U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

99–469PDF 2016

U.S.–INDIA RELATIONS: DEMOCRATIC PARTNERS

OF ECONOMIC OPPORTUNITY

HEARING

BEFORE THE

SUBCOMMITTEE ON ASIA AND THE PACIFIC

OF THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTEENTH CONGRESS

SECOND SESSION

MARCH 15, 2016

Serial No. 114–159

Printed for the use of the Committee on Foreign Affairs

(

Available via the World Wide Web: http://www.foreignaffairs.house.gov/ or

http://www.gpo.gov/fdsys/

(II)

COMMITTEE ON FOREIGN AFFAIRS 

EDWARD R. ROYCE, California, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

ILEANA ROS-LEHTINEN, Florida 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

JOE WILSON, South Carolina 

MICHAEL T. MCCAUL, Texas 

TED POE, Texas 

MATT SALMON, Arizona 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

MO BROOKS, Alabama 

PAUL COOK, California 

RANDY K. WEBER SR., Texas 

SCOTT PERRY, Pennsylvania 

RON DESANTIS, Florida 

MARK MEADOWS, North Carolina 

TED S. YOHO, Florida 

CURT CLAWSON, Florida 

SCOTT DESJARLAIS, Tennessee 

REID J. RIBBLE, Wisconsin 

DAVID A. TROTT, Michigan 

LEE M. ZELDIN, New York 

DANIEL DONOVAN, New York 

ELIOT L. ENGEL, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

ALBIO SIRES, New Jersey 

GERALD E. CONNOLLY, Virginia 

THEODORE E. DEUTCH, Florida 

BRIAN HIGGINS, New York 

KAREN BASS, California 

WILLIAM KEATING, Massachusetts 

DAVID CICILLINE, Rhode Island 

ALAN GRAYSON, Florida 

AMI BERA, California 

ALAN S. LOWENTHAL, California 

GRACE MENG, New York 

LOIS FRANKEL, Florida 

TULSI GABBARD, Hawaii 

JOAQUIN CASTRO, Texas 

ROBIN L. KELLY, Illinois 

BRENDAN F. BOYLE, Pennsylvania

AMY PORTER, Chief of Staff THOMAS SHEEHY, Staff Director

JASON STEINBAUM, Democratic Staff Director 

SUBCOMMITTEE ON ASIA AND THE PACIFIC

MATT SALMON, Arizona Chairman 

DANA ROHRABACHER, California 

STEVE CHABOT, Ohio 

TOM MARINO, Pennsylvania 

JEFF DUNCAN, South Carolina 

MO BROOKS, Alabama 

SCOTT PERRY, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

BRAD SHERMAN, California 

AMI BERA, California 

TULSI GABBARD, Hawaii 

ALAN S. LOWENTHAL, California 

GERALD E. CONNOLLY, Virginia 

GRACE MENG, New York 

(III)

C O N T E N T S 

Page

WITNESSES 

Alyssa Ayres, Ph.D., senior fellow for India, Pakistan, and South Asia, Council on Foreign Relations ....................................................................................... 5

Mr. Sadanand Dhume, resident fellow, American Enterprise Institute ............. 18

Mr. Richard M. Rossow, senior fellow and Wadhwani Chair in U.S.-India 

Policy Studies, Center for Strategic and International Studies ....................... 28

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Alyssa Ayres, Ph.D.: Prepared statement .............................................................. 8

Mr. Sadanand Dhume: Prepared statement .......................................................... 20

Mr. Richard M. Rossow: Prepared statement ........................................................ 31

APPENDIX 

Hearing notice .......................................................................................................... 48

Hearing minutes ...................................................................................................... 49

Alyssa Ayres, Ph.D.: Material submitted for the record ...................................... 50

(1)

U.S.–INDIA RELATIONS: DEMOCRATIC 

PARTNERS OF ECONOMIC OPPORTUNITY 

TUESDAY, MARCH 15, 2016

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ASIA AND THE PACIFIC,

COMMITTEE ON FOREIGN AFFAIRS,

Washington, DC. 

The subcommittee met, pursuant to notice, at 2 o’clock p.m., in 

room 2172 Rayburn House Office Building, Hon. Matt Salmon 

(chairman of the subcommittee) presiding. 

Mr. SALMON [presiding]. The subcommittee will come to order. 

Members present will be permitted to submit written statements 

to be included in the official hearing record. Without objection, the 

hearing record will remain open for 5 calendar days to allow statements, questions, and extraneous materials for the record, subject 

to the length limitation and the rules. 

