India and the US: Evolving Economic Ties

-Dr.Chintamani Mahapatra, Research Fellow, IDSA


As the world moves into the 21st century , international relations are most likely to be largely determined by economic factors. The role of political, military and ideological factors will be circumscribed by the extent to which the economic considerations come into play in interactions between and among nations. The currency crisis that erupted in Thailand in July 1997 and spread over to other Southeast Asian and East Asian countries, among other things such as the effects of globalization, is an indicator of the role of economics in international relations. There was a time when the politico-security and ideological considerations overshadowed the economic considerations, such as the one witnessed during the Cold War years. Today we see several instances of economic interests culminating in the marginalization of even issues like proliferation of weapons of mass destruction. Nowhere are such events more visible than in the case of US-China relations.

India and the US are engaged in economic interactions for last two centuries. However there was a long period of colonial history of India when Indo-US trade was actually trade between an independent country and a colonial possession of Great Britain. Then there followed a period of economic interaction between India and the US, after Indian independence, when the economic realities in the US and India were artificial in the sense that the US economy was enormous compared to either the war-torn or post-colonial economies of many countries, including India.

India and the United States have come a long way in their economic relationship from the one that began as that of a donor-recipient in the 1950s and 1960s, to the one that aims at establishing a commercial alliance in the 1990s. While US food aid to India in the 1950s and 1960s was of considerable help, the fact remains that the donor-recipient tie was not a happy experience. The undue delay in the authorization of food aid, sometimes caused by American arrogance, and at other times by political considerations, not only begot bad blood between the two countries but also created painful memories in the Indian mind. In fact, the foundation of such memories was laid in the midst of World War II when India was faced with a serious famine.

It is to be remembered that when India became independent, its economy was marked by partial industrialization, backward infrastructural facilities, low agricultural productivity and massive poverty all over the country. The United States at this time was the richest country in the world, accounting for about half of the global production of goods and commodities. Since the former colonial masters in Europe had suffered unprecedented economic devastation during World War II, it was Washington that instituted a "Marshal Plan" for their economic recovery. At this time, neither the US Government nor the American businessmen had any plan or concern for Indian economic development.

India's adoption of a democratic socialist pattern of economic development to meet its domestic economic challenges did not go down well with the US which was a votary of free market economy. In fact, Nehru knew that the American version of "free enterprise" was the result of "150 years of consolidation and growth" and India, an infant state, had to consider policies that would be suitable to its given circumstances. Nehru was of the view that American capitalism had " an amazing capacity for production; in fact collosal." But this "capacity of American capitalism was not always the same, " remarked Nehru, and that"the United States has had years to achieve it in . It has a territory with huge economic resources. It had opportunity without the hampering background of conflict other countries had to reckon with. It has neither a heavy population nor the relics of the feudal age. It was a new country with enormous space and it developed into its present level in 150 years. It is thus rather absurd to say, 'do what has been done in America.'"1 At the same time it was also natural that the US would not find the Indian economic system based on the economic philosophy of the "middle way" attractive.

Nehru, nonetheless, looked to the US for economic assistance. During his visit to the US in October 1949, the same month that China was to emerge from its civil war as a Communist country, Nehru did raise the need for American mechanical and technical assistance to alleviate poverty in India through achievement of economic growth, but he was accused of requesting for aid "rather casually."2 US Ambassador Loy Henderson had recommended a five-year economic aid programme for India totaling $500 million just before Nehru arrived in Washington in October 1949. But aid proposal was rejected soon after Nehru's return to India.3 One of the reasons why US aid was denied was Nehru's refusal to receive aid that would come with political strings. Nehru was representing a nation that was under colonial rule barely two years ago. But it was a time when the Americans were basking in the glory of their victory in World War II and their emergence as a global superpower. Nehru's words echoing the psychology of a newly independent country were negatively interpreted as vain pride by some of the US legislators. And it was difficult to receive Congressional approval for aid to India.

