A Better Way to Do Business in India: Scrap Discriminatory Policies and Engage on Constructive Solutions

By March 18, 2014Economy, Trade

How can India grow its emerging electronics equipment and ICT manufacturing sector? Not with a costly and discriminatory Preferential Market Access (PMA) policy. That’s what Stephen Ezell concludes in a paper released by the Information Technology and Innovation Foundation.

India’s PMA policy mandates local content requirements for as much as much as 30 percent of India’s $20 billion ICT market. By the end of next year, a quarter of the value of mobile phones and computer tablets, desktops, printers, keyboards, servers, memory cards and network equipment must be added in India. That share will rise to 45 percent in 2015 and to 80 percent by 2020.

PMA would block U.S. exporters from a large segment of India’s fast growing ICT market. India boasts the world’s second largest telecommunications network, with a subscriber base that has ballooned from less than 40 million in 2001 to nearly 850 million in 2011. Even without trade distorting preferences, the value of India’s ICT equipment production more than doubled between 2004 and 2009.

But, as Ezell points out, PMA is just as bad for India. Beyond the damage to U.S. and other overseas suppliers, the policy would “impose costs on India’s economy and citizens” without delivering production growth, increased security or better products or services. Overseas investors are already fleeing the sector. FDI in India’s telecommunications sector fell from $2 billion in the period from April 2011-March 2012 to just $300 million from April 2012-March 2013.

Ezell calls on the Indian government to repeal PMA and replace it with measures that can truly drive manufacturing growth and competitiveness. Specifically, he urges India to invest in infrastructure, workforce training and scientific research. He recommends tax and investment incentives to lure overseas firms and an end to an inverted Indian tariff structure that makes it more costly to import component parts than finished equipment.

Manufacturers in the United States are eager to engage on these and other constructive solutions. We continue to seek meaningful dialogue. But to get there, India must end its destructive “talk to the hand” approach to bilateral trade and commercial concerns. The U.S.-India Trade Policy Forum has not met since 2010. No other relevant forum, such as the High Tech Cooperation Group, or the ICT working group has met since 2011.

Early next month, the Indian people will go to the polls to choose new leadership. Manufacturers look forward to working closely with India’s next government. Together, we can find a better way of doing business.

The National Association of Manufacturers is co-chair of the Alliance for Fair Trade with India (AFTI). Click here for more information.

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