The U.S.-India relationship can be characterized simply as one of 

enormous potential. It is in the interest of this subcommittee and 

the United States to see democratic societies prosper, and it is because of this view that India is a natural partner for the United 

States. The 1.3-billion-person nation has become the focus of U.S. 

trade and business opportunity. People-to-people connections between the two countries undergrid and bolster this relationship. 

As a growing military power, India is also a critical global security partner with the potential to help avert military confrontation 

and conflict in the Indo-Pacific region. Indeed, both the United 

States and India recognize the potential partnerships between the 

world’s fastest-growing large economy and the world’s most powerful economy. 

In light of this, we should expect that bilateral trade has much 

more room to grow. We convene this hearing today to discuss the 

U.S.-India economic relationship. Trade in goods and services has 

ballooned between 2005 and 2015. Both countries have prioritized 

the economic relationship, aiming to reach $500 billion in bilateral 

trade in goods and services by 2024, a fivefold increase from the 

2014 level. 

To achieve this, it is greatly important that India continue substantive economic reform by opening its markets, but substantive 

challenges remain, including speculation about India’s domestic 

growth products, prospects, limits to market accessibility, and concerns about intellectual property rights protection. 

When Prime Minister Modi came into power in 2014, he shouldered high expectations for an economic transformation. While his 

2

leadership continues to hold the promise of a new economic era for 

India, observers have become frustrated with the slow pace of reform. India’s economic growth rate at 7.6 percent will not be 

enough to generate sufficient jobs for India’s exploding population 

of young people. 

On top of that, these issues are exacerbated by an overbearing 

and corrupt bureaucracy, insufficient infrastructure development, 

heavy regulation, and high social spending. Meaningful reform has 

been hindered by domestic policies and parliamentary gridlock. 

A critical component of India’s economic reform will be its involvement in multilateral economic institutions. India has for 20 

years shown an interest in joining the Asia-Pacific Economic Cooperation, or APEC, a regional organization that supports economic 

growth through free and open trade and investment, promoting regional integration and encouraging economic cooperation, among 

other things. 

This has been an ambition that our Executive Branch has welcomed and encouraged. To assist in accelerating the relationship 

toward this goal, I plan on introducing a bill to support India’s 

membership in APEC this week. Thanks to my colleague Mr. Bera, 

who has been working with me on putting this bill together. 

Our two countries are also in the midst of discussions on a highstandards Bilateral Investment Treaty, or BIT. If achievable, the 

BIT would deepen our economic relationship and support economic 

growth and job creation in both countries. 

These sorts of positive currents and potential achievements for 

Indian economic policy would illustrate a movement toward greater 

openness and harmonization with global free market principles 

that will be beneficial to India and the U.S.-India relationship and 

both of our economies. 

Such reforms would pave the way to the accelerated growth 

India needs, and the increased openness would allow our countries 

to exploit our comparative advantages. Experts estimate that a successful BIT agreement, for example, could increase U.S. goods exports to India by 50 percent or more and could double service exports. A successful BIT could even pave the way forward toward a 

free trade agreement with India. 

Despite the slow pace of reform, India’s economy remains a 

bright spot amidst global economic troubles, particularly for developing nations. It is still the world’s fastest-growing large economy, 

and I look forward to hearing about the U.S.-India economic relationship and the opportunities and challenges that encompass it, 

and how the United States can best support and nurture the bilateral economic relationship. 

I would like to recognize Mr. Sherman for any opening statement 

he would like to have. 

Mr. SHERMAN. Thank you, Mr. Chairman. Thank you for holding 

this important hearing. 

With a population of 11⁄4 billion people, India is the world’s largest democracy, the largest democracy in history. Some 550 million 

people voted in the last nationwide elections. 

When you look at the people of India, you see that many have 

moved outside India to create a diaspora. Everywhere in the world 

that diaspora is considerably more educated and considerably 

3

wealthier than the country in which it is located. In fact, the only 

place you can go to find a poor person of Indian heritage is India. 

I am confident that, as India gets better governance, it will emerge 

as one of the richer countries in the world. 

The United States and India share many core values, including 

religious pluralism, individual freedom, the rule of law, and electoral democracy, and both have rejected and are working together 

against radical Islamic extremism. The Indo-American community 

in the United States is a vital link between the two countries and 

has helped build bridges. New Delhi has played an important role 

in regional peace and security. Its growing economic power adds to 

its ability to deal with strategic issues. 

