Modi’s Return to the U.S.: Time to Get Down to Business

This week India’s Prime Minister Modi comes to the United States. Unlike the Pope and China’s President Xi, the Prime Minister will not be spending time in Washington, D.C. Rather, he will devote much of his time to Silicon Valley, where he will be seeking to tap into the innovative entrepreneurialism of the region. As he did during his inaugural visit to the U.S. last year, Modi will once again fill stadium seats and address a large crowd of fans. This time, however, Modi intends to focus specifically on connecting with the Indian diaspora, hoping to bring home the technology and investment of Indian-led companies that play such a vital role in the valley. Another critical aspect of Modi’s visit will be to meet with the biggest leaders in tech to address their policy concerns, assure them that India is an easy place to do business, and lock in their commitment to greater manufacturing and investment.

Modi clearly recognizes the great value of technology and innovation. In fact, both played a key role in his election and in his election platform. Now, more than a year after his election, his challenge is to use technology and innovation to drive economic development and to establish a policy environment in which this is possible. It’s encouraging to see that in coming to Silicon Valley, Modi also recognizes that achieving the goals of his incredibly ambitious plans for a “Digital India” cannot happen by India going it alone.

In just over a year, Modi has done much to create the potential for development on a massive scale. In addition to making it clear that India is open for business and wants more foreign investment and manufacturing, he has worked to repair relations with the U.S. and to strengthen ties with other critical partners, including China and Japan. India has participated in numerous bilateral dialogues and has also openly sought input from global industry on what needs to be done to gain support for the “Make in India” campaign. Earlier this week, senior Indian officials participated in the first-ever U.S.-India Strategic and Commercial Dialogue (S&CD) hosted by the U.S. Departments of State and Commerce. The S&CD is another good opportunity for engagement to improve the bilateral commercial and economic partnership. At home, Modi has taken a direct and personal role in remaking Indian bureaucracy to be more functional and responsive to the public and to industry concerns.

The global Information Communications Technology (ICT) industry, including firms big and small in the valley, has responded to this opportunity. Companies see the huge potential in an Indian market that is now more welcoming and they are making commitments to support it. However, while the stage has been set, much remains to be done.

While the Modi government continues to talk about innovation, in the past year India’s ranking in the recently released Global Innovation Index has slipped from 76 to 81 out of 141 countries, well behind countries including Brazil, China, and South Africa. Hopefully, this ranking will improve once additional data collected over the past year is incorporated into future editions. The 2015 report acknowledges a significant improvement in patents filed, which is one benchmark that would indicate growing innovation, but it also notes that substantial policy reforms impacting innovation are still needed. There is no doubt that the Prime Minister will also be watching closely when the World Bank releases the latest edition of its Ease of Doing Business Report, in which India was ranked 142 out of 189 countries listed in 2014. Modi has made it clear that improving India’s ranking in this report is a top priority for India.

India’s ability to better all of it’s rankings will not only depend on the success of trips such as the one to Silicon Valley, which aims to promote greater manufacturing and investment from abroad, but will also depend on further reform from within. Global ICT companies that want to invest in the Indian market continue to struggle with India’s regulatory uncertainty. Policies are often drafted with nearly nonexistent consultation with global industry stakeholders. As a result, implementation of these regulations is often unworkable and may be delayed for months, or years, or they may be implemented with negative trade consequences. For example, when new regulations are published, they frequently do not provided an adequate transition period for companies to make changes to their complex global supply chains.

Lessons could be learned from India’s previous technology revolution. Much of India’s success in software was because the industry grew faster than regulators could control it. In addition to regulatory uncertainty, other serious problems linger, including India’s failure to resolve serious tax issues or develop an adequate dispute resolution system. In short, a large gap remains between Modi’s vision and the follow through of the bureaucracy.

Finally, the verdict is still out on India’s role in the global trading system. On the positive side, India is poised to ratify the World Trade Organization’s Trade Facilitation Agreement by November of this year. Yet, it continues to oppose any updates to the outdated products list under the WTO’s Information Technology Agreement, which eliminates customs duties on ICT and electronics products. In fact, India has added a 10% tariff to telecom products that fall under the existing ITA list. In addition, India’s list of non-tariff barriers, including technical barriers to trade resulting from regulations impacting ICT, continues to grow. These issues will not move India and the U.S. in the right direction as they attempt to meet the mutual goal of growing bilateral trade to $500 billion, a five-fold increase.

In order for Prime Minister Modi to be successful in his mission to Silicon Valley, he will need to convince both the startup entrepreneurs, as well as some of the biggest names in technology, that India’s global ranking as an innovative place to do business is on the rise. Modi must signal that his government is not only committed to change, but is actually making the changes in the ecosystem at home which are needed to support this growth in trade, investment, and innovation: the very same pillars he has recognized as critical to achieving his vision for India’s development.

Public Policy Tags: Trade & Investment

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