Speeches and Remarks 2007

As prepared for delivery

Remarks to the American Chamber of Commerce in India
India Business Summit
By David C. Mulford
U.S. Ambassador to India
January 24, 2007 

Good morning Minister Maran, Ambassador Herbold, Mr. Rosales, my esteemed co-panelists, ladies and gentlemen.

You are arriving in India at a time when a lot of adjectives are being used to describe India and its fast-growing economy.  India is "poised," "rising,"  "emerging."  But more fundamental perhaps is that India is transforming, from within both the government and the private sector.

Individuals, firms, business associations, government offices are recasting their roles in the Indian economy --look, for example, at the turnaround at the Ministry of Railways.  Rather than shrink from the challenges of globalization, Indians increasingly view the globalizing economy as an opportunity that enables and rewards entrepreneurship and innovation. 

And while global markets are agnostic in allocating benefits, India's leaders across the political spectrum understand that the poorer and disconnected segments of society must gain from increased trade and capital flows. 

This awareness that growth must be inclusive is critical to ensuring that India's current high growth is sustained into the future, through connecting more Indians to each other and the world.  From a practical business perspective, inclusive growth ensures that there is an increasing number of people able to participate in the global market as both producers and consumers.

While it is conventional wisdom that India's FDI (foreign direct investment) levels pale in comparison to China's, there is a critical dimension to FDI in India that has been less examined and warrants some discussion: India's economic transformation promises opportunities not just in the usual sectors of liberalizing economies, such as telecom, but also in less-unconventional ways that globalizing companies are beginning to recognize.

FDI--the manifestation of the business decisions that you and your peers make--is experiencing a break out year in India right now.  It has more than doubled in the first half of the fiscal year to reach $6 billion.   While the U.S. has always contributed a large portion of India's FDI, it has tended to be at the modest level of $300-400 million a year.  In contrast, by October 2006, seven months into India's fiscal year, U.S. firms have already exceeded average annual levels - investing $470 million, with indications that total investment for the year will clear $1 billion. 

This rising FDI seems at odds with global competitiveness assessments such as the World Bank's Doing Business Report, where India commonly places in the bottom fifth of rankings.  It seems to me that corporate leaders are using another calculus for their decisions to enter India that are not yet captured in these lagging indicators. 

One hint of a newer approach can be found in a global CEO survey conducted last year.  A substantial majority of 1400 CEOs from around the globe indicated that the more important reasons for choosing an investment destination were to reach new customers and serve existing customers, with cutting costs a secondary factor in FDI decisions.

Such decision-making points to India's growing consumer markets - across the economic spectrum, from rich to middle class, and increasingly, to lower income groups.  Just as an example, India has the fastest growing mobile phone sector in the world and one of the fastest growing automobile markets.  A basic mobile phone handset costs only $30 -- less than two weeks' wages for 75 percent of the population -- while mobile phone service is just two cents per minute.

The inclusive growth I mentioned earlier holds out the opportunity of accessing not only a middle class roughly the size of the entire United States, but hypothetically, lower income families as well, which could easily double the size of the market.  Don't forget that not only is India the second most populous country in the world, it has the largest youth cohort, with the median age just 25 years of age. 

U.S. companies are beginning to understand India's true potential, witnessed by your presence, and symbolized by last November's U.S. trade delegation, led by Commerce Under Secretary for International Trade Frank Lavin.  That delegation consisted of more than 200 U.S. companies. 

Nearly half of the companies on the mission had never been to India before, and more than 60 percent were small-to-medium sized enterprises (SMEs), such as most of you.  Following the summit, 70 American SMEs fanned out to six cities across India for literally hundreds of private meetings with Indian companies, aware that potential markets beckon from around the country. 

As I hope you are hearing, the U.S. Government solidly supports the efforts of U.S. companies' in India.  Our  Commercial Section has developed a strategy under our Commercial Dialogue, that focuses on ten strategic industry initiatives (in areas such as telecom, energy, and aerospace), and selected strategic niche sectors, such as such as machine tools, scrap recycling, and printing technology.  Next month, the U.S. Secretary of Commerce Carlos Gutierrez will visit New Delhi to underscore the challenges and opportunities open to American companies in the Indian marketplace.