India’s growth path shows that it can be compared to China. I 

used to be a business advisor and now and then give free business 

advice to those of my constituents foolish enough to ask me for it, 

and I pointed out that an investment in India makes a lot more 

sense than one in China. In India you have the rule of law. In 

India you also have the long-term stability, messy as it is, of governing institutions. 

The United States during the Great Depression showed that democracy can survive a 20-, 30-, even 40-percent decline in GDP. I 

do not think that a system of government built around a party that 

got power by claiming to be the vanguard of the proletariat, but 

now says it is not, could survive even zero-percent economic growth 

for a year or two. So, while China gives this image of stability, it 

does not have a system which could explain to its people why certain individuals hold positions of power. 

Over the past decades, we have seen the U.S. work to bring India 

out from nuclear isolation and, of course, increase defense and security cooperation. The International Energy Administration estimates that India will require $2.1 trillion of investment in its 

power sector. Of course, India is looking to develop its own oil and 

natural gas resources and is seeking $25 billion of investment 

there. I want to do everything possible to make sure that the tremendous amount of equipment that is necessary for this power expansion is produced in America by American workers. 

I was one of 83 Members of Congress, along with at least several 

people in this room, to urge that this House provide Prime Minister 

Modi with the highest honor we can provide a foreign leader, and 

that is an invitation to address a Joint Session of Congress. While 

the schedule couldn’t be worked out last time, I look forward to 

hearing Prime Minister Modi while sitting on the House Floor. 

We look forward to expanding our trade relationship, which is 

now at only $110 billion. I believe the Vice President and others 

have announced the goal of expanding that to $500 billion of bilateral trade. 

But I will point out that this has got to be balanced trade, that 

the people of this country have, in case we haven’t noticed, risen 

to totally repudiate the trade policies that we have followed so far, 

which are misnamed ‘‘free trade.’’ Every single Presidential candidate with over 150 delegates has absolutely repudiated the trade 

policy that has guided us over the last 20 years. Now some of them 

have done it rather reluctantly, but all of those who are still significant candidates have done so. 

4

So, the people of this country look forward to expanding trade 

around the world on a balanced basis, not with the United States 

running huge trade deficits. It will take a completely different 

model of trade to achieve that. Those who come to the American 

people and just say all trade is good, no matter whether it is balanced or not, will be, have been utterly repudiated by the people 

of this country. 

And I yield back. 

Mr. SALMON. Thank you. 

Mr. Bera, did you care to make an opening statement? 

Mr. BERA. Sure. Thank you, Mr. Chairman and the ranking 

member. 

I had a chance to travel to India with the chairman of the subcommittee as well as the chairman of the full committee last year 

and, then, recently returned to India a few months ago. And you 

still feel the sense of optimism in India, the sense that the economy, while it is not a straight shot, is still quite vigorous and vibrant. 

I think the chairman’s leadership on the resolution that we will 

be introducing this week to really encourage India’s joining of 

APEC, that probably is the next logical step as they undergo the 

economic reforms and undergo much of the agenda that Prime Minister Modi has put out there. 

For us to realize this potential that both the President and Vice 

President have said of creating the defining relationship in the 21st 

century and trying to take the bilateral trade from $100 billion to 

$500 billion, you know, APEC membership is a good next step. It 

will take us a little bit longer to get that high-standard Bilateral 

Investment Treaty, but that certainly is an aspirational goal for 

both countries and really can set the framework for bilateral trade. 

Now, on our side, I urge patience. The economic reforms in India 

will take time. I think we have to look at this longer time horizon. 

On the Indian side, we encourage the Prime Minister to continue 

the economic reforms to ease the ability of our companies to do 

business, to put in good intellectual property and patent protections that don’t hinder that investment and, also, to open up and 

ease the ability for U.S. resources and U.S. venture to help India 

realize its potential. I mean, these are all achievable goals. It requires patience on both sides of the Pacific. It requires open dialog. 

I remain very optimistic that we can reach those goals. 

I look forward to hearing the testimony of witnesses who are all 

experts on this relationship. 

Again, I will yield back. 

Mr. SALMON. Thank you. 

Ms. Meng, did you have an opening statement? 

Ms. MENG. Thank you, Mr. Chairman and to our ranking member. 

Thank you to our witnesses who are here today to testify on 

U.S.-India relations. I represent one of the largest Indian-American 

diasporas in Congress. 

The people-to-people relationship has been a driving force behind 

bringing our countries closer together. Under this President, our 

countries have grown closer and we share renewed commitment to 

working together, particularly in the economic sphere. Principles of 

5

our joint commitment were laid out first in September 2014, when 

U.S. and Indian leaders committed to expanding and deepening the 

strategic partnership in a vision statement entitled ‘‘Chalein Saath 

Saath: Forward Together We Go.’’ Following President Obama’s 

second state visit to India in January 2015, we released a joint 

statement outlining extensive, detailed commitment in a variety of 

industries. 

