South and Central Asia: India and the United States: A Strategic Economic Partnership for the 21st Century

Robert O. Blake, Jr.
Assistant Secretary, Bureau of South and Central Asian Affairs

The University of Pennsylvania, Wharton India Economic Forum

Philadelphia, PA

April 22, 2011

As prepared

Thank you so much for the kind words of introduction and your warm welcome. I want to thank the student organizers here at the Wharton School at the outset of my remarks, for your generous invitation to me and for your hard work in putting this Forum together. I’m so pleased and honored to address such a dynamic and unique group of business visionaries, noteworthy academics and all the soon-to-be-business leaders – the students of this world-class business school!

For almost a century, Wharton has been at the forefront of global business education. Indeed, the name Wharton has become shorthand for a sophisticated business IQ, that is so crucial to success in today’s knowledge-propelled global economy. Academic rigor and a global orientation – these are the hallmarks of a Wharton education. In India, too, Wharton has become a household name, in part thanks to your recent agreement with the Indian School of Business (ISB) to expand your presence in India, through the development of the Max Institute of Healthcare Management at ISB's new Mohali campus.

It is only fitting that the Wharton India Economic Forum has grown into one of the premier India-focused business forums. Since its inception 15 years ago, this event has provided an important platform to discuss India’s economic opportunities and challenges by convening leading executives, thought leaders, faculty, students, and, yes, even humble government policymakers like me!

I’m extremely pleased to be here today and share with you my perspective, on behalf of the U.S. Department of State. Our primary mission at State is to advance U.S. interests abroad, and seek strategic partners with whom to collaboratively address global and regional challenges. There is perhaps no country in the world with whom we have traveled faster and farther than India over the last ten years. President Obama characterizes our relations with India as one of our defining partnerships for the 21^st century. A central element of that partnership is our economic relationship.

I thought I would use my time today to discuss why we see our fast-growing economic relations with India as so crucial to shaping a prosperous, secure 21^st century, and why all of us in this room today – business, government, academia, and private citizens – have an important role to play in making this vision a reality.

A Transformed U.S.-India Partnership

I have been privileged to help advance the US-India partnership since 2003. I have seen first-hand how committed government leaders working hand-in-hand with the business community and buttressed by strong people-to-people ties can transform a bilateral relationship. Another striking asset of the U.S.-India relationship is bipartisan support in both of our countries. That has helped drive significant progress over the last decade, and ensures that this relationship will continue to be a mainstay of American and Indian foreign policy, regardless of who is in power.

Over the last decade, beginning with President Clinton’s landmark visit in 2000, to the civil nuclear deal negotiated by the Bush Administration, to the strategic partnership established by President Obama, we have fundamentally transformed the U.S.-India partnership. President Obama’s trip will be remembered as a watershed, when the U.S. and India embarked for the first time on concrete initiatives to develop our global strategic partnership. Reflecting the comprehensive nature of our bilateral engagement, the President’s visit resulted in new milestones across virtually every field of human endeavor, from non-proliferation, to our civil nuclear cooperation, and many other initiatives I will touch on later.

As President Obama said in his November 8 speech to the Indian Parliament:

“For the first time ever, our governments are working together across the whole range of common challenges we face…the United States not only welcomes India as a rising power, we fervently support it, and we have worked to help make it a reality.”

A Transformed Indian Economy

I don’t need to remind this audience that our business ties represent one of the most vibrant features of the U.S.-India partnership. In fact, many of you here today played a key role in helping transform the economic relationship. And what a transformation it has been!  The Indian economy of today is the second fastest-growing in the world – expanding at a rate of over 8% annually. India’s GDP is now 10 times what it was 20 years ago.  The Indian economy of today is increasingly of world-class caliber. It has produced some of the world’s leading multinational corporations, who are creating not only innovative goods and services, but also novel business models.