However, in 1954, after about five years of Nehru's first visit to the US in his capacity as India's Prime Minister, the Public Law-480 was enacted to enable the US government to provide India with surplus farm products in return for blocked rupees. It was of considerable help to India at a time when food production in the country was not sufficient to meet the demands and the foreign exchange reserve with the government was scarce. Nonetheless, the political differences between India and the US on a host of international issues, including India's recognition of the People's Republic of China and support in favour of PRC's membership in the UN, discouraged several American legislators from supporting a substantial economic assistance programme for India.

Things began to change a little by the mid-1950s when the Eisenhower administration viewed India's non-alignment in a different light. A revised South Asia policy, NSC 5701, approved by President Dwight D. Eisenhower on January 10, 1957 stated "The risks to US security from a weak and vulnerable India would be greater than the risks of a stable and influential India... A strong India would be a successful example of an alternative to Communism in an Asian context and would permit the gradual development of the means to enforce its external security interests against Communist Chinese expansion into South and Southeast Asia."4

During the Eisenhower and the Kennedy administrations, substantial economic aid programmes were instituted for India. The positive impact of this aid was, however, short-lived. The selective use of the food aid programme to arm-twist India at various times, including at the time of a drought in the country by the Johnson administration prevented the development of goodwill for the United States in India. Compounding India's economic woes due to a poor monsoon, the Chinese invasion of the country in 1962 and two quick rounds of war with Pakistan over Rann of Kutch and Kashmir, President Lyndon B. Johnson had adopted a policy of "hard new look" at US economic and food assistance to India. India's position on the Vietnam War and Indo-US differences over several other international issues were disliked by the US policy makers and it came in the way of a closer economic relationship between the two countries.

Since the United States did little to assist India, either in industrial or infrastructural development, India's economic policies failed to attract US business investors, and the nature of economic interactions between the two countries was largely a donor-recipient relationship. Political differences had a tremendous influence over economic ties. In the 1970s, as India decisively won the war against Pakistan leading to the birth of Bangladesh, forged closer political and economic ties with the former Soviet Union, successfully dealt with its food crisis through the Green Revolution and became the sixth country in the world to explode a nuclear device, Indo-US economic ties did not register any positive growth. A symbolic US economic assistance programme for India left the former with little leverage over India.

Beginning of A Change

It was only after the institution of an economic liberalization programme in June 1991 and the disintegration of the Soviet Union in December 1991 that there arose prospects for an enhanced level of economic interaction between India and the US. Even before Bill Clinton entered the Oval Office as the first post-Cold War US President in January 1993, a report on India and America After the Cold War, co-authored by senior Carnegie Endowment Associates, Selig Harrison and Geoffrey Kemp and signed by 34 members of the study group was released, urging the US government to give increased priority to India as the world's largest democracy and as "a potential partner" in efforts to resolve global disputes. Releasing the report, former US Ambassador to India, Robert Goheen said that US policy makers should approach India with the understanding that it is the strongest military and economic power in South Asia and that it's power is likely to grow."5 A study by the Asia Society Study Mission, South Asia and the United States After the Cold War, subsequently recommended to the US government that economic relations should be the focal point of US engagement in South Asia because "successful economic reform and deregulation in South Asia will offer extensive commercial opportunities for the United States, especially in India."

Such recommendations , in fact, came in the wake of remarkable transformation in India's economic policies and outlook. When Bill Clinton won the 1992 US Presidential election, a mini-economic revolution in India had already taken root. The Congress Party under the leadership of the first non-Nehru family member, P.V. Narasimha Rao, formed the government at the centre in June, after a period of quick political transitions. Rao chose an experienced economist, Manmohan Singh, to head the Finance Ministry, who started a policy of economic reforms aimed at making Indian economy part of international economic activities. Indian entry into the international economic playground caught the imagination of the American Commerce, Treasury and Energy Departments, as well as American corporations and business houses.