But, while it is clear that there is a deep interest and commitment on both sides, there is still a lot of groundwork we must do 

to realize this vision. I look forward to hearing from you on how 

you see the status of this commitment from India and how we can 

best address some of the existing challenges. 

Thank you, and I yield back. 

Mr. SALMON. Thank you. 

Mr. Lowenthal? 

Mr. LOWENTHAL. Thank you, Mr. Chairman. 

And thank you, witnesses, for joining us today. 

Sitting on this committee, I realize just what an increasinglycomplex world in which we live, but how interdependent we are 

with our global neighbors, how we look forward to working to promote peace, security, economic growth, development. 

With India especially, representing such a huge population, proportion of the world’s population, I want to know how we can both 

influence and effectively advance both our national interest and at 

the same time do that in a way that improves our relationships. 

You know, there are many challenges in front of us in the world, 

on this globe, and this committee sees them all. But I want to hear 

how we can in this committee and Congress support better relationships with India, how we can support their economic development, their democratic aspirations, and not just of India, but really 

the democratic aspirations of the entire region and how we can 

work together for that. 

And I yield back. 

Mr. SALMON. Thank you very much. 

We are very fortunate today to be joined by three very distinguished panelists. 

First, Alyssa Ayres, Ph.D., senior fellow for India, Pakistan, 

South Asia, at the Council on Foreign Relations. Welcome, Dr. 

Ayres. 

Mr. Sadanand Dhume, resident fellow at the American Enterprise Institute, and Mr. Richard M. Rossow, senior fellow and 

Wadhwani Chair in U.S.-India Policy Studies at the Center for 

Strategic and International Studies. 

We will begin with you, Dr. Ayres. 

STATEMENT OF ALYSSA AYRES, PH.D., SENIOR FELLOW FOR 

INDIA, PAKISTAN, AND SOUTH ASIA, COUNCIL ON FOREIGN 

RELATIONS 

Ms. AYRES. Chairman Salmon, Ranking Member Sherman, and 

members of the subcommittee, thank you very much for the invitation to appear before you today on U.S. economic ties with India. 

I am honored to be part of this distinguished panel. 

I shared in advance with the committee a recent Council on Foreign Relations Independent Task Force report for which I served as 

6

project director. I respectfully request that the report and my more 

detailed written statement be submitted for the record. 

In the last 15 years, India has experienced significant economic 

growth, and the bilateral economic relationship has changed substantially. After several years hovering below the $100-billion level, 

in 2014 two-way trade in goods and services crossed that threshold 

and last year reached $107 billion. U.S. exports to India now support more than 180,000 American jobs, as Secretary of Commerce 

Penny Pritzker said last year. U.S.-India defense trade has increased from zero to around $13 

billion cumulatively. Technology and entrepreneurship are increasingly a bridge between both countries. At the same time, U.S.-India 

trade remains well below its potential, only a little more than onetenth U.S.-China trade in goods and more on the scale of Taiwan 

or the Netherlands. 

India and the United States also have market access differences. 

I do not intend to minimize these concerns, for they certainly exist, 

but I will focus my remarks on the future strategic horizon we 

should bear in mind, India’s future potential. 

According to International Monetary Fund data, India’s GDP crossed the $2-trillion threshold in 2014. At market exchange rates, 

India was the world’s ninth largest economy that year, surpassing 

Russia. India is now growing at around 7.3 percent annually, which 

in 2015 made India the fastest-growing major economy in the 

world, given China’s slowdown. 

India, as you know, does not fare as well when looking at percapita GDP. When looking at per capita at market exchange rates, 

India’s nearly $1700 level ranks it in the bottom third. Still, the 

prospect for India’s middle class to grow substantially in the coming decades is not in doubt. A strong economic base will allow India 

to continue on its path of rising global power, including by enabling 

its military modernization, making the country a bulwark of democracy and stability in an expanded region from the Middle East 

to East Asia, where both are not always in ample supply. 

I referred to the Council on Foreign Relations Independent Task 

Force. One of its top findings was that, if India can maintain its 

current growth rate, let alone attain sustained double digits, it has 

the potential over the next 20 to 30 years to follow China on the 

path to becoming another $10-trillion economy. Few countries have 

such potential. 