However, as the Indian government itself acknowledges, challenges exist. India ranks 134 out of 183 countries in the World Bank’s index of “Ease of Doing Business”. India’s infrastructure constraints are of course well known, as is the need to ensure that India’s growth benefits all segments of society. Indian and other companies identify corruption as another significant impediment. The Prime Minister understands the importance of addressing these areas and has committed to deal with them. On other issues like energy and food security, India is partnering with the U.S. to develop joint solutions that leverage the best of what both our countries have to offer.

As India addresses these challenges, the future of India’s economy looks very bright. For example, India is projected to become the world’s third largest economy in the year 2030.

· It soon will be the world’s most populous country. And it is a young country. At a time when much of the industrialized world faces rapidly declining birthrates, half of India’s population is under age 25.

· That work force is a growing strategic advantage. According to one study, India will have 25% of the world’s workforce by about 2025.

The incredible growth of India’s economy has resulted in positive spillover effects for the United States. A quick look at the data reveals a trade relationship that is accelerating, mutually beneficial, and relatively balanced.  Between 2002 and 2009, U.S. goods exports to India quadrupled, growing from $4.1 billion in 2002 to more than $16.4 billion in 2009. From 2002 to 2009, U.S. services exports to India more than tripled, increasing from $3.2 billion in 2002 to more than $9.9 billion in 2009. U.S. exports to India have grown faster than exports to practically all other countries in the world.

India is now our 12^th largest trading partner in goods. Recently-released goods trade data for 2010 show record goods trade with India. U.S. exports to India rose by 17%; U.S. imports from India rose by 40%. During President Obama’s visit, trade deals exceeded $14.9 billion in total value with $9.5 billion in U.S. export content, supporting an estimated 53,670 jobs.

Our trade with India is also very much a two-way exchange with mutual benefits to both our countries. For example, in every year for the past 10 years, exporters in all 50 states and the District of Columbia have reported exports to India. Increasing exports to India directly benefit our local economies, including through much-needed job creation here in the United States. Here in Pennsylvania, 2010 saw a total of over $522 million in merchandise exports to India.

India is also a growing source of foreign direct investment into the United States, with $4.5 billion invested into the U.S. in 2008, up 60.4% from the previous year. Over the last decade, Indian investment into the U.S. grew at an annualized rate of 53%. Indian companies invest heavily in many U.S. industries such as energy and information technology, and we expect their investments to increase.

The character of our trade with India is also relatively balanced. In a global economy where America’s trade relations with others tilt away from the U.S., the fact that India’s exports to the U.S. are relatively equal to its imports is important to note. Our trade with India also encompasses a broad range of sectors. U.S. exports to India include aircraft, electrical machinery, chemicals, plastics, pharmaceuticals, vehicles, railway equipment, and steel. Services trade is also significant. In addition to the dynamic IT trade investment, tourism is a little known but growing service. Last year 650,000 Indians visited the U.S., an increase of 18%, making India the 10^th ranking source of travel to the U.S., supporting 36,000 jobs. But we want to do more.

During his visit, President Obama committed to ramp up innovative high tech trade by reforming U.S. export controls so we treat India as a partner. This past January, we removed the Indian Space Research Organization – the Indian counterpart to NASA – and the Defense Research and Development Organization from the Commerce Department’s Entity List, which will facilitate dynamic cooperation on cutting-edge high-technology frontiers.

We in government are absolutely committed to doing everything we can to open new opportunities for trade and investment. We have a variety of mechanisms for doing so. The U.S. Trade Representative’s Trade Policy Forum encompasses a number of sector-specific dialogues; the Department of Commerce’s Commercial Dialogue facilitates an open dialogue about trade; and the High Technology Cooperation Group has enabled both governments to significantly reduce barriers to trade in sensitive, cutting-edge high technology.

People to People

But outside the halls of government, forward-thinking individuals and companies have been blazing the U.S.-India trail long before our governments finally caught up. For over a century now, this vibrant flow of ideas and inspiration has usually been ahead of the curve of our government-to-government engagement.

In the early 1900s, the first sizeable group of Indian immigrants began arriving in the U.S. At the same time, in 1902, General Electric installed India’s first hydro power plant. Later, Tata would open its first U.S. office in New York City, and in 1985 Texas Instruments set up a R&D facility in Bangalore, becoming the first global technology-focused company to establish a presence in India.