Since you are here to look at emerging opportunities, let me talk about what I see in front of you.  It would be no surprise to you that a good start would be the Information Technology and Business Processing Outsourcing (BPO) sector.  But increasingly, IT is becoming just part of the story--an enabler that dynamic entrepreneurs are incorporating across industrial and service sectors.  Investors recognize the market potential of such firms, leading to noticeable investments in financial services, telecom, and the auto and pharmaceutical industries.  

Trade and investment data primarily track ongoing developments.  However, the pace and depth of transformation in India today allows a much broader optic on identifying opportunities.  One priority of the government -- in both the public and private sectors -- is to work towards  economic growth that is fair and sustainable by extending the benefits of growth as broadly as possible. 

Expenditures have been focused on ways to enable individuals and firms to participate in India's growth through investments in health, education, and infrastructure.  At the same time, the government has acknowledged that the country's vast infrastructure needs cannot be met by the government alone and is working to develop public-private partnerships to build needed roads, airports, ports, telecom, and energy links.

The government assesses that it can provide only about one-fifth of an estimated $320 billion in infrastructure needs over the next five years.  Its commitment to meeting those needs has prompted engagement with state governments on what is needed, as well as to examine the avenues available for domestic and foreign funds to finance these needs.

Private firms are complementing this strategy through a nearly unprecedented growth in private corporate investment.  They are upgrading and expanding facilities to keep up with the growth momentum in both the industrial and service sectors--together, producing more than three-fourths of the country's economic output.  Imports of capital goods, especially in the engineering and machinery categories, has seen more than twenty percent growth per year over the last two years.

These are the developments that one can already see on the ground.  But also consider: there is a growing realization that reversing the country's low literacy rates and other social indicators, such as malnutrition and infant mortality rates, require new thinking and new models for service delivery.  There is a debate now for opening higher education to foreign investment to better serve the fast-growing, skill-intensive industries and the young people who would join them.  

The demand for better quality education is much in evidence.  The World Bank estimates that private education is on the rise in India, even in elementary school. This is because the government has been seeking to increase the quantity of available schooling, but it has not yet been able to deliver on improved quality.  A national 2004 study indicated that, in eight major states, more than half of urban elementary students were enrolled in private schools.

Private firms are developing in-house training programs to top up the needed skills that labor market entrants receive in school.  E-learning programs are being developed to provide students in far-flung rural villages with the skill sets businesses need but which are not provided in most rural areas.

To improve the employment and income prospects of the vast underemployed in the agricultural sector, the government supports private development of processed foods, a growing urban market.  India is the world's largest producer of milk and livestock, the second largest of fruits and vegetables, the third largest of food grains, and the fifth largest producer of eggs.  Yet processed foods account for only a negligible  part of this production -- merely two percent of fruits and vegetables, for example.  This potential, combined with the potential in organized retail-- 97 percent of retail is unorganized--affords one of India's most important opportunities for progress. 
 
Looking further ahead, it may not be too far in the future when new private sector models for health service delivery or for market-priced electricity or water delivery are put on the table as well.  Such a step might fuel an already burgeoning medical services industry, expanding it from a concentration on lifestyle diseases to include diseases beaten elsewhere like tuberculosis and polio.  Or in water and electricity services, such a change might yield new opportunities to serve urban and rural markets.

Returning to the present, it is important to understand the current reality in India, to understand that challenges exist--from complicated tax administration laws and still present bureaucratic processes--and these are not always transparent at the beginning of one's foray into India.

Business engagement with India is not a journey for the faint-hearted or for those who expect overnight success.  In India, success demands long-term commitment to a sound vision, patience, and a strategy to succeed.  The journey will be rewarding for those who make the effort and especially for those who approach India as a locus for future-looking global business.

To conclude, the structural changes underway in India signify that emerging opportunities here reach far beyond what is currently quantifiable or rankable.  The question is, would your company be ready for such a chance?