India has its own political work to do to realize these ambitions 

and it will not be easy. These are challenges that the United States 

can do little about, but we have a clear stake in India achieving 

its ambitions. 

The Task Force recommended that the United States elevate 

support for India’s economic growth and its reform process to the 

highest bilateral priority. I will provide several recommendations 

for how to do this at the end of my testimony. 

Preparing the United States for a more global India. We have a 

problem of underinvestment and insufficient attention to India in 

United States higher education, an economic preparedness issue for 

our own country. The ranking of top study-abroad destinations tells 

an obvious story about American interest in Europe, but China has 

overtaken Germany as a destination. Nearly twice as many AmerVerDate 0ct 09 2002 14:43 May 26, 2016 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 F:\WORK\_AP\031516\99469 SHIRL
7

ican students head to Costa Rica for an experience abroad than to 

India. 

Language enrollment data is yet more dispiriting. Students in 

U.S. colleges and universities do not sign up for Indian languages 

at the levels they do for languages like Arabic, Chinese, or Korean. 

Here is an example: Enrollments for Hindi were only 1800. All Indian languages combined were around 3,000. This means that the 

total enrollments in all Indian languages combined account for less 

than one-quarter those of Korean. 

Let me offer now a few recommendations for U.S. policy on these 

issues. First, elevate support for India’s economic growth to the 

highest bilateral priority on the U.S. agenda with India. Steps recommended by the CFR-sponsored Independent Task Force report 

include leadership of a global diplomatic effort to support India’s 

entry into APEC; completion of a Bilateral Investment Treaty; 

high-level discussion of bilateral sectoral agreements such as in 

services; identification of a longer-term pathway to a free trade 

agreement or Indian membership in an expanded TPP as an equivalent; creation of initiatives that respond to Indian interest in domestic reform needs such as technical advice on infrastructure finance, and continued emphasis on defense trade and technology. 

Second, as India becomes an increasingly-central global economy, 

the United States should work to integrate India in global economic institutions. I mentioned APEC. There are other institutions 

in which India should become a member, such as the OECD and 

the International Energy Agency. 

Finally, prepare our next generation for an India in the global 

economy. Review Federal funding incentives to encourage study 

abroad in India and study of Indian languages. 

Thank you very much, and I look forward to questions. 

[The prepared statement of Ms. Ayres follows:]

8


99469a-1.eps
9


99469a-2.eps
10


99469a-3.eps
11


99469a-4.eps
12


99469a-5.eps
13


99469a-6.eps
14


99469a-7.eps
15


99469a-8.eps
16


99469a-9.eps
17


99469a-10.eps
18

Mr. SALMON. Thank you, Dr. Ayres. 

Mr. Dhume? 

STATEMENT OF MR. SADANAND DHUME, RESIDENT FELLOW, 

AMERICAN ENTERPRISE INSTITUTE 

Mr. DHUME. Chairman Salmon, Ranking Member Sherman, 

members of the subcommittee, thank you for this opportunity to 

testify before the subcommittee on U.S.-India relations, democratic 

partners of economic opportunity. 

I am Sadanand Dhume, resident fellow of the American Enterprise Institute, based here in Washington, DC. My comments today 

are my own and do not necessarily reflect the views of AEI. 

Since our time is limited, I would like to take this opportunity 

to make four broad points on which I will then elaborate. 

Number one, the U.S.-India relationship is a pivotal relationship 

for the future of the Asia-Pacific and, indeed, the world. 

Number two, at a time of political turbulence, it is important for 

us not to lose sight of the economic principles that have helped 

make this country the strongest and most prosperous in human 

history. These include an openness to trade and a welcome mat for 

talented professionals from around the world. 

Number three, after the election of Prime Minister Narendra 

Modi 2 years ago, India is on the cusp of change. The U.S. cannot 

determine the policies India will follow, but, by the force of its example and its advocacy, it can nudge India in the direction of the 

policies that will grow its economy, eradicate poverty, and make it 

one of America’s major global trade partners. 

Finally, number four, U.S. economic policy toward India should 

be tethered to twin goals, to help India achieve its economic potential and to strive to remain India’s top trading partner in goods and 

services. 

I will spend the remainder of my time to expanding briefly upon 

each of these four points. 

The first, of course, is that the U.S.-India relationship is pivotal. 

Sandwiched between a rising China and the turmoil of Afghanistan 

and Pakistan, India represents an anchor of democratic stability in 

an uncertain part of the world. 

The U.S. stakes in India go beyond economics. But, arguably, no 

aspect of the relationship is more important than the economic one. 