These early linkages between people and businesses have blossomed into a vibrant two-way exchange of entrepreneurs, executives, students, professors, scientists and students that has enormously benefitted both countries and come to serve as a model for others around the world.

The nearly three million Indian-Americans in this country, including many in the Philadelphia area, provide a powerful connection between us, as do the more than 100,000 Indian students studying in U.S. universities. Indeed, in many ways, it is the multitude of people-to-people and business-to-business ties that will continue to define and further deepen the U.S.-India relationship.

Many of you here today, through your various pursuits, personally embody the people-to-people ties that lie at the heart of the U.S.-India partnership. Whether you are a student who is part of an exchange program at ISB; or a professor researching the Indian market; whether you are a company executive overseeing an R&D collaboration in India or a private equity investor who just made an investment to help scale a promising Indian company – you are helping shape one of the defining bilateral relationships of the 21^st century.

India knows the importance of a people-centric strategy well; and not just because it has over a billion people! As former National Economic Council Director Dr. Larry Summers noted in a speech in Mumbai last year, India’s growth has been driven by “a people-centered emphasis on growing-levels of consumptions and a widening middle class.”

This notion of people-driven growth is something we in government are keenly aware of. We are committed to leveraging the power of people to people and business to business ties for the mutual benefit of both our countries. For example, in 2005, our two governments created the U.S.-India CEO Forum, which comprises ten selected CEOs from both countries, who have developed a road map and set of recommendations for further reforms to the President of the United States and the Prime Minister of India. All these efforts ensure that our government-to-government interactions are informed by the interests and knowledge of our business communities. We know that such collaborative approaches are needed to create new commercial and investment opportunities that will ultimately lead to new jobs for our people.

The Opportunity for U.S. Businesses

The progress we have made is to be applauded, for our economic relationship has come a long way. Much of the potential of this partnership, however, still remains untapped.  India’s market offers tremendous opportunity to U.S. exporters of goods and services. India has a market of 1.2 billion of the world’s consumers. Forecasts predict per capita income will grow at a rate of 8 percent for at least the next several years, more if new reforms are enacted. These consumers have growing aspirations, and the disposable income to act on their aspirations. This is a powerful combination.

The limitless potential for e-commerce, social media, and endless other business ideas that will arise from enhanced connectivity is staggering. According to a recent Wall Street Journal article, the current internet penetration in India is in the range of only 80 million to 100 million, less than 10 percent of the population.

In addition to the Indian consumer market, India presents fantastic opportunities for U.S. companies to provide the goods and services needed to build India’s railroads, airports, power plants, and fiber optic cables to facilitate India’s continued growth.  We often note that 80% of the India of 2030 has yet to be built. According to McKinsey Global Institute, India will need to invest $143 billion in health care, $392 billion in transportation infrastructure, and $1.25 trillion in energy production by 2030 to support its rapidly expanding population.

According to another McKinsey report, India’s Urban Awakening, in 2030, India will have 68 different cities housing one million plus people each. India will have to construct as much as 900 million square meters of commercial and residential space each year, to keep pace with demand. India must also pave 2.5 billion square meters of roads, and tunnel 4,600 miles of subways and metros.

India is committed to investing more than $1 trillion on infrastructure by 2030; yet, private industry estimates India’s need may even exceed these figures. India clearly will need to find innovative ways to further finance their infrastructure needs, and will rely on the brightest minds in this room to help solve its infrastructure challenges.

Representing yet another significant opportunity, India’s military and civil aviation modernizations are already slated for some of the world’s largest purchases in the next decade. The $13 billion tender for the medium-range multi-role combat aircraft, for which Boeing and Lockheed Martin have submitted bids, only scratches the surface of the possibilities.

Knowledge-Based Partnership

The trade relationship in tangible goods has a solid foundation based on shared, intangible assets that power our strategic partnership: democratic values, entrepreneurial vigor, diverse societies, a strong and independent judiciary, and a passion for innovation. These are the key ingredients of a knowledge-based economy.

