Thank you so much for your warm welcome. It’s wonderful to be home, in New York, speaking to friends, colleagues, and fellow champions of bilateral U.S-India ties.
It is a special honor to speak to you at the 9th annual Indian Investment Forum. Ever year, this gathering has attracted top global business leaders such as yourselves.
In my youth, I traveled the Grand Trunk Road and discovered for myself “incredible India” – long before the term became ubiquitous. So, I can assure you that I share your confidence in India’s emergence as a world leader and its economic growth story.
With some of you having traveled from as far as Mumbai – and probably some as close as Lower Manhattan – the people in this room represent a diverse group.
There are many commonalities that exist between our two financial hubs. Each is as much a center for art and creativity as it is for global and financial commerce – both contain the necessary ingredients for innovation. Although rich in tradition, these are cities are not stagnant, but look toward future.
Clearly, given the incredible growth in our bilateral trade, our private sectors are on the same page and getting closer. Our governments should follow the lead of our private sectors. We do, however, agree on several key tenets about our bilateral ties:
• One, we believe in the limitless potential of the world’s two largest democracies – the United States and India – to grow markets and spur innovation;
• Two, we believe that the U.S.-India partnership makes the world stronger and more secure; and
• Three, we believe that working together we can help bring about an era of stability and economic prosperity in the 21st century, unseen in either country’s history, through cooperation, investment and connectivity.
Today, we gather with new optimism based on the Government of India taking dramatic steps toward reforming its economy. When history is written about the modern economic growth story in India, it is my hope that the date September 14, 2012 figures prominently in the narrative.
Why is that date significant?
The Government of India’s courageous decision last week on regulations to pave the way for expanded participation in the multi-brand retail sector as well as more foreign direct investment in aviation, power grids, and broadcasting are in my view watershed decisions.
These reforms will lead to a stronger, more efficient, more resiliant and inclusive Indian economy.
These reforms have the potential to change – for the better – the way goods are sold and produced, transported, and brought to market in India. As and example, even incremental progress toward adoption of modern cold storage practices can help to dramatically reduce the estimated 40% of crop spoilage across India.
Indian farmers partnering with U.S. companies to learn best practices could expand crop output while reducing water and fertilizer inputs resulting in higher quality crops and more income for farmers. A true win/win scenario. Expansion of investment by both domestic and international operators in retail will make retail in India more sustainable, more inclusive, and will help lift millions of citizens out of poverty.
India’s Ministry of Commerce estimates the new FDI policies will create 10 million jobs, a welcome surge since 174 million Indians are expected to join the labor force by 2030 – the largest such cohort in the world.
These policies will create new investment opportunities, and foster permanent partnerships between Indian and American firms. And, I have full confidence that American companies will be committed co-innovators with their Indian partners, as India transforms its retail landscape.
We know that India’s domestic consumption story continues unabated. And it is not just the cities rising. For the first time since 1991, rural consumption over the last year grew faster than urban consumption, highlighting the opportunity in Tier 2 and 3 cities.
Global Markets for 21st Century
Before I get ahead of myself though, let me pan outward for a moment:
Creating a stronger U.S. and global economy, with more jobs for Americans, is the foremost priority of the Obama administration.
The state of the global economy still poses acute challenges. Several years after the start the great recession, we are making progress, but we’re as focused as ever on creating U.S. jobs and getting the American economy growing faster.
But job creation is not a zero-sum activity. Speaking not far from here at The Economic Club of New York last October, Secretary of State Hillary Clinton announced that the State Department would pursue Economic Statecraft, by “advancing our global leadership at a time when power is more often measured and exercised in economic terms” – as she put it.
What does this mean in practical terms? I believe it means representing the interests of our citizens and our businesses as they participate in the global economy. It means partnering with our private sectors in ways that would have been inconceivable a decade ago. In New York vernacular, we say to our businesses, “we’ve got your back.”
Surely of no surprise to anyone in this room, India looms large within our economic statecraft agenda. When American firms look to India, they see extraordinary promise, enviable demographics, and a business culture that celebrates innovation and entrepreneurialism.
We all know the Indian economy has vast potential. Already the world’s 9th largest economy with a GDP of $2 trillion, growth projections indicate India will be the third largest economy by 2025. Some pundits even forecast India potentially surpassing the U.S and China to be the world’s largest economy by 2050. These statistics are well-known and often repeated. But, some of you may not realize that:
• India will be world’s 5th largest consumer market in 2025;
• India still only has about 10% broadband penetration;
• 80% of the India of 2030 has yet to be built; and
• India’s share of world manufacturing output is increasing, but it has so much farther to go – it currently stands at a mere 2.3%.
The Indian Government is focused on increasing inclusive growth, whether it is their plan to commit $1 trillion to infrastructure spending in the next five years or their plan to spur job creation in manufacturing to create 100 million additional jobs in India by 2025.
And we’re doing our part: We just hosted a global infrastructure conference at the State Department, pairing key partner countries like India with the most dynamic engineers, strategists, and infrastructure companies the United States has to offer. Next week, we’ll have our bilateral Energy Dialogue.
India – as you know – is a destination for capital. Owing to its high growth potential, India has attracted nearly $U.S. 30 billion of net foreign inflows in 2010, primarily from institutional investors such as yourselves.
The U.S. has played a vital role as well. The $24 billion in U.S. foreign direct investment has provided innumerable benefits to the Indian economy.
U.S. investment in India’s infrastructure is modernizing supply chains, building new airports and power plants, and is helping to forge the Indian economy of the future. And importantly, it’s bringing world-class technology and know-how to India.