Simply put, the U.S. ought to view the goal of making India prosperous in a way similar to which it viewed South Korea, Japan, 

and Taiwan during the Cold War. This is part of a larger strategic 

goal which is important to the United States, given what is unfolding in Asia. 

In purchasing power priority terms, India is currently the third 

largest economy, but, as a U.S. trading partner, it is only number 

10 in terms of goods trade. I think that gap between those two 

numbers, number three and number 10, really sums up the challenge that we face, but also the opportunity for further growth. 

In terms of India’s own potential, though it has had 25 years of 

rapid growth of about 6 percent a year, in terms of per-capita income it remains at $5,700 a year in purchasing power terms, which 

is, to put it in perspective, less than half of China. So, again, we 

19

have seen quite a dramatic success story over the past 25 years, 

but there remains a lot of potential for further growth. 

I also think that we should keep sight of our larger principles, 

particularly at a time of turbulence. Arguably, now more than ever, 

we need to stand by the ideas that have been the bedrock of prosperity for more than 200 years. This means leading by example in 

terms of openness to trade in both goods and services, while at the 

same time ceaselessly advocating for greater economic freedom in 

India. I would like to say, in particular, that some of the debates 

about Indian tech firms tend to lose sight of the fact that they have 

been an asset for U.S. competitiveness and Indian tech workers 

have been productive members of society. 

India is on the cusp of change. In 2014, Narendra Modi was 

elected Prime Minister with India’s first single-party majority in 30 

years. Mr. Modi earned the reputation as an efficient businessfriendly administrator. He has embarked upon reforms, but those 

reforms have not gone fast enough for many observers. Nonetheless, he is less than 2 years into a 5-year term and he remains the 

single best bet for India to achieve the economic transformation 

that it ought to achieve. And it remains in the United States’ interest to back him as he makes these efforts. 

Finally, to sum up, I would say that all U.S. policy goals, including some of those mentioned by Dr. Ayres, such as backing India’s 

APEC membership, supporting a Bilateral Investment Treaty, I 

would add to that finding a way to work with India’s most dynamic 

states such as Gujarat and Andhra Pradesh, and also working to 

enlarge global economic institutions, all of these exist within a 

larger framework, and that larger framework is two twin ambitions. The first is to help India achieve its economic potential, and 

the second is to continue to be India’s top trade partner in goods 

and services in the foreseeable future. 

Thank you very much. 

[The prepared statement of Mr. Dhume follows:]

20


99469b-1.eps
21


99469b-2.eps
22


99469b-3.eps
23


99469b-4.eps
24


99469b-5.eps
25


99469b-6.eps
26


99469b-7.eps
27


99469b-8.eps
28

Mr. SALMON. Thank you. 

Mr. Rossow? 

STATEMENT OF MR. RICHARD M. ROSSOW, SENIOR FELLOW 

AND WADHWANI CHAIR IN U.S.–INDIA POLICY STUDIES, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES 

Mr. ROSSOW. Thank you, Chairman Salmon, Ranking Member 

Sherman, members of the committee. Thank you for the opportunity to testify at this hearing on U.S.-India economic relations. 

I will focus my remarks on two main issues that I think must 

be addressed in order to deepen our economic partnership with 

India and create new opportunities for American firms. First is 

that we have to bridge this gap that exists in our approaches to 

global trade, and the second is we must engage India’s regional 

leaders more directly. 

Since Prime Minister Modi took office in 2014, our bilateral relationship has strengthened mightily, though I think in surprising 

ways, ways that we didn’t expect to see. We expected the Modi government to have a strong economic focus, which it has within political limitations. But I think what you could have expected was the 

establishment of a stronger ideological framework guiding the continued expansion of our strategic partnership. We now have a big 

disparity, shared security goals that guide that strategic partnership, highlighted I think by the Joint Strategic Vision on Asia-Pacific and the Indian Ocean Region signed last year. But we don’t 

have a similar ideological construct that guides our economic engagement. 

Now kind of following on what others have stated before me, but 

a few examples that highlight the lack of a common ground on 

global economic issues, today we are no further along than we were 

8 years on signing this investment treaty; in fact, a little bit further away, since both the United States and India have amended 

our model treaties which I think take them further away than they 

were at the outset. 

India is not part of any of the wider trade agreements that the 

United States is a party of, and a wide chasm remains between our 

positions on many issues in the World Trade Organization. Now, 

in truth, I think it is likely that the Indian Government will only 

begin to approach global trade talks more proactively once their agriculture and manufacturing industries become more globally competitive. The two sectors make up 70 percent of India’s workforce, 

yet contribute only about 45 percent of India’s GDP. 