However, neither the Carnegie Report nor the Asia Society report had any positive impact on the State Department officials' thinking, at least during the first year of the Clinton administration. While Washington was apparently busy with more pressing strategic and foreign policy issues, Assistant Secretary of State for South Asian Affairs, Robin Raphel had ruined chances of improvement in Indo-US relations. In 1993, issues such as threat to impose sanctions under Super and Special 301 of the US Trade Act against India, unpalatable remarks on Kashmir by the administration officials as well as President Clinton himself, and an undue delay in sending an ambassador to New Delhi created bad blood between India and the United States.

Although the creation of a new South Asian Bureau in the State Department provided an indication that the Clinton administration would give increased attention to South Asia, the priorities set by Clinton's State Department at that time did not appear very encouraging for Indo-US relations. During her confirmation hearing in the Senate Foreign Relations Committee on July 19, 1993, Robin Raphel made a prepared statement which did not give much attention to the prospects of improvement in Indo-US economic ties. Raphel, on the other hand, highlighted that "South Asia--home to one -quarter of mankind--faces challenges as ancient as ending poverty, as new as pollution and deforestation, and as tragic as the spread of AIDS and the challenge of terrorism. Moreover, in several places in the region, armed conflict and insurgency continue to take an unacceptable human and economic toll. The proliferation of nuclear weapons and their means of delivery threaten massive destruction in the region." She did mention the existence of opportunities "to foster new partnerships between the United States and the countries of South Asia on issues ranging from controlling the spread of destabilizing weapons to protecting the natural environment to strengthening trade and economic relationships", but there was little in her statement that would have pleased Indian industrial houses, traders or even the Indian Commerce and Finance Ministries.6

India Comes Under the US Radar Screen

An overall assessment of Robin Raphel's statement and remarks on South Asian affairs, especially those of India did not appear healthy in terms of Indo-US relations. Nonetheless, there was a piecemeal improvement in her subsequent perceptions of India, which was perhaps the result of the Indian economic reforms that had begun to draw attention around the world. One of the important developments that influenced the State Department's perception of an evolving India was the release of a report prepared by the US Commerce Department around this time on emerging markets. According to this study, India would be one among the ten Big Emerging Markets in the world viz Chinese economic area, including Hong Kong and Taiwan, South Korea, Indonesia, Turkey, South Africa, Poland, Argentina, Brazil, Mexico and India. India's likely share of the world's GDP would be double in two decades from the current 10 per cent to 20 per cent.7 Although the United States was already the largest trading and investment partner of India, the scope of Indo-US economic relations remained vast with only 0.6 per cent of the US exports coming to India and less than 0.3 per cent of the US overseas investment concentrated in India. About two months after her confirmation as the Assistant Secretary of State, Raphel stated in her address at the close of the Asia Foundation's two-day Conference on South Asia in Washington that "American commercial presence in the subcontinent is growing rapidly as trade barriers fall. Projected new US investment in India this year is $200 million, one quarter of the total since independence. Half of the new foreign investment approved by the Government of India in the first six months of this year is American."8

By early 1994, the State Department's judgement on prospects for enhanced level economic interaction between the two countries was considerably optimistic. In her first appearance at the Senate Foreign Relations Subcommittee on Near Eastern and South Asian Affairs after her confirmation, Robin Raphel stated on February 5, 1994: "The US economic relationship with India expanded rapidly in 1993. There was more investment by American companies in India last year than in all the years since independence. Major US corporations recently launched an India Interest Group. This group includes AT&T, Coca Cola, Enron, Ford, General Electric, IBM, International Equity Partners, Morgan Stanley, Raytheon and Unisys. I am certain trade and investment will grow at an increasing pace. This is fueled by continuing Indian economic reforms and increased willingness by US business to pursue commercial opportunities there. Twenty per cent of all Indian exports come to the United States, and the US is the largest source of foreign investment and commercial technology for India. The Commerce Department has designated India as one of the ten big emerging markets in the world-to receive special attention as we formulate our worldwide export strategy."9 Four days later, while speaking to the Asia Society in Washington, she repeated these remarks and emphasized that the " US-India economic relationship took a spectacular leap last year...."10 Robin Raphel's observations of Indian economic reforms and growing Indo-American trade and investment relations came in the midst of the political row between the two countries which was caused, among other things, by Raphel's own statement on Kashmir issue.

