Speeches and Remarks 2007
September 18, 2007
As prepared for delivery
Remarks to the 4th Indo-U.S. Economic Summit
"Building Strong Partnerships"
By David C. Mulford
U.S. Ambassador to India
New Delhi
September 18, 2007
Good evening. I want to thank President Pahwa, Co-Chairman Behl and their staff at the Indo-American Chamber of Commerce (IACC) for organizing this fourth consecutive annual Indo-U.S. Economic Summit. It's also a pleasure to share the podium with Conrad Group CEO William Nobrega.
I especially want to thank Deputy Chairman Ahluwalia for being here today in support of deepening the U.S.-India economic relationship.
Last September I spoke to you of my high expectations for moving the U.S.-India Civil Nuclear legislation through the American Congress. I predicted that the vote in the Senate on what is now known as the Hyde Act would produce a large, favorable majority matching the earlier vote recorded in the House.
My statement to you then became a reality, and still captures the essence of this historic initiative:
"We (the U.S. Administration) are working with the Congress to produce an Act that reflects the spirit and terms of what the Prime Minister and President agreed. Our leaders came to this agreement in partnership and they intend to proceed in partnership. President Bush understands the Prime Minister's concerns about certain aspects of the draft legislation and has indicated to him our intention to complete the process."
We know now that the Hyde Act was passed, signed into law by President Bush, and that the critically important 123 Bilateral Agreement between the U.S. and India has been completed and agreed by both governments.
Now, we must take the last steps. Time is of the essence. This involves completing the IAEA-India Safeguards Agreement, and securing the Nuclear Suppliers Group rule change which will permit this initiative to be global in its scope. Finally, the U.S. Congress must vote once more on the 123 Agreement, an action best accomplished by this Administration in the life of this Congress.
The bottom line here is that when these final steps are taken, India's isolation in the global civil nuclear field will end. This will enable India to launch a new large scale industry of its own and pioneer a new era to meet its energy needs that will ultimately benefit all its people.
We are at a great moment in the history of our two democracies. We have overcome past differences and are charting a new course for the future.
This new course moves us from 123 to what I call 456. This is the "comprehensive relationship" I have spoken of so often in the past 3 1/2 years: encompassing both our official bilateral relationship and the multitude of private contacts and relationships that exist between our peoples. This is the broader, longer term vision for U.S.-India relations that touches all fields of human endeavor, for which Civil Nuclear is important, but only one part of the larger whole.
So, let me turn to 456. We are engaging with India on virtually every important front, from defense and space cooperation to critical transnational issues such as counterterrorism, health, education and climate change. But today I want to focus on our rapidly expanding economic relationship. This is the area where our business communities are playing a pivotal role in moving our comprehensive relationship forward.
As we speak with satisfaction of our burgeoning business collaborations, we must take a moment to recognize that they are based on the foundation of India's economic reforms over the past 15 years, reforms which have engendered globally-oriented change and growth. India's reforms have gradually worked to provide a critical mass of energy, which as India opens to the global economy, is permitting stronger, more sustainable growth.
This is a significant national achievement shared by a number of governments and cutting across party political lines. It has truly been a national effort.
India Inc's engagement with the world has deepened significantly since 2000, with trade and investment flows in and out of India at historic highs and rising rapidly.
The increased flow of investment in and out of India is especially significant. India's global FDI has been surging - tripling in the first half of this year to roughly $11 billion - on the heels of last year's record $16 billion for the entire year. These numbers, which for nearly a decade stayed around $3 billion annually, now reflect India's growth and dynamism.
New areas of investment have come up in the wake of successful reforms, including financial service companies, construction (including highways), telecom and transportation. In fact, investment in the services sector last year surged ahead of IT, while construction investment grew by a factor of six.
FDI from the U.S. has now begun to fulfill expectations. Although the U.S. has been India's largest investor for many years, flows hovered for years around a modest average of $400 million annually. Now, American investment is growing by 50% per year - to nearly $900 million in FY07. If we could track investments made through Mauritius, this number would no doubt be considerably higher.