But there are a wider range of shared interests. Both countries 

are hotbeds of innovation. We both have strong services economies. 

Both have large net trade deficits, particularly with China. We face 

similar challenges in the way that we have been engaging on global 

trade issues, and our firms bring complementary to markets like 

sub-Saharan Africa. I think there is actually a foundation of issues 

that could create a bit of a more powerful economic narrative on 

why we should be partners rather than constantly fighting on these 

big global issues. 

The second issue I want to highlight is the importance of developing a more robust whole-of-government strategy to engage India’s powerful state regional leaders. State governments—I mean, 

29

I have already heard it a number of times today about Modi reform, has he done enough; has he not done enough?—state governments actually have a much deeper control on India’s business environment outside of things like high-level market access than national leaders do. Issues like electricity, water, sanitation, infrastructure, industrial licenses, and law and order, these are all 

issues that the states actually govern far more than the Federal 

Government has a hand in. 

India’s two national parties, Congress and BJP, combined only 

control 16 of India’s 29 states right now. With a few notable exceptions, most of these state leaders actually have very little vision 

today for what partnership with the United States looks like. 

In addition to the strong impact on the local business environment, regional parties in India also have a strong influence on central government policymaking. Regional parties hold the majority 

of seats in the upper house of India’s Parliament. 

Also, while we talk about the BJP’s electoral victory in the 2014 

national election, it is the first time in 30 years that any party won 

a single-party majority in the lower house of Parliament. We can 

expect that in the not-too-distant future we will see coalition governments again, and these regional parties played a dramatic influence on policymaking in the last government under coalition governments. 

Now taking a step back, I think the Modi government’s track 

record on reforms is somewhat underappreciated. From the U.S. 

viewpoint, the day that he stepped into office there were four main 

areas of contention in our economic relationship: Contentious taxation policies; lack of progress on new market access reforms, particularly foreign equity caps; treatment of pharmaceutical patents, 

and the establishment of forced local content rules in several manufacturing sectors. Those are the four that I saw as really kind of 

driving the negative sentiments and the hope when Modi stepped 

into office. 

I think 2 years later we have actually seen robust movement on 

cross-border taxation policies and at the same time dramatic improvement on foreign equity limitations. About 30 sectors have actually seen foreign equity limitations removed or lessened somewhat since he came into office, but we have seen less movement on 

local content rules in manufacturing and patent laws. 

Now these are, of course, the economic agenda as it matters to 

American firms and policymakers. There are also other reforms 

that I think haven’t been appreciated on this side of the ocean, but 

in terms of growing the Indian economy and providing new opportunities for American firms would do so. Liberalizing the oil and 

gas sector; they liberalized the coal sector; transparent auctions for 

the first time with public resources like spectrum and mining licenses; delicensing defense production of the private sector. 

These reforms and India’s relatively-high growth rates compared 

to other countries I think make it an important market to American firms, as has already been stated. Now our economic relationship going forward will benefit from forging a set of shared principles behind global economic issues and for better engagement 

with India’s powerful state leaders. 

30

I was also asked by the committee to offer a couple of recommendations for this committee and for Congress. And so, two 

things that I have in mind on that. 

First, I think the pipeline of congressional visits is terrific, and 

I think using that kind of an opportunity to engage some of these 

regional leaders, as what happened with Prime Minister Modi, in 

fact, before he became the leader of the country, is important to 

maintain and build on, not just Delhi and Bengal and Bombay, but 

some of the other regional capitals as well. 

Second, we have an election coming up. As I like to joke, you 

don’t become Secretary of State based on your policy toward India. 

So, we don’t really know what the next administration, whoever it 

is, what their position is going to be on key issues in India. But 

Congress will still be there, and there is going to be an important 

role to make sure that we maintain quickly and deeply with India 

after the election takes place. 

So, thank you again for inviting me to appear before the subcommittee. 

[The prepared statement of Mr. Rossow follows:]

31


99469c-1.eps
32


99469c-2.eps
33


99469c-3.eps
34


99469c-4.eps
35

Mr. SALMON. Thank you very much. 

I think the reason that nobody gets to be Secretary of State 

based on their policy on India is they are not big enough troublemakers. So, I guess we ought to be thankful for that. 

My two questions center on foreign direct investment. First of 

all, Prime Minister Modi recently launched efforts to boost India’s 

domestic manufacturing base and promote economic growth from 

within with programs like Make in India Campaign. Does the 

Make in India Campaign program discriminate against U.S. and 

foreign manufacturers and imports? Will this policy hinder foreign 

direct investment? Do you think that it will have an adverse effect 

maybe on securing the kind of foreign investment it needs? 