The following month, Robin Raphel and her boss, Deputy Secretary of State, Strobe Talbot, visited India on a damage-limitation mission to remove misunderstandings and augment political relations between the two countries to facilitate further trade and investment relations. Robin Raphel asserted in New Delhi that the United States supports "a strong stable prosperous India" and emphasized the growing commercial and business ties and the long-standing agreements on scientific and technological collaboration between the two countries.11

A couple of weeks before Raphel's trip to New Delhi, USAID had signed an agreement with two Indian urban development finance agencies to make available $25 million to strengthen India's debt market and provide the growing urban population with basic amenities. A day before Talbot's visit to India, it was made known that President Clinton had sent to the Congress his report on narcotics trade which appreciated New Delhi's cooperation in drugs and narcotics control.

It appeared as if the Clinton administration's efforts to focus on economic ties with India was back on the rail. A little before the Indian Prime Minister's visit to the US, the House Foreign Affairs Committee Chairman Lee Hamilton stressed the need for better ties with India in a speech to the Asia Society on April 29, 1994. Hamilton said:

".... For decades South Asia has been a forgotten stepchild of American foreign policy . Yet the US should care about India. Why? First, India is simply too important to ignore. It has the fifth largest economy, the fourth largest army, the largest scientific and technical community, and the second largest number of software professionals....Fortunately, there are forces drawing our two nations together. Foremost are exciting economic developments in India. After four decades of socialism, India began in 1991 a far reaching program of economic reform and deregulation... India's middle class already rivals the total population of the United States, and is growing. The sheer size of this pool of potential customers starved for consumer goods is a powerful magnet for US business.... US business has seized this opportunity... the Commerce Department recently named India one of the world's Big Emerging Markets.... US companies with business interests are also active. They recently formed the India Interest Group, an informal network aimed at improving bilateral commercial ties. Some of America's largest corporations, including Coca Cola, Citibank, AT&T, American Express, Ibm, Ford and Xerox, are members."12

While enumerating the positive developments, Hamilton, ofcourse, did not fail to highlight the American concerns. He continued:

"Yet the Indian economic revolution needs to be pushed forward. Indian industries find it nearly impossible to fire surplus workers. Privatization has lagged and the state props up money-losing companies. A maze of regulation stifles initiative. Intellectual property rights are not yet safeguarded. We have serious concerns about Indian companies infringing patents of US firms, especially in the pharmaceutical industry."13

Visiting the United States the following month, in May 1994, Prime Minister Narasimha Rao sought to convey India's desire to enhance Indo-US economic cooperation. On top of his agenda were the issues where the two countries had not yet worked that closely, namely trade, investment and transfer of technology.

In his address to the joint meeting of the US Congress, Rao said: "Perhaps the most impressive aspect of India's ambitious economic reform programme is the smoothness with which the transition from a close, protected economy to an open, export-oriented economy has occurred.... India's vast domestic market, huge educated, semi-skilled work force, sound financial institutions, and time-tested and democratic system offer tremendous investment opportunities for forward-thinking companies."14

Later, while speaking to the Indian and ethnic press in Washington, he said that his visit "had a very important economic content. Following our economic liberalization, the US has become our largest trading partner and the largest foreign investor in India. Our economic and commercial ties are now poised for substantial growth in the months and years to come."15

Towards a Commercial Alliance

Rao's economic diplomacy in Washington, in fact, brought considerable premium, particularly in attracting US business and bureaucratic attention to the economic opportunities offered by India. In a prepared speech to the World Conference on "The US Relationship with India" on September 8, 1994 Assistant Secretary of State, Robin Raphel said:

