Indo-US Business Relations: Setting new records

With the passage of a year since the visit of President George W. Bush to India, it is the business communities of the two countries that have benefited the most from the momentum created by the upsurge in Indo-US relations. While two-way trade and investment had been growing at a steady clip, the announcement and subsequent passage of the Bill on Co-operation in Civil Nuclear Energy, intended to remove the last vestiges of the adversarial relations between the two countries, have taken business relations to a new level.

This was best manifested by US FDI investment in India during the current financial year, which virtually doubled over the previous year, as also by the November 2006 visit to India of the largest ever business delegation from the United States to any country thus far. A third set of figures that has relevance in this regard is the half a million US visas issued to Indians in 2006 (expected to go up to 800,000 this year), and between 150,000 to 200,000 US nationals, mainly business visitors, coming to India in the same year.

Given the opportunities for business that exist in both countries, it is not surprising that business organizations such as the Confederation of Indian Industry (CII) and the US-India Business Council (USIBC) were at the forefront of lobbying for the passage of the Bill in Congress. They, along with the two governments, have also been acting as facilitators for the business communities in the two countries to look for trade and investment opportunities. The November trade delegation, for instance, was led by US Under Secretary of Commerce for International Trade Frank Lavin, and more than half of the 200-odd companies represented in the delegation were visiting India for the first time. US business interest in India is not just limited to the big multi-national companies; business delegations are expected from the various states in 2007, indicating interest on the part of small and medium companies to engage in business in India and to collaborate with their Indian counterparts. While Alabama has already sent two trade delegations to India in 2007, trade delegations from many other states are expected over the next few months. US states are also actively scouting for investments by Indian companies. For instance, Fairfax County Economic Development Authority has set up a field office in Bangalore in 2004 and the State of Maryland followed suit shortly thereafter. Such initiatives have paid off with nearly 16 Indian companies, mostly information technology firms like Infosys and Sify, setting up office in Fairfax county.

The cumulative value of US exports to India crossed US $10 billion in 2006 while India’s trade with the United States has also shown a comparable increase, with exports to the United States shooting up from $15 billion in 2004 to $22 billion in 2006. The two countries have set a target of doubling bilateral trade to $50 billion in three years time. The synergies between the two economies is exemplified by the fact that the imbalance in merchandise trade in favour of India is offset by surpluses in services trade favouring the US.

American businesses’ new-found interest in India is also partly driven by their awareness of the attempts of their government to moderate the rate of investment by US businesses in China, and reduce the huge trade deficit between those two countries. The possibilities for increased friction between China and the United States and a resultant adverse business climate was alluded to by Indian Commerce Minister Kamal Nath when he noted at a public interaction with visiting US Commerce Secretary Carlos M. Gutierrez that there was a difference between doing business for the sake of doing business, and doing business with friends.

The impact of friendly relations on the business climate is also brought out by the lack of any significant opposition to the many mergers and acquisitions carried out by Indian companies in the US in the recent past, in stark contrast to vehement opposition raised against Chinese and Middle Eastern companies. Indian companies are estimated to have carried out M&A deals of more than $1 billion in the US in 2006. According to reports, including Hindalco’s acquisition of US-Canadian steel major Novelis for $6 billion in February, Indian companies have already announced M&A deals worth $32 billion for 2007, many of them being with US companies. With the Planning Commission estimating that $350 billion (Rs 15,61,000 crores) worth of investment is required over the next three years to sustain the current growth rate of 8 per cent, the opportunities for US companies and institutional investors are endless.

The Indian diaspora in the United States has also played an important part in lubricating the wheels of business between the two countries. According to a recent study, between 1995 and 2005, Indian Americans founded more start-ups in Silicon Valley than migrants from China, the United Kingdom, Japan and Taiwan combined. Just as the Indian workforce in US companies played an important part in the eighties and nineties in channelling investment into Bangalore and paving the way for India’s IT revolution, Indian entrepreneurs are now benefiting from the business expertise of the Silicon Valley pioneers, with venture capital firms investing $508 million in 92 start-ups in India in 2006. Their knowledge and familiarity with both Indian and US business practices make it easier for both Indian and American businesses to spread their wings in either country. The field offices of both Fairfax County and Maryland, for instance, are headed by Indian Americans.

The crucial combination of opportunities and facilitators, and the fortunate confluence of history and circumstance, has made it that much more easier for the governments of the two countries to walk the business talk.