Such strengths cannot be quantified in a government data base or corporate balance sheet, but their value is significant. In an age where innovation, entrepreneurship and economic power are increasingly as important as military and political power, America’s future leadership will rest on the power of our knowledge, ideas, and economy. In this context, we see no better partner than India.

I know the business sector feels the same way. These days, it is rare for a company not to have an “India strategy.” Just like our broader relationship with India, our private sector engagements with India are two-way in nature. Our businesses – from the largest multinational to the smallest startup – see a place where world-class American technology can be matched with local Indian know-how.

They see in India a vibrant laboratory for research and innovation that will produce tomorrow’s goods and services. The complex, multifaceted environment in India allows companies and entrepreneurs to test and validate multiple strategies and solutions. Increasingly, these solutions will be applicable not just to India or the U.S., but to the world at large. For instance, John Deere, the leading agricultural equipment manufacturer, developed its low-cost 5003 tractor with the Indian market initially in mind. It eventually ended up realizing this tractor filled a niche throughout the world, and now sells it in South Africa, Europe and the U.S.

The challenges of operating in India require adaptability and flexibility, which have led to new business models, including pay-as-you-go approaches, and selling consumer products in small sachets through a network of rural women entrepreneurs. Of course, Wharton knows this better than anyone—Wharton School Publishing brought out the late C.K. Prahalad’s The Fortune at the Bottom of the Pyramid back in 2004. The “bottom of the pyramid” insight is now accepted wisdom: it is possible to mobilize the power of the markets, in collaboration with NGOs and communities in need, to make a positive and sustainable difference in the lives of the poor.

Education

All of what I have said underlines the huge potential for strong growth well into India’s future. It is important to pause and note, however, that while the full potential of India’s economic rise is likely, it is not inevitable. One crucial determinant of India’s future growth is education. As Kapil Sibal, India’s Minister of Human Resource Development himself has said, “[India] cannot make progress without educating its youth, particularly at the university level…” Without a broader, higher-quality education system, India may fail to realize its full promise.

India will remain a very young country for the next 20 years. Half the population of India was younger than 25 in 2010; half the population will be under 28 in 2030. This audience knows well that such favorable demographics point to the potential of a “demographic dividend” where a substantial working-age population can accelerate the growth trajectory of the country.

The idea is that more working age people leads to more productivity, which leads to more savings and investments, which leads to more jobs and more productivity. The vibrancy of youth also leads to the creativity, imagination and energy that fuels innovation.

This unique historic opportunity can only be leveraged, however, if India creates enough jobs to absorb its rapidly growing work force. But young Indians can only fill those jobs if they acquire the right education and skill sets, including vocational training.

India currently has a serious shortage of colleges, universities, and vocational training institutes. According to the Economist, a Boston Consulting Group report concluded that India faces a shortfall of 200,000 engineers, 400,000 other graduates, and 150,000 vocationally trained workers in the coming years.

India boasts some of the world’s finest universities in its institutes of business and management. Beyond this top tier, however, India’s colleges and institutes vary in quality. This leaves too many graduates unqualified to work for a multinational company. The Indian trade group, the National Association of Software and Services Companies – known as NASSCOM -- found that 75% of technical graduates and more than 85% of general graduates are unemployable by India's high-growth global industries, including information technology and call centers. As a result, many corporations have to invest in time-consuming and costly retraining programs. This skilled worker shortage will not only slow growth in the services and manufacturing sectors, it will also make it more difficult to build all the infrastructure India needs.  In order to maximize the benefits of our higher education institutes, and ensure that innovation continues to flow for generations to come, the Prime Minister and the President agreed to convene a U.S.-India Higher Education Summit, which we plan to hold this year in Washington, D.C.

Wharton has done its part by developing the Max Institute of Healthcare Management with the Indian School of Business. The Max Institute will impart industry-relevant skill sets to students in order to meet India's – and the world’s -- growing need for quality healthcare professionals. I encourage you to continue thinking creatively on how your sterling institution can solve the higher education capacity conundrum in India, and help empower a generation of young Indians to grow their nation, innovate their society, and meet global challenges.