"The opening up of India's economy has created [yet] another avenue of collaboration between our two countries.... India's growing middle class and dynamic new entrepreneurs are making their mark. They are propelling India into the high-technology, information-based world of the 21st century. Bangalore has become as the "Silicon Valley" of India and India's software exports are growing at a rate of 40-50 per cent a year. Indian business cards increasingly include an Internet address, as entrepreneurs take advantage of the global information superhighway. Both the United States and India intend to be in the forefront of this 21st century world. Our trade and commercial ties will expand even faster in the years ahead. Facilitating the expansion remains a top priority of this Administration."16

In his speech at the United Nations on September 29, 1994, Secretary of State Warren Christopher said among other things that "India's economic reform plan has cleared the way for unprecedented trade and investment between our two countries, a matter that's certainly been noted by more and more of our business community. Our investment in India has increased more in the last year than in the preceding four decades of Indian independence."17 President Clinton himself wrote a letter to Prime Minister Rao the same month indicating his desire to work for enhancing Indo-American economic interactions.

In response to Rao government's initiative, US Under Secretary of Commerce, Jeffery Garten visited New Delhi in November 1994 and paved the way for Commerce Secretary, late Ronald Brown's mission to India in January 1995. Visiting India in the third week of January 1995, the US Commerce Secretary signed a Memorandum of Understanding with the then Indian Commerce Minister Pranab Mukherjee to create an Indo-US "commercial alliance"--a super forum for bilateral consultations that would facilitate closer business-to-business links between the two countries. The importance of Brown's commercial mission is reflected in the fact that chief executives of 25 US big business houses accompanied him to explore areas of possible cooperation and collaboration and conclude agreements wherever the deals are finalized. Significantly, on the third day of Brown's stay in India, 11 business collaborations were signed. Contracts for business collaboration in the sectors for power, telecommunications and insurance alone equaled $4 billion.18

The efforts towards setting up an Indo-US " commercial alliance" marked a fresh trend in the bilateral relationship. It was a remarkable journey from a donor-recipient type of economic relations during the early Cold War years to a relationship between two partners. Even during the late Cold War years, the United States was the largest trading partner of India, but the volume of two-way trade flows was abysmally low. India's trade strategy and economic policies, marked by the "license raj", and the unfriendly political and security environment created major obstacles for Indo-US economic ties.

While Indian economic reforms came into increasing focus at a time when US-China trade tensions were persistently high, giving rise to speculations about a trade war, a series of social, political and law and order problems in India raised doubts about the resilience of economic reforms. But doubts and fears were misplaced . During 1992-93, the demolition of a Masjid at Ayodhya, communal riots in Mumbai, and serial bomb blasts at Mumbai, including at the Stock Exchange resulted in widespread social unrest and a sense of insecurity. But the Indian economy as a whole remained unaffected. The GNP grew at the rate of 3 per cent, compared to 2.5 per cent the previous year and there was dramatic improvement in the country's balance of payments position.

The following year, a stock market scandal (Harshad Mehta case) questioned the credibility of the Prime Minister as well as the Finance Minister--the prime mover of the economic reforms. But inflation was lowest in two decades, foreign exchange reserve was comfortable, exports grew by 20 per cent, foreign institutional investors entered the stock market and several multinational companies came into the country to do business. During 1994-95, fears of a plague epidemic in India, mostly generated by the media, interrupted international trade and transport for about a month, but India's exports grew at about 18 per cent in dollar terms. Interestingly, less people died of plague that year in India as compared to the United States. More significantly, a national consensus appeared to have been formed on the need to make reforms irreversible. All those who championed leftist ideology in West Bengal, socialism in Karnataka or swadeshi elsewhere began to court foreign investors.

Amidst all these developments Indo-US trade and investment relations registered a positive growth and the US Commerce Department's study which considered India as one of the 10 Big Emerging Markets (BEMs) in the world, provided encouragement to US businessmen and traders. The US Presidential Economic Mission, led by late Ronald Brown to India has to be seen in this background.

