US waits for economic reforms by new partner India

[June 07, 2011]  WASHINGTON (AP) -- President Barack Obama calls U.S. relations with India a defining partnership of the 21st century. But despite India's approval this week of a major defense deal, the U.S. still has a hard time doing business with the world's second most populous nation.

In the nearly seven months since Obama pressed for stronger economic ties during a visit to India, U.S. companies have struck out in the bidding for an $11 billion jet fighter contract for which the president had lobbied.

India has been slow to ease barriers to trade and investment that Washington seeks. It has barred imports of technology for a multibillion-dollar Indian government-backed program to boost production of solar energy. The only notable move toward market opening was in reducing tariffs on sun-dried raisins, cranberry products and pistachios.

India's Cabinet on Monday approved a $4 billion purchase of military transport planes from the Boeing Co., said an Indian defense official who could not be identified because he was not authorized to discuss the subject. It is India's largest defense contract yet with a U.S. company, but even that approval was seen as overdue: Obama had announced the deal in his November visit.

"India can't give a full embrace to the United States," said Sanjay Puri, chairman of the U.S.-India Political Action Committee, which lobbies in Congress on behalf of Indian-Americans. "India is pursuing a policy based on the region it is in, who its neighbors are and what its economic interests are, and that will not always converge with U.S. policy."

As the United States struggles to bounce back from the global economic crisis, Obama has promoted trade, particularly with the booming economies of Asia, as a way to create jobs at home. The United States also wants to expand American diplomatic and security ties across the continent, and sees India, the world's largest democracy, as a natural partner.

India and the U.S. have come a long way since the Cold War, when nonaligned India tilted toward the Soviet Union and the United States often favored India's neighbor Pakistan. India and the United States now share common interests such as combating militant Islam and managing China's rise as a world power. People-to-people ties are strong, and two-way trade has grown to $46 billion from $25.6 billion five years ago.

A 2008 civilian nuclear deal introduced by President George W. Bush allowed India access to technology from international suppliers it had been denied since it conducted its first nuclear test explosion in 1974. Winning Indian confidence further, Obama has declared support for its ambition to sit as a permanent member on the U.N. Security Council.

Yet the diplomatic capital invested has been slow to yield dividends.

U.S. suppliers have been unable to capitalize on the nuclear deal, as an Indian liability law virtually excludes firms that cannot count on their home governments to insure them in case of a nuclear accident. And reforms that would improve U.S. access to other sectors of the Indian economy, including agriculture and retail, remain politically unpalatable in India because of the impact they could have on the poor.

While ties have strengthened, the two nations still have differences on crucial international issues, such as opposing stances in negotiations on trade and climate change and on sanctions against Iran. India also eyed U.S. military aid to Pakistan with suspicion, believing arms intended for the fight against Taliban and al-Qaida have been diverted to strengthen Pakistani forces on the Indian border.

India's failure to select U.S. firms Boeing and Lockheed Martin Corp. for the purchase of 126 fighter jets -- a decision unceremoniously conveyed in a letter to the U.S. defense attache in New Delhi -- was a sobering reminder of the limits of U.S. diplomacy. The U.S. said it was puzzled and disappointed, describing it as a missed opportunity to deepen defense ties and share advanced technology.

Ashley Tellis, an India expert at the Carnegie Endowment for International Peace, a think tank, said as India's military narrowed down applicants for the contract, it opted for European planes because they had a more advanced design. Factors such as cost-effectiveness and reliability on which the U.S. contenders would have fared better would be assessed only at the next stage of the bidding. To have given America the deal for strategic reasons would have left Prime Minister Manmohan Singh's government, already hit by corruption scandals, open to accusations of rigging the bidding, he said.

"People drew the conclusion that because the U.S. exerted so much energy in consummating the civilian nuclear agreement, it opened up the path to getting the fighter deal," said Tellis. "The process did not allow for that kind of quid pro quo."

India still holds promise for U.S. defense companies.

The deal for 10 Boeing Co. C-17 transport planes brings to more than $8.5 billion the defense contracts sealed by American firms in India. That compares with about $300 million a decade ago, according to the U.S.-India Business Council.

In all, India plans an estimated $45 billion in military procurements over the next five years as it overhauls its largely Soviet-sourced inventory. U.S. companies are well-placed for another $8 billion in contracts that are in the pipeline, the council says.

Ron Somers, the council's president, oozes optimism about business opportunities in India. He is confident India will honor its commitment to ratify by November a convention that could help smooth the way for U.S. companies to supply the civilian nuclear sector. He also expects the overall pace of economic reform to pick up after recent state elections in which Singh's ruling coalition fared well.

The U.S. wish list for easing trade and investment barriers is long. It includes insurance, education and agricultural products. Somewhere near the top is multibrand retail. Currently, firms like Wal-Mart may only run wholesale outlets.

[Associated Press; By MATTHEW PENNINGTON]

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