N. CHANDRA MOHAN

It's time to rebuild U.S.-India relations

Let’s hope the Indian election represents a fresh start

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An estimated 551 million Indians turned out to vote in national elections over the past several weeks — two-thirds of those eligible. The last day of voting was Monday and the votes will be counted Friday. The stakes are high for U.S.-India relations, which have been passing through choppy waters.

After decades of being “estranged democracies” during the Cold War, followed in 1998 by U.S. sanctions after India exploded a nuclear device, the two countries finally became “engaged democracies” during the George W. Bush administration. The United States agreed to help India develop its civilian nuclear power potential and made clear its strategic intent to help India become a major world power.

The Obama administration was expected to build on this considerable progress, but that hasn’t happened. India’s torrential growth rate has slowed and the bilateral relationship instead has been marred by disputes over trade, taxation and investments.

The election results announced Friday could change all this. The Hindu nationalist Bharatiya Janata Party led by Narendra Modi is widely favored over the Congress Party coalition that has been in power for 10 years. Exit polls confirm this expectation, making Mr. Modi the odds-on favorite to be India’s next prime minister.

Mr. Modi is the preferred choice of both Indian businessmen and foreign investors (including those from the United States) who have been disenchanted with the dismal track record of the Congress-led government. Congress has been bogged down fire-fighting big-ticket corruption scandals while presiding over the slippage in economic growth.

Mr. Modi is seen as an agent of change who can transform India’s fortunes as he did in Gujarat state as its longest-serving chief minister. He is seen to be decisive, in contrast to a dithering Congress government afflicted by internal quarrels and policy paralysis.

Regardless of who comes to power, the fact is that the people of India desperately want a change in direction. So, too, does the U.S. government and especially U.S. business leaders, who have seen opportunities steadily dwindle with the faltering pace of India’s economic expansion.

Not long ago, India was seen a rising power along with Brazil, Russia and China, enjoying rapid growth in gross domestic product of 8 percent to 9 percent per year. During the past couple years, though, growth has plunged to a low of 4.5 percent as domestic and foreign investors grew uncertain over the Congress-led government’s policies.

Mr. Modi promises to end the uncertainty by enthusiastically inviting investment while setting clear and consistent policies. Business leaders, including General Electric CEO Jeffrey Immelt, are desperately hoping for a revival in their slumping fortunes in India after the elections.

The U.S. government, for its part, has to come to terms with Mr Modi’s controversial past. His role in turning a blind eye to 2002 anti-Muslim riots in Gujarat that claimed more than 1,000 lives prompted the United States to deny him a visa in 2005.

But as chief minister, Mr. Modi also has attracted considerable foreign investment to Gujarat. Ford Motor Corp. chose Gujarat for its second car-assembly facility in India. General Motors has a factory there, too.

If Mr. Modi recharges India’s economic growth, the U.S. government would not want to prevent U.S. businesses from taking advantage of it by staying focused on Mr. Modi’s questionable past.

Moreover, the alternative to Mr. Modi would be worse for U.S.-India relations. Although outgoing Prime Minister Manmohan Singh’s most important legacy was the historic deal on civil nuclear cooperation with the United States, the rest of the Congress Party and his cabinet colleagues did not support a broader, more strategic U.S.-India partnership. In turn, the United States lost focus on India and turned inward after the global recession began in 2008. And it hasn’t regained any sense of urgency in furthering relations with an India where economic growth has stalled and the business environment has deteriorated.

American investment (and foreign investment in general) is needed to finance India’s huge infrastructure needs, estimated at $1 trillion and more. But this requires a government that welcomes foreign investment and has a clear long-term plan to improve roads, rails, airports, the power grid and other systems necessary to sustain economic growth.

“India should be a country that grows in a consistent manner like other emerging markets grow, in double digits,” GE’s Immelt recently told a leading Indian daily.

The very expectation of change is giving hope to such companies, which now are betting big that the next government will prioritize economic reform and speed up decision-making, especially when it comes to infrastructure. Other government stumbling blocks must be removed as well, such as retrospective taxation, which leaves company’s never really knowing what their tax liabilities might be.

The going could still be tough for the likes of Wal-Mart, which threatens India’s mom-and-pop retail culture with revenues that roughly equal India’s entire retail sector. Big Pharma will have problems, too, as India has been given considerable flexibility by the World Trade Organization to produce generic knockoffs of drugs that could save hundreds of thousands of lives.

There are bound to be winners and losers with any change of political regime. But if India can start growing faster and its new government can help resume improvements in U.S.-India relations, there certainly will be more winners in both countries.

N. Chandra Mohan is a business and economics commentator based in New Delhi. He is currently a visiting scholar at the Katz Graduate School of Business at the University of Pittsburgh (nchandramohan@rediffmail.com).


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