Irreversible Economic Reform

Not long after the US Presidential Economic Mission returned to Washington, a multi-crore laundering scandal (Hawala) and subsequently the defeat of the Congress Party in the national elections of 1996 raised questions about the future of economic reforms in India. But once again such questions had a transitory effect. The reforms in India have come to stay. After the election results were out and no single party had got absolute majority and there was a prospect of a Bharatiya Janata Party government in New Delhi, US Commerce Secretary Mickey Kantor told a meeting attended by representatives from 60 American multinationals that "like any vast country with diverse political and economic voices and interests, India sends out many, sometimes contradictory signals....I intend to establish close ties with the new government. I will be working with you to ensure that the new officials and the Indian business community understand the benefits of continued liberalization. "19 Howard Clark, Chairman of the Indo-US Business Council, later commented: "We do not think the election result is destabilizing...the consensus here is that the path towards liberalization will continue and the pace will depend on the kind of government (that emerges) and the ministers."20

When the BJP was unable to form the government due to lack of adequate support, there was talk of Communist leader Jyoti Basu becoming the next Prime Minister by heading a coalition government. The US State Department officials were not worried. One official reportedly commented that "We are pretty sanguine about what's going on.... as far as Mr Basu is concerned, the old label of communism does not apply."21 The economic reforms had a far deeper and wider support base than what appeared on the surface and in rhetoric. In fact, during the four or five years of economic reforms instituted by the Central government, the states, including the opposition ruled states and the CPM-ruled Bengal, had embarked upon their own liberalization programmes, some of them seeking a faster pace of change. Since extremes of Indian political spectrum were courting international capital, including American capital, to varying degrees, there was quiet confidence in some business circles abroad. When Deve Gowda headed a coalition government in New Delhi, an official from the South Asian Bureau of the State Department promptly commented: "We are confident that the Indo-US relations will continue their upward course."22

There may be further ups and downs in the economy in the years to come and the pace and momentum may differ from time to time but it is unlikely that the reforms would be reversed. The recent political crisis in India faced by the United Front government, a product of coalition politics, and its resolution through a change in the leadership have provided yet another indication that reforms would be in place notwithstanding the political complications that may continually develop on account of coalition politics. Compared to China, India is a late comer in economic reforms. But Western experts are already arguing that a large English speaking class, well laid down rules and regulations, a resilient democracy, an independent judiciary, an attentive public and a watchful media will sooner rather that later bring India into the centrestage of economic activities, and India offers better long-term prospects for economic, trade and investment opportunities than China. Indo-US relations, particularly in the economic field, will most likely improve in a steady fashion as we enter the 21st century. Difference over trade-related issues, as for instance, intellectual property rights (IPR), are unlikely to disrupt the overall economic interaction between the US and India.

Limits and Future Prospects

The future of Indo-US economic ties may, of course, have its own temporary set-backs. From the US side, unilateral measures like the Super 301 and Special 301, and from the Indian side the domestic socio-economic constraints and compulsions will periodically affect the pace of economic interaction between the two countries. Differences over labour laws, quality control, visible and invisible import restrictions will create bilateral tensions. As attempts are being made to link international labour standards and international trade, developing countries are increasingly coming under pressure. Inaugurating a three-day ILO (International Labour Organisation) Asia-Pacific symposium at New Delhi, Indian Labour Minister recently warned that standards laid down by the ILO were becoming increasingly unrealistic to conditions prevailing in the developing countries.23 While the industrialized countries seek full implementation of the ILO standards, the developing countries find that such policies are often adopted by the former for protectionist goals. This is an area where Indo-US tension has developed and may recur in the future.

