September 12, 2005


Not too pleased
Although the anti-China lobby in Washington applauds the fact that India, after decades of slow growth, has at least developed a mindset to grow faster, Americans are generally unimpressed with India's economic policy. The massive and glaring poverty visible in all major Indian cities gives the impression that the development has helped a few, but not the ones who need it the most.

According to Wall Street, India's economic limitations are serious and need a lot of fixing. When former US Treasury secretary Paul O'Neill visited India in November 2002, he spoke at a seminar organized jointly by the Confederation of Indian Industry and the American Chamber of Commerce. He made clear that India had not done yet what the Americans wanted Indians to do. "In India, average import tariffs are over 32% and more than three times higher than many other Asian economies - Indonesia, Malaysia, the Philippines and Sri Lanka to name just a few.

"This figure does not include many hidden obstructions to free flow of goods across the borders. Various indices of trade and investment restrictiveness rate India among the most restrictive countries in the world. Barriers to enhanced trade on the sub-continent remain very high. Just as Canada and Mexico are the largest trading partners of the United States, India's trade with its closest neighbors should be equally strong. With regard to good governance, corruption and bribery are widespread, frightening away honest businessmen and investors."

He noted that US investment in India had languished over the past decade, falling from a peak of $737 million in 1997 to only $336 million in 2000. By comparison, US investment in China went from $1.25 billion in 1997 to $1.6 billion in 2000. While several large companies have invested in India, many more have stayed away. Respect for property rights and protection against public or private thievery was an essential requirement for economic success, O'Neill said.

Things have not improved. In 2003, US foreign direct investment was close to $396 million and in 2004, it fell back further to $344 million, accounting for only 9.9% of overall foreign investment in India last fiscal year.

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