Companies like Pepsi and GE have pioneered innovation by investing in the Indian market for decades.
Pepsi, for instance, is revolutionizing the food industry, where it is collaborating with local potato growers – 24,000 farmers across nine states – to train those growers in sustainable agricultural techniques, provide cold storage, and a stable market for their products. More than 45 percent of these farmers are small enterprises, holding only one acre or less. This is a great example of American companies partnering with farmers for win/win results.
Not to be outdone, GE India was a finalist for the prestigious Award for Corporate Excellence last year for their support of local partnerships and volunteerism, spearheading of health, education, innovation and disaster recovery projects across India, and by promoting energy efficient products.
Like all investors, U.S. businesses are attracted to investment destinations based on the investment climate, transparency, and, frankly speaking, the ease of doing deals. With a ranking of 132 out of 183 countries, India does still lag in the World Bank’s ease of doing business index.
Part of the U.S. economic relationship with the Government of India centers on efforts to make it easier for all investors – including those from the United States – to invest in India.
Of course, in order for our companies to provide the top technology, managerial expertise, and know-how to India, the Government of India must help create an environment conducive to their investment.
That’s why last week’s decisions on FDI are so consequential. They send the markets the right message – that foreign investors are welcome and encouraged to participate in India’s economic growth story.
While there are some limits governing foreign direct investment in retail – including a state-by-state opt-out clause, a minimum $100 million in-country investment and some provisions excluding small towns in India – I believe these will be acceptable to investors.
We do remain concerned about local content requirements that require investors to source 30% of inputs domestically. However, I believe that these challenges can be overcome.
And, this growth story isn’t one-sided. The United States is equally focused on attracting growth and investment to our shores. We’ve made some notable progress:
• Indian FDI into the United States reached $3.3 billion in 2010, up over 30% from the previous year;
• Indian firms have created over 30,000 jobs in the United States; and
• U.S. subsidiaries of Indian firms account for an estimated $700 million in exports.
What the Future Holds
Do challenges remain? Absolutely.
India has seen an economic slowdown with GDP down to 5.3 percent through the first quarter of 2012.
India has also seen a historic devaluation of the rupee as well as high inflation. This is why steps toward fiscal consolidation like reducing subsidies is so important.
But, these are surmountable challenges. Overall the future for economic partnership between the United States and India is bright.
The U.S. and Indian governments are actively engaged in Bilateral Investment Treaty (BIT) negotiations.
We’re aiming for a BIT that provides a high level of openness to investment across the economy, strong rules on investor protection and transparency, and effective means for resolving investment disputes.
And I have a specific request for you: In order to make a robust BIT agreement a reality, you – the business leaders from Mumbai and Manhattan – perhaps even Delhi and Dallas, or Lucknow and Los Angeles – must spearhead private sector advocacy for an agreement.
Encourage your companies to voice support for a strong agreement that would provide you with the same protections for your investment in the United States that U.S. investors would receive in India!
We in government are doing our part so smart investors and corporations can continue to allocate capital, investments and people to their most productive ends.
The cost of inaction is great. Staying ahead of the competition is becoming as important in international economic affairs as it is in business. In today’s changing global economic reality, we are not the only ones that see the India opportunity.
India’s trade with others has been accelerating at a rapid clip, and this is not happening in a vacuum. The U.S. share of FDI into India is declining relative to countries like Japan and France. In 2010, Japan directed more FDI into India than the U.S. Importantly, these business ties are being cemented in trade agreements.
Ladies and gentlemen, Japan, Canada, and the EU aren’t waiting – they’re acting. So why should we?
What else does the future hold?
The development of trade and transit links between Southeast and East Asia has been hindered for decades by poor regional infrastructure connectivity, the isolation of the Burmese government, and political mistrust between India and its neighbors.
However, Burma’s recent political and economic reforms along with continuing efforts by India and Bangladesh to improve bilateral relations have generated new opportunities to promote U.S. and Indian business interests and regional economic development. Given the vast potential, we should look to partner in this emerging region.
Our state-to-state and local partnerships transcend borders, cultures, and time zones. I’m proud to say our peoples, our cities and our states are connecting like never before. For instance:
• Governor Martin O’Malley’s historic trip to India created $60 million in two-way business – in infrastructure, technology education and security;
• Kentucky Governor Steve Beshear, whose three trips to India in an effort to promote engagement with states and cities throughout the country yielded Kentucky a $7 billion – that’s billion with a “B” – 25-year private-sector energy deal; and
• Virginia continues to sustain nearly $300 million in annual export of goods to India, and has developed many sustainable ties. In 2010, Norfolk, Virginia, became the first city on the U.S. east coast to have a sister-city alliance with India – through partnership with the city of Kochi in Kerala.
Regional engagement also strengthens small- and medium-sized enterprises (SME) in both countries, by syncing sectors and regions.
In India, SMEs contribute to nearly 45 percent of manufacturing output and 40 percent of national exports. The United States SME sector has experienced over 232 percent growth in exports to India in the past decade.
If we want to continue growing our exports, we will have to help SMEs become even more fully integrated into the global supply chain.
I’ll leave you with this: Twenty years ago, no one would have thought that we could enjoy close to $100 billion in bilateral trade between our two great nations.
The only reason we have come this far is because of the vision of the people in this room, and the courage of bold leaders in both our countries.
So where will we be in twenty years? Like two decades ago, that is a question I now turn over to you.
Thanks again for this opportunity.