The US position on the observance of intellectual property rights is another area of bilateral friction since the late 1980s. The US has been alleging that several countries, including India, do not go by the rules in the field of protection of IPR of the US companies. The Special 301 clause of the Omnibus and Competitive Act of 1988 is applied to countries perceived by the United States as not giving adequate protection to intellectual property rights, including patents and access to markets. It was in 1989 that India, among a few other countries, was for the first time placed on the "watch list" under the Special 301 provision. India's inclusion in the "watch list" continued upto 1991 when it was placed on the highest category until 1993. The following year, India was brought down to the priority "watch list" and continues to be in that category.24

India has all along been opposed to the Special 301 provision on the ground that Washington desires to take unilateral action on a multilateral issue. The disputes over the violation of intellectual property rights or other trade rules should be resolved by the General Agreement on Trade and Tariffs (GATT), and now the World Trade Organisation (WTO) of which both India and the United States are members. US unilateralism is not only resented by India but also by several other countries against which Washington seeks to impose its laws and regulations. The US judgement over the trade practices and observance of IPR by other countries has almost become an annual affair since 1989. Most recently, in May 1997, the US Trade Representative (USTR) Charlene Barshefsky announced that India, along with a few other countries, had been placed on the "priority watch list" under the Special 301 provision for failing to implement its obligation under the Trade Related Intellectual Property Rights (TRIP) agreement, particularly relating to the patent laws. A press release issued by the USTR stated that"India has failed to implement its obligations under Articles 70.8 and 70.9 of TRIP agreement. These articles require developing countries not yet providing patent protection for pharmaceutical and agricultural chemical products to provide a "mailbox" to file patent applications, and the possibility of up to five years of exclusive marketing rights for these products until patent protection is provided.25

This has been resented in India. The Indian government "regretted" the US decision and expressed the view that such matters should be decided at the WTO.26 A press release by the Confederation of Indian Industry (CII) stated that as India had not formally rejected establishment of a "mailbox" mechanism and neihter had it rejected any patent applications, the US unilateral move was against the spirit embodied in the WTO.27

The Bharatiya Janata Party and the Communist Party of India, on the other hand, demanded that the Lok Sabha should pass a resolution to register a strong protest against the unjustified decision of the Clinton administration to continue to keep India on the "watch list" under the Special 301 provision of the US Trade Law. The BJP expressed its opinion that the Special 301 provision was aimed at putting pressure on New Delhi to allow US pharmaceutical companies to dump their products in India.28

It should be pointed out that the Special 301 issue is not just an issue between India and the United States. A total of 31 countries have been placed in the "watch list" as a means of monitoring implementation of intellectual property rights and promoting access to related American products.29 The United States has ongoing trade friction with several of its Cold War allies, such as the West European countries, Japan, South Korea and even with China on different grounds. The trade friction between the US and its allies, in fact, has been more prominent in the post-Cold War era. But such frictions are unlikely to produce trade wars, as efforts are made in time to resolve the issue by striking compromises.

In fact, frictions over trade and investment rules and restrictions are part of international economic relations. India and the United States did not always have similar views during Uruguay Round of Trade Negotiations, although both finally joined the WTO. In times to come, India and the US may clash over a set of international investment standards that the OECD (Organisation of Economic Cooperation and Development) members are now seeking to develop. Since May 1995, the OECD members have launched negotiations to arrive at a Multilateral Agreement on Investment (MAI). The stated goal is to "establish a broad framework for international investment with high standards for the liberalization of investment regimes and investment protection and with effective dispute settlement procedures."30 Unlike the Uruguay Round of Trade Negotiations that led to the establishment of the World Trade Organisation (WTO), the MAI is being negotiated only by the OECD members. Although an accession process is going to be included later, the non-member of the OECD have no role to play in the establishment of the MAI. The rationale for the exclusion of the non-member is based on the fact that the

"OECD countries account for the majority of foreign direct investment flows, and accordingly have a major stake in the rules governing international investment. They also share a common view of the benefits of foreign direct investment (FDI) and have reached an advanced stage of liberalization. Moreover, they have considerable expertise and experience in the operation of the OECD's existing rules on investment, and have the benefit of several years of analysis and discussion on the issues now being negotiated in the MAI."31

The exclusion of the non-members may lead to international friction and India and the US may find each other on the opposite sides.

