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Analysis: Despite vigorous lobbying by executives, the secretary of state remains quiet on economic reform. Experts say that's the right strategy.
NEW DELHI — America’s secretary of state often plays the role of lead US salesman abroad, urging governments to buy products and to facilitate foreign investment.
As such, American executives have been pushing John Kerry hard to get India to further open its markets to American investors.
But as Kerry’s agenda unfolds here at the start of his three-day visit, it’s becoming increasingly clear that he won’t fulfill those demands — at least not publicly.
Sources here in New Delhi say that’s probably the right approach, even for business.
Already, the current Indian government agrees with America's agenda many issues, particularly economic ones. Exerting too much pressure, particularly in open forums like press conferences and official speaches, they say, is likely to backfire.
The reason: Indians distrust lobbying from US industry, so stumping for reforms can fuel opposition claims that Prime Minister Manmohan Singh's United Progressive Alliance government is the puppet of exploitative US corporations.
“This [government] is the best team you can assemble for a market reform agenda. So pushing these people hard does not make sense. It is not in their competence to change the political situation here,” said Lalit Mansingh, a former Indian ambassador to the US.
On arriving in India Sunday for the fourth annual India-US Strategic Dialogue, Kerry surprised some observers by focusing on climate change in his first speech. He did touch on broader economic issues, as well as broader security concerns as the US prepares to withdraw from Afghanistan.
But Mansingh said this approach indicates Kerry has come to India with a sound strategy.
“He didn't bring in any of these contentious [trade] issues,” Mansingh said, indicating that more can be accomplished by talking with India's US-friendly business leaders behind closed doors.
“I think he did well in pointing out three major sectors – climate change, economic cooperation and security. There are plenty of issues in these three sectors for the two countries to discuss without getting into a heated debate.”
Kerry stuck to that script at a press conference following his meeting with Indian foreign minister Salman Khurshid on Monday. He mentioned blandly that the two leaders discussed trade and other economic issues. But he devoted more time to defending the National Security Agency's PRISM electronic surveillance system and to urging countries not to offer refuge to whistleblower-and-accused-spy Edward Snowden, whom Kerry called “a traitor to his country.”
He also reiterated his call for India to assist with elections in Afghanistan next year and praised India for cooperating with efforts to encourage Iran to comply with the International Atomic Energy Agency, as well as announcing a $150,000 aid package for the victims of flooding in the Himalayas.
The US-India Business Council and similar lobby groups had urged Kerry to press India to alter several key economic policies, on matters such as drug patents and preferential market access for companies with local manufacturing units Lobbyists had also demanded less onerous limits on foreign direct investment in potentially lucrative areas for US firms, such as the defense and insurance sectors.
But those efforts ignored the political reality in India, where Singh and his team are keen on economic reforms but can't sell them to their coalition partners.
The politics appear to be shifting, however. Due to a plummeting rupee, the country desperately needs foreign direct investment to meet its development goals and stabilize markets. If the US business lobby can get out of its own way, the government may just succeed in expanding market access for American firms.
Last week, the rupee fell to an all-time low of almost 60 to the US dollar after US Federal Reserve Chairman Ben Bernanke forecast a reduction of America's stimulus package, causing foreign investors to sell some $300 million in Indian stocks. That means India now faces a “growing strain to fund the widest current-account deficit in major Asian countries,” according to Bloomberg.
Virtually the only weapon that Finance Minister P. Chidambaram has left in his arsenal is to throw open more industries to direct investment by foreigners
“Given the current economic situation... the proclivity of the Indian government to open up to more [foreign direct investment (FDI)] will be higher at this juncture,” said Dharmakirti Joshi, chief economist at the credit ratings agency Crisil.
Before Kerry's visit, finance ministry officials said India was poised to eliminate the 74 percent cap on FDI in the telecommunications sector — though companies with local manufacturing would still have an advantage. And plans are afoot to increase the limits on FDI in defense to 49 percent from today's 26 percent, giving US firms better access to one of the world's largest and fastest growing markets if, again, they're willing to invest in making products in India.
That means that, at least in public, Kerry was wise to let India's economic situation speak for itself.