricity per head. In fact India’s per capita energy consumption today compares with what existed in late 19th century US! About 400 million Indians don’t even have formal access to electricity. With the pressure on India growing everyday to contribute to carbon emission reduction, the US government thinks it can do big bilateral deals with India which will sustain a long term partnership. [caption id=“attachment_2062763” align=“alignleft” width=“380”]  Fermenting ties. Image courtesy PIB[/caption] The US finds in Prime Minister Narendra Modi a kindred spirit. The US government has figured that Modi wants to do business with them in areas where India’s contentious political economy does not come in the way. What are these low hanging fruits which the Americans want to explore in the medium to long term? So far the Indo-US relations have stagnated inspite of all the promise shown in regard to the flow of critical technologies after the signing of the nuclear deal under UPA I. Critical technology sharing on reasonable terms is really the very basis of taking India-US engagement to a much higher plateau. Modi thinks he can persuade the US government to transfer critical technologies whether in the production of green energy, defence equipment or nuclear power plants. Sure, the Americans may be willing to share new technologies but not before they extract their pound of flesh, as history makes so amply clear. Also, technology transfer in critical areas does not come in a piecemeal manner. It comes as a package deal in which India will have to make some key compromises. Some of these compromises will certainly create political economy risks for Modi. For instance, the Americans want India’s Patent Law governing the pharmaceutical sector to be reviewed. India’s Patent Act, which provides for compulsory licensing and production of cheaper variety of the drug to be given to the poor in the event of an epidemic, has been hailed as path breaking by other developing nations. But the Western pharmaceutical companies want restrictions to be imposed on this. This will not fly and the first opposition to any such move will come from the Sangh Parivar elements within. The global pharma companies also dislike another provision in our Patent regime which says incremental innovation, which does not substantially improve therapeutic value of a drug, cannot be patented. These issues are potentially deal breakers. On the nuclear liability law there is some hope that the Indian government will find some solution without changing the legislation. Some sort of government guarantee, written into a contract with a US equipment supplier, can possibly mitigate the supplier’s liability. This may pass muster. There is great hope being attached to the announcement of starting a new Bilateral Investment Agreement between India and US during the Obama visit. Any Bilateral Investment Agreement will presuppose that Intellectual Property Rights disputes between the two nations would be on the table for discussion. It also presupposes that India will be open to totally liberalising FDI in the services sector such as multi-brand retail, insurance sector and banking sector where there are severe restrictions. On multi-brand retail, we are informed by professor Jagdish Bhagwati, who met Modi recently, that the PM has nothing against multi-brand retail at a philosophical level. Bhagwati suggested Modi may agree to opening it up in a few years. If indeed Bhagwati is right, then the BJP needs to explain why it ran a nationwide campaign against FDI in multi-brand retail when it was introduced. The Sangh Parivar is totally opposed to any move to fully open up insurance and banking, foreign companies having a free run without any management restrictions. The Parivar philosophically believes that the savings of a Indian people can be harnessed only by Indian companies, preferably PSUs. One doesn’t know whether Modi has had any back channel talks with the RSS leaders on this issue. Unless these political economy issues are resolved, the discussion on a Bilateral Investment Agreement will not go anywhere. Actually the Americans want to enter the services market, much more than manufacturing. In manufacturing, they will remained focused on sectors like defence and green energy such as solar and nuclear power. The least controversial issue, from India’s political economy standpoint, will be the idea of creating defence co-production facilities to enhance India’s national security vis-a-vis China and Pakistan. The Sangh Parivar is likely to fully cooperate on Indo-US defence engagement. However, as I said earlier, this will come only as part of a package deal. India cannot choose some parts of the package and reject others. This will be the biggest challenge in scripting a new chapter in Indo-US engagement. The author is Executive Editor at Amar Ujala Publications Group. The views expressed are personal.