But all these issues are unlikely to create major road-blocs for enhanced level of economic interactions between India and the United States. They will be part of the process. Recently, a programme to study Indian economic policy at the world-renowned Harvard University was launched. It is an indication of how seriously the American business, academic and the policy making communities are viewing India's evolution as an economic giant in the 21st century. Jeffery Sachs, the "world's best known economist"--according to Time magazine (1994), remarked recently that India had the potential to grow by 9 per cent annually over next three decades.32

If Indian economy evolves that way, the scope of Indo-US economic relations will most likely be enormous. And Indian economy is most likely to evolve that way, of course, through the natural process of business cycle that affects the course of any country's economic development. India's latent economic strength is bound to manifest sooner or a little later, as the process of Indian economic reforms is firmly rooted in a political consensus and is augmented by the presence of a rising middle class and a growing capital market. A stable democratic system of governance, a trasparent environment provided to the investors by a free press, strong judiciary, sophisticated legal and accounting system and the widespread use of the English language would make it easy for the American businessmen to strengthen their trade and investment relationship with India.


Notes :

 1. Jawaharlal Nehru Speeches, vol. 2, August 1949 to February 1953 (Publications Division, Ministry of Information and Broadcasting, Government of India, fifth edition, May 1983) p. 48.

2. Dennis Kux , India and the United States: Estranged Democracies, 1941-1991 (Washington , D C: National Defence University Press, 1992), p. 79.

3. Ibid., p. 79.

4. Ibid., p. 154.

5. Berta Gomez, "Panel to Give Priority to India," Textline: 262566, File Date/ID, January 13, 1993, United States Information Service, New Delhi.

6. "Raphel Says Democracy, Human Rights US South Asia Priorities," Official Text, USIS, July 19, 1993. Emphasis added.

7. See Robin Raphel's statement in September 1994 in which she said that "The Department of Commerce has designated India as one of the ten "Big Emerging Markets"--a group of rapidly growing countries whose combined share of world imports by the year 2010 is likely to exceed that of Japan and the European Union." She also noted that the Clinton administration "is mounting a major commercial initiative toward these markets." Official Text, USIS, September 15, 1994.

8. "South Asia Bureau Chief Gives Overview of US Policy," Official Text, USIS, September 21, 1993.

9. "Raphel : South Asia Continues Towards Open Markets, Democracy," Official Text, USIS, February 5, 1994. Emphasis added.

10. Wireless File, February 9, 1994.

1. Robin Raphel, "Indo-US Relations: On the Road to an Enduring Partnership," Speech at American Centre, New Delhi, March 25, 1994, Official Text, USIS, March 25, 1994.

2 "Hamilton Stresses Need for Better Ties with India, " Wireless File, USIS, April 30, 1994. Emphasis added.

13. Wireless File, Ibid.

14. Strategic Digest, New Delhi, IDSA, July 1994.

15. The author has a copy of the "Opening Remarks By Prime Minister at Press Conference with Indian and Ethnic Press, 6:45 PM, May 19, 1994.

16. "Raphel: Promoting World Peace is Most Fundamental US, India Interest," Official Text, USIS, October 1, 1994.

17. "US Officials Praise South Asian Association for Regional Cooperation," Official Text, USIS, October 1, 1994.

18. Annual Report, Ministry of External Affairs, Government of India, 1994-95 and 1993-94.

19. Indian Express, May 15, 1996.

20. Ibid.

21. Ibid.

22. Statesman, June 3, 1996.

23. Hindu, May 7, 1997.

24. Pioneer, May 2, 1997.

25. Hindu, May 1, 1997.

26. Pioneer, May 2, 1997.

27. Ibid.

28. Times of India, May 3, 1997.

29. Hindustan Times, May 3, 1997.

30. "The Multilateral Agreement of Investment", A Fact Sheet Prepared for the Organisation for Economic Cooperation and Development, Economic News From the United States, USIS, New Delhi, March-April 1995, p. 21.

31. Ibid.

32. Times of India, May 5, 1997.