On December 22, 2014, the U.S. International Trade Commission released its report on Trade, Investment, and Industrial Policies in India: Effects on the U.S. Economy. Prepared at the request of the Senate Finance and House Ways and Means Committees, the 450-page report highlights the substantial growth in U.S. economic engagement with India since 2007, trade and regulatory barriers that constrain even greater U.S. trade with and investment in India, and the economic benefits that would accrue from elimination of those barriers.
The ITC’s analysis is based on a survey of U.S. companies that export to or have foreign affiliates in India; case studies illustrating the experience of particular industries doing business in India; and economic modeling to assess the effects of Indian policy measures on U.S. workers and the U.S. economy.
Key findings of the report include:
U.S. companies’ economic engagement in India has expanded significantly since 2007, but further expansion in some sectors is reportedly impeded by policy barriers, including tariffs and customs procedures, foreign direct investment (FDI) restrictions, local-content requirements, treatment of intellectual property, taxes and financial regulations, regulatory uncertainty, and other non-tariff measures.
- The effects of restrictive Indian policies vary widely by sector, with companies providing agricultural and food, financial services, and certain manufacturing products (including pharmaceuticals) the most affected, while firms in other sectors, such as retail, reported lesser effects.
- The share of U.S. companies substantially adversely affected by restrictive Indian policies rose from 18.8 percent to 26.1 percent between 2007 and 2013. Shares for individual sectors in 2013 ranged from 7.7 percent to 44.1 percent.
- Over 60 percent of the affected companies have made strategic changes in response to these barriers, most often directing fewer resources to the Indian market.
- Policies in two areas – tariffs and customs procedures, and taxes and financial regulations – have the heaviest effects on U.S. companies. Other issues, including investment and intellectual property policies, have large negative effects on specific industries.
- Most survey respondents reported that Indian policy measures were more problematic to their ability to do business in India than non-policy issues such as poor infrastructure or corruption.
If tariff and investment restrictions were fully eliminated and standards of IP protection were made comparable to U.S. and Western European levels, ITC model results indicate that U.S. exports to India would rise by two-thirds, and U.S. investment in India would roughly double.
In a statement announcing the public release of the ITC report, House Ways and Means Committee Chairman Dave Camp (R-MI) and Ranking Member Sander Levin (D-MI), and Senate Finance Committee Chairman Ron Wyden (D-OR) and Ranking Member Orrin Hatch (R-UT) challenged Indian Prime Minister Narendra Modi, who was elected in May 2014, to implement his pro-growth vision for India, stating that they “are hopeful that we may see a deepening expansion of our long-term trade and investment relationship, which has already risen to nearly $100 billion.” They noted, however, that they “remain concerned about systemic and continuing market access barriers identified in the ITC’s report that undermine a market-based path to development for India and diminish opportunities for U.S. workers and businesses,” and “urge the Indian government to address these significant areas of concern as the United States and India work to strengthen our economic relationship.”
The Finance and Ways and Means Committees have requested a follow-up report, focused on trade and FDI-related initiatives of the new Modi government, which is due for release by the ITC in September 2015.