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It's big business for Kerry in India

John Kerry India

New Delhi, June 23 (IANS) Defence, development and diplomacy — and not necessarily in that order — have been the key instruments of foreign policy of the Obama administration over the last four years. And they will be in full play when Secretary of State John Kerry is in New Delhi to co-chair the 4th annual India-US strategic dialogue with External Affairs Minister Salman Khurshid Monday, preceding Prime Minister Manmohan Singh’s possible visit to Washington in September-October.

The strategic dialogue interestingly this time is taking place after highest level parleys between China and India, India and Japan, China and the US, and ahead of the ASEAN Regional Forum (ARF) meeting and the third East Asia Summit (EAS) Foreign Ministers’ Meet, amid reports that China may consider joining the Trans-Pacific Partnership (TPP) which it has earlier junked as part a US effort to line up countries against Beijing.

The talks are significant, especially when seen in the context of the economic performance of the two countries. The Indian economy is not exactly humming. The government is searching the formula to stimulate growth. A study by the think tank National Council of Applied Economic Research found the Indian economy in a crisis with a slowdown in growth, rising fiscal and current account deficits amid persistent inflation. The country is also in need of massive investment, particularly to overhaul and build infrastructure.

In contrast, the US economy, helped by technology and exploration of shale gas, has begun to regain some strength after a long and deep slump. It grew 2.4 percent in the first quarter of 2013 with two sectors — manufacturing and energy — leading the recovery.

While the discussions between the two countries would cover the “depth and breadth” of the relationship, given the interest group-afflicted foreign policy of the US, focus would be on market access, energy and defence that have overwhelming business overtones.

Earlier this month, a consortium of 16 US business organisations asked President Obama to “use all available trade tools and diplomatic engagement” to pressure India to open its markets to US exports. They were joined by lawmakers and officials accusing India of “imposing arbitrary market restrictions on medical devices and breaking or reworking patents” in pharmaceutical, IT and creative industries. “We’re very concerned about innovation and the investment environment in India at the moment,” said Mike Froman during his confirmation hearing as US Trade Representative (USTR).

Assistant Secretary of State for South and Central Asia Robert Blake followed this up saying continued restrictions on foreign direct investment (FDI) in different sectors is up on the agenda.

While a strengthened economic engagement is vital for a deeper relationship, what is surprising is the concerted attack by US business groups, lawmakers and officials on the Indian system with unsustainable claims and demands.

India has the same complaints against the US of limiting market access and flagged its concern on the immigration bill that restricts entry of the highly-skilled in non-immigrant categories. It is hoped that Khurshid would pull up his shirt sleeves and do some plain talking.

One space where the two sides no doubt see significant potential for a mutually rewarding partnership is energy, a dialogue on which has been going on since 2005. The US is looking to expand the market for its energy resources. A report commissioned by the Department of Energy, which studied over 60 different macro-economic scenarios, found that the US economy under each of them would benefit if Liquefied Natural Gas (LNG) exports were increased. This compliments India, whose energy consumption is growing at the rate of six percent annually and which is keen on buying LNG from the US.

It is expected that the US would authorise terminals to export LNG, although it is yet to have a free trade agreement with India. The petroleum and natural gas ministry has sought the external affairs ministry’s help in attracting American investment in the upstream oil and gas sector, and techincal cooperation in the development of unconventional sources of energy such as shale gas and gas hydrates. India is also looking at the prospect of increased investment in the US, which is seeing a boom in natural gas.

Intense discussions would be on the Defence Trade Initiative (DTI). The Obama administration had cleared the leagl framework of DTI late last year and the Americans have been urging India to sign the DTI after the country awarded some big-ticket co-development and co-production defence orders to France, Russia and Israel.

The US sees huge opportunities in the Indian defence market and is prepared to review and relax its stringent conditions on defence exports. American companies are ready to set up facilities in India for the production of sophisticated defence equipment with transfer of technology that they have been reluctant to share earlier.

To share technology, US firms want higher equity than the present 26 percent in the sector. They say allowing higher FDI would help Indian industry in modernisation and indigenisation because foreign original equipment manufacturers (OEMs) would be able to share high-end technology and invest in Indian companies.

The US is keen on finalising the Early Works Agreement (EWA) on nuclear reactors and settle the liability issue to clear the decks for actual commerce in nuclear energy to begin. It is likely that Kerry will push that.

However, domestic political constrainsts would be weighing heavily on reaching an agreement. There is a very small window for this as national elections in India are just months away. Officials speak about a free exchange of views and insist not to expect any “specific commitments”. And as the prime minister is to visit Washington two months later, any big idea would be saved for his summit with President Obama, they say, tongue firmly in cheek.

Kerry is a believer in public diplomacy. In his video message on the eve of the visit, he said that he would “talk about our shared interest in enhancing economic integration in the region; commitment to a secure, stable and prosperous Afghanistan; and support for India’s regional leadership.”

He also repeated what US leaders have said earlier that India deserves a permanent seat at the Security Council. It is safe to assume that he would say some of these things and the strategic congruence between the two countries and India’s role in building an effective security arcitechture in Asia in his speech on foreign policy.

Washington’s recent moves regarding security in India’s neighbourhood – the reopening talks with the Taliban in Afghanistan and regime change in Syria — have however created deep misgivings in New Delhi. Similarly, President Obama’s bid to accommodate China’s rise through “strategic reassurance” and collaboration on regional and global issues — a possible G2 — has raised apprehensions in the country about the potential consequences of such a duopoly in Asia.

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