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PM Modi should free the US of the UPA’s legacy

Many trade opportunities exist between India and the US. However, they must surmount the cultural impediment of distrust. Indians need to appreciate the Americans’ motives — they come to India to conduct business, not to exploit.

ht view Updated: Oct 14, 2014 01:13 IST
Sardul Singh Minhas
Sardul Singh Minhas

What should Prime Minister Narendra Modi key policy concerns be, particularly with respect to America and China? Two issues will greatly hinder the PM’s ambition to leverage foreign relations to resuscitate investment interest in India.

Retroactive taxation is particularly odious to future investors. Enacted in 2012 by the UPA government, it would tax sale of shares of a foreign company with assets located in India, retroactive to 1962. Investors are exposed to double taxation since they would also be taxed in their home country. The BJP had pledged during elections to end “tax terrorism.” It is time for Modi to redeem that pledge.

The UPA government’s enactment of the Civil Liability for Nuclear Damage Act in 2010 ran counter to the International Convention on Supplementary Compensation for Nuclear Damage. The civil nuclear agreement concluded with the US in 2008 had generated considerable interest among American companies to invest in nuclear power plants in India.

The interest evaporated after the liability act came into force. The Act seems to be a hindrance in concluding a similar agreement with Japan.

The US and India have complementary strengths — the systems thinking and knowledge base of the US, and process innovation and human capital of India. The US-India trade stands at a paltry $100 billion today; the corresponding trade volume between the US and China totals $600 billion. Vice-President Joe Biden had suggested a good target of $500 billion last year.

Many trade opportunities exist, such as infrastructure, energy, and pharmaceuticals. However, the two countries must first surmount the cultural impediment of distrust. Indians need to appreciate the Americans’ motives — they come to India to conduct business, not to exploit.

Modi’s meeting with US President Barack Obama led to a renewal of a 10-year defence cooperation framework. They agreed on a pact to cooperate on maritime security, and announced several clean-energy initiatives. However, the talks didn’t yield resolutions to disputes over taxes and trade. But the good news is an expected investment by American companies of about $41 billion into India in the next three years.

Some policy mavens in both countries tend to equate the “deliverables list” from such meetings to achieving a strategic breakthrough. Will the relationship have rediscovered its foundational moorings that were developed during the tenures of George W Bush, Atal Bihari Vajpayee and Manmohan Singh in the UPA’s first term? A critical determinant of whether these deliverables will reify into strategic geopolitical cooperation would be one intangible — did Modi build a warm, personal relationship with Obama and other key policy interlocutors in the US?

In India’s relations with China, priority should be accorded to managing conflict. India should demand that China agree to start the demarcation of the border within a stipulated time frame.

Unless China stops right away its practice of issuing stapled visas to residents of Kashmir and Arunachal Pradesh, India should reciprocate with a similar practice for visitors from Tibet. It should emphasise Tibetan autonomy, return to its original position of 1954, and aggressively mobilise international opinion on behalf of it.

Following the recent India visit by President Xi Jinping, the announced investment of $20 billion over five years was unimpressive compared to the promised Japanese investment of $35 billion. India should actively seek to diversify into investment from other places.

Sardul Singh Minhas is a business consultant and writer

The views expressed by author are personal

First Published: Oct 13, 2014 22:04 IST