Clean Energy

Like quality education, energy is also a prime driver of economic growth. In order to deliver the GDP growth expected over the next 20 years, the Indian government has estimated that energy generation capacity must quadruple. The United States and India have committed to building a clean energy economy that will drive investment, job creation and economic growth. Through government R&D cooperation, public-private partnerships, and financial incentives to promote commercialization, we are taking a comprehensive approach.

While private sector linkages have continued to thrive, our two governments have committed to collaborate on innovative clean energy technologies through the Partnership to Advance Clean Energy, or PACE. Under this initiative, we have already begun to undertake joint research and deployment of clean energy resources, such as solar, advanced biofuels, shale gas, and smart grids. This cooperation will help to create green jobs at home, and improve living standards and stimulate the economy in India’s villages and urban centers.

Our bilateral commitment to improve access to clean energy is also manifested by a public-private partnership to promote green building technologies. Prominent global companies like Wipro, Infosys, Walmart, Target, and Marriott are leading the way to commercialize and implement these technologies and practices.

The U.S. government also helps financially spur clean technology innovation. The Overseas Private Investment Corporation contributed $100 million to the $300 million Global Environment Fund’s South Asia Clean Energy Fund, which will invest mainly in India. This fund is already conducting due diligence on potential India-specific clean technology investments.

The Export-Import Bank also signed a $5 billion MOU with Reliance Power to support the development of gas-fired electricity generating units and renewable energy facilities.

Along with countries like the United States, Germany, and Spain, India has become a global hub for clean technology development. A truly intriguing possibility lies in the potential for India to leapfrog to a 21^st century energy system that avoids polluting power stations, costly distribution infrastructure, and fossil fuel dependency. The Indian environment thus offers a laboratory within which to develop new energy solutions, from which our own clean energy initiative can benefit.

Human Security

Whether the provision of electricity, comprehensive education of its people, the health and wellness of its citizens from all walks of life, globalization demands that a state pay close attention to human security.  It is, of course, no surprise that both India and the United States have pledged to partner in a number of key areas that seek to bolster the welfare of our citizens’ lives.

President Obama and Prime Minister Singh agreed to build on the historic legacy of cooperation between India and the United States during the Green Revolution, to work together to develop, test, and replicate transformative technologies to extend food security as part of an “Evergreen Revolution.”

Our collaboration will improve productivity, enhance the agricultural value chain and strengthen markets to reduce post-harvest crop losses. The U.S. and India will adapt our shared innovations and technologies in food security to engage in our first trilateral cooperation with other interested countries, particularly in Africa and Afghanistan, thereby bringing wider global benefits to our collaborative approach.
 

Conclusion

Let me conclude today where I began. We see India as an indispensable strategic partner in the 21^st century. The U.S. welcomes the dynamic rise of India. Whether in energy or agriculture; education or biotechnology, our businesses and governments can leverage our complementary strengths to develop solutions to many of the 21^st century’s defining challenges.

Our governments need to match the ambition of our businesses. Washington and Delhi must serve as catalysts for growth and innovation, but to do so we will continue to relay on the advice of our private sectors and our people. This full-spectrum collaboration that I discussed promises to provide mutually inclusive growth and innovation for the people of India and the United States, and to deliver pioneering solutions and opportunities for millions of others around the world.

Your involvement in this collaboration is crucial. As Secretary Clinton wrote in a recent article in Foreign Affairs, “We can also leverage civilian power by connecting businesses, philanthropists, and citizens’ groups with partner governments to perform tasks that governments alone cannot.”

As two countries whose partnership is driven by common values and strengths, and whose joint responsibility is increasingly seen as mobilizing responses to the world’s challenges, I firmly believe that the U.S. and India together can together profoundly influence the future of our peoples as well as the course of this new century before us. With that, I’d like to thank Wharton for hosting me today, and I would be very pleased to take any questions and comments.