Former U.S. Outcast Modi Inherits Trade Tension: Corporate India

Indian Prime Minister Narendra Modi,

once barred from the U.S., now faces the task of easing trade

spats with America ranging from protectionism to patent rights.

Modi, sworn in as premier yesterday, inherits disputes with

India’s largest export market that cloud prospects for scaling

up $65 billion in annual trade. In the backdrop is the U.S.’s

denial of a visa to Modi over his handling of deadly riots in

2002 in Gujarat, the state he headed, a decision scrapped after

he swept to power in parliamentary elections this month.

“Relations with such a big and complex trading partner

aren’t all going to be sorted out in one day,” said Neelam Deo,

a director of Mumbai-based think tank Gateway House and a former

consul general for India in New York. The trade disputes are

some of the worst with the U.S. in about two decades, she said.

Modi, who’s denied wrongdoing over the riots, led his
Bharatiya Janata Party to India’s first single-party majority

since 1984, fanning optimism he’ll use his experience of stoking

growth in Gujarat to revive national economic expansion and spur

trade ties. At the same time, India faces a U.S. review of

copyright protections and an American complaint at the World

Trade Organization alleging barriers to solar-industry imports.

India said May 1 that it’s open to talks with the U.S. on

trade and patents. Yet the government has since escalated

friction by recommending duties after claiming U.S. companies

such as First Solar Inc. (FSLR), as well as Asian solar-equipment

makers, dumped products locally.

Piracy, Patents

In April, U.S. Trade Representative Michael Froman said

there are heightened concerns that India’s protection of

intellectual property is deteriorating. An annual review cited

counterfeit goods, piracy of music, movies and software, and

challenges in securing and enforcing patents in the

pharmaceutical, agro-chemicals and green technology industries.

The review kept India on a priority watch-list of 10

countries that are “the focus of increased bilateral attention

concerning the problem areas.” The $1.86 trillion economy could

face trade sanctions if another U.S. assessment due later this

year designates India a so-called priority foreign country.

The U.S. Federal Aviation Administration in January lowered

India’s airline-safety rating to the same level as Zimbabwe, a

move that stops Indian carriers Jet Airways (India) Ltd. (JETIN) and

state-owned Air India Ltd. adding flights to the U.S.

In pharmaceuticals, more than a dozen Indian companies are

on the U.S. Food and Drug Administration’s import alert list

over violations of manufacturing practices. Shipments are banned

from four plants belonging to Ranbaxy Laboratories Ltd. (RBXY)

Obama’s Congratulations

BJP spokeswoman Nirmala Sitharaman didn’t respond to phone

calls and text messages seeking comment about trade relations.

U.S. President Barack Obama called Modi after votes were

counted on May 16 to congratulate him and invited him to visit

Washington to deepen bilateral ties.

The new premier posted gratitude on Twitter for

felicitations from nations including Australia, the U.K.,

Singapore, Japan, Russia, Canada, Germany and South Africa. His

post to Obama said they discussed strengthening relations. It

didn’t say thanks.

“This is downright revealing,” said Sumit Ganguly, a

professor of political science at Indiana University in

Bloomington. “Modi may be pragmatic, but we don’t really know

what his sentiments are about the humiliating manner in which he

was denied a visa.”

Defense Market

Modi, the 63 year-old son of a tea-seller, led the election

campaign of the BJP, a party rooted in Hindu nationalism. He was

chief minister of the western state of Gujarat from 2001 until

resigning last week.

Modi was denied a U.S. visa after being accused of failing

to stop riots in Gujarat 12 years ago that killed more than

1,000 people, mostly Muslims. He’s denied the claims and an

Indian Supreme Court-appointed panel found no evidence he gave

orders that prevented help from reaching those being attacked.

For some, the BJP’s development agenda boosts the odds of

better trade relationships and wider economic gains. That’s

spurred a 17 percent climb in the SP BSE Sensex (SENSEX) index in 2014,

while the rupee has strengthened 5.3 percent versus the dollar.

India last year became the largest market for U.S. defense

exports by companies such as Chicago-based Boeing Co., IHS Inc.

data shows. The imports from the world’s biggest economy were

worth about $1.89 billion, up from 2009’s $237 million.

‘Clear Mandate’

“We hope such a clear mandate for the incoming government

will enable them to take decisions faster,” said Boeing India

President Pratyush Kumar. “Timely decisions will rekindle

economic growth and strengthen India’s defense services. We look

forward to working with the new government.”

Modi has vowed better governance to spur growth. Morgan

Stanley predicts India’s gross domestic product will rise 6.5

percent in the year through March 2016, up from a near decade-low of 4.9 percent last fiscal year.

“The tension between India and the U.S. on trade will be

reduced significantly, if not disappear completely,” Asoke K.

Laha, executive vice president of the Indo-American Chamber of

Commerce, said in an e-mail. The disputes are isolated events

and “just noise,” he said.

Still, the obstacles remain. The BJP’s election manifesto

opposed genetically modified crops, an industry served by U.S.

company Monsanto Co. (MON), without “full scientific evaluation.”

Entry Barriers

Wal-Mart Stores Inc. (WMT) has said India’s entry barriers for

foreign retailers “aren’t workable” even after the previous

government eased rules. The BJP has taken a tougher stance,

saying it won’t allow foreign direct investment in supermarkets

selling multiple brands. At the same time, the party has said it

welcomes foreign investment in other areas as needed.

Merck Co. (MRK) and Bristol-Myers Squibb Co. (BMY) face threats to

patents from rules allowing local manufacturers to copy drugs

under certain conditions. A 2008 U.S.-India civil nuclear pact

remains stalled over concerns about who’d pay for accidents.

The friction extends beyond bilateral trade, which fell

more than $2 billion in 2013, according to data compiled by

Bloomberg. The arrest in New York last year of Devyani

Khobragade, an Indian diplomat accused of lying on a visa

application, roiled bilateral ties.

While Modi’s focus on faster development could create

commercial opportunities, U.S. companies can’t assume they’ll be

first in line, according to Indiana University’s Ganguly.

“Modi may be quite pragmatic, but I don’t think he’s in

any hurry to accommodate the U.S.,” Ganguly said. “If the U.S.

seeks to strong arm him, he’s a tough bargainer.”

To contact the reporter on this story:

Natalie Obiko Pearson in New Delhi at

npearson7@bloomberg.net

To contact the editors responsible for this story:

Daniel Ten Kate at

dtenkate@bloomberg.net;

Reed Landberg at

landberg@bloomberg.net

Sunil Jagtiani, Dick Schumacher

Former U.S. Outcast Modi Inherits Trade Tension: Corporate India