Notable too, last year saw the convergence of institutional and direct investment. Historically, portfolio investment has vastly outstripped FDI, but in FY07, FDI beat Foreign Institutional Investment, reflecting investors' growing confidence in India's long-term future, rather than the attractions of current high valuations.
Just as powerful is the surge in outward FDI, putting India on the map as a source, not just a destination, for investment.
Last year, India Inc. invested $9 billion outside India, more than quadrupling a rough average of $2 billion in the first part of this decade. Tata's Corus deal and Hindalco's purchase of Novelis helped propel India's outbound mergers and acquisitions during the first half of 2007 to second place in the world behind Australia. U.S. financial firms are helping Indian corporations utilize global capital to become major players and employers in world markets.
Demonstrating the two way nature of Indo-U.S. economic engagement, the U.S. has long been one of the largest recipients of Indian investment, receiving roughly one-fifth of India's investments abroad. Indian investment in the U.S. is now spreading from an IT focus into other sectors, including pharmaceuticals and manufacturing, such as the Mahindras' tractor factories in the U.S.
Certainly, these multiple facets of India's deeper engagement with the global economy have helped propel India's growth rate to 9 percent levels, a feat that should be repeated this year, again helping to raise people out of poverty and bringing more into India's middle class.
These market-changing investment flows reflect how India's private sector is clearly exploiting the benefits of recent reforms and liberalization, driving economic growth and employment. Continued reform and liberalization will help further boost this surging momentum and spread the benefits of rapid economic growth to more recipients across India.
One engine to advance macroeconomic activity across India is further liberalization in India's banking and financial markets. Another, Prime Minister Singh spoke of last week: the need for a paradigm shift in the economic and commercial use of water. This is an area where reforms that establish a price driven regulatory regime would have major economic benefits as well as positive social policy implications.
Such bold thinking if translated into action will help reshape Indian agriculture so that potable and affordable water is more accessible to village households and small farmers, improving their lives and livelihoods.
Fundamental policy changes such as these are critical to getting private investment to where it is needed to help empower more Indians: in agriculture, energy, and human and physical infrastructure.
Consider the stark differences among India's states: Bihar's per capita income is roughly $160 while Maharashtra's is almost $900. It is no coincidence that Bihar has attracted less than one percent of foreign investment in the past decade, while Maharashtra alone has received nearly 25 percent.
Good governance matters and the right policies that attract and hold private investment will be critical to raising more of India's people out of poverty and providing more diversified, more secure livelihoods.
Especially in agriculture, home to roughly sixty percent of India's workers, the central and state governments have not been able to adequately fund or to disburse public investment, with the result that agricultural productivity has stagnated or declined in the last decade.
One sector that can make a positive impact on many of India's poor -- especially in rural areas -- is organized retail. Leading Indian companies, including Reliance, Bharti, and ITC, plan to invest billions of dollars in stores and infrastructure to get fresh produce directly from the farm to the market at markedly more competitive prices.
This level and diversity of investment is far beyond the means of Government alone to provide and, if forthcoming, will bring about significant improvements in both job opportunities and quality of life in rural areas.
One study has found that Indian farmers presently receive only 35-40 percent of the retail price of their goods, compared to 65 percent in countries with highly organized retail. Higher price realizations have the potential to double farm income in India. We are beginning to see across the country that farmers welcome organized retailers and the higher prices they offer.
Ultimately, organized retail has the potential - through increased competition and the efficient allocation of rising investment flows - to increase economic gains to both farmers and consumers and to provide jobs to rural workers.
It is a basic fact that reforms bring opportunities for growth, for social change, and for engagement between people - businesses, consumers, traders, investors - all the players that together generate economic progress and prosperity. The U.S. strongly supports policies that have this broadening effect and permit and encourage the rapid growth of our people to people ties.
For, as we stand at the beginning of this new course in our comprehensive relationship, let us remember: Our intrinsic values make us well-suited as partners. We are democratic societies which prize individual freedoms and possess dynamic entrepreneurs who increasingly speak the same language of opportunity and growth. These fundamental traits mean the Indo-U.S. relationship will go forward. We are well positioned to work together and the reality is that we are already doing so.