Then, secondly, related to their existing foreign direct investment 

policy which prohibits foreign-owned businesses from selling items 

directly to the Indian consumers over the internet, should that policy be one that Modi looks at reforming? Is that going to hurt foreign direct investment as well? 

So, Mr. Rossow, do you want to take a stab first? 

Mr. ROSSOW. Yes. Let me start with the second one on sales via 

the internet. I am actually working on a piece right now to try to 

break down the various and strange ways that companies have to 

contort in order to sell something to a consumer in India. 

So, if you are selling to businesses, there is one regulatory regime. You know that, yes, broken down. They have already started 

to liberalize on e-commerce to some extent. 

The idea about marketplace, kind of like eBay, where individuals 

sell to individuals via an administered platform, that is already allowed. Or just say that it is not discriminated against. So, that is 

one model that is allowed. 

If you manufacture in India, you are allowed to sell online directly to consumers. And if you have single-brand investment in 

India, so like a Nike store or Apple store, you are allowed to sell 

directly to consumers. 

Those changes have been made largely under the Modi government so far. So, they have incrementally, I think, been chipping 

away at the ban on foreign investment in e-commerce. But, still, 

the big opening I think on a multi-brand, you know, the kind of ecommerce platforms that we see here in the United States where 

you buy directly from businesses carrying multiple brands over the 

internet still isn’t there. 

Now my conversations with Indian officials, it is on the cusp. I 

suspect that is one of the reforms I think in the next year or two 

you are going to see. They have been, as I mentioned, kind of incrementally moving their way in that direction. So, I think it is on, 

I would say, the short list of next FDI reforms. But, as to the timing, is it 6 months from now or a year from now, I can’t be sure. 

Mr. SALMON. Do you think that it could be a substantial left reform? So, a company like let’s say Amazon could actually sell directly to consumers? Do you think that it might liberalize that 

much? 

Mr. ROSSOW. Yes, I think it might. But what you have to watch 

out for is are there going to be provisions on local sourcing rules, 

things like that that in other areas where they have opened up retail trade have proved to be a bit of a poison pill. So, you always 

36

look for what are the qualifiers that will attach to a policy like 

that. Some policies get opened up to 100-percent foreign investment 

with very few restrictions. Other policies you see things in there 

that would actually preclude investors coming in. 

Amazon, though, is actually one of the largest e-retailers in India 

right now, but it is on the marketplace model. 

Mr. SALMON. Right. It is on a marketplace model and, otherwise, 

they can sell to businesses, but they can’t sell directly to consumers. 

Mr. ROSSOW. Yes, it is a strange tree, watching the different 

ways you try to get something in consumers’ hands. 

Mr. SALMON. What about the other question? And, Dr. Ayres, you 

could address it or Mr. Dhume, whoever feels more adequate. But 

the Make in India policy, does that have the potential to discriminate against foreign manufacturers, foreign investors? Is that 

something we should be maybe chatting with them about? 

Ms. AYRES. I think, first of all, having the platform of Make in 

India is, first and foremost, designed to attract foreign direct investment into India. A lot of American companies that are manufacturing in India are taking advantage of that. So, it is actually 

helpful to the larger revenue of some American companies. 

For example, General Motors announced $1-billion investment 

and a relocation of a factory last summer. Ford has one of their 

largest manufacturing facilities anywhere in the world in Gujarat. 

There is a long list of others. 

Since the Make in India initiative was announced in September 

2014, there has been a trickle of major investment announcements. 

And so, I think we would have to look at kind of individual sectors 

to see if there was anything that would preclude or prohibit or 

limit U.S. exports to India. So, I don’t think it is possible to answer 

that in a blanket, kind of umbrella statement. 

But, certainly, it is the case that this is a platform that is helpful 

to some American manufacturers who are looking to produce for 

this huge and growing Indian market. 

Mr. DHUME. Let me take a quick stab at both of those. On the 

e-commerce, I would agree with what Rick said. It is important to 

keep in perspective that India’s e-commerce market is one of the 

most interesting and one of the fastest-growing in the world. There 

was a statistic recently I saw which said that the top three e-commerce sites in India do more business than the top ten offline retailers combined. One of those top three is Amazon. 

Mr. SALMON. Okay. 

Mr. DHUME. So, it is definitely there. It is a player. There is certainly room for further reform over there. I agree that it is probably coming down the pike, but the situation now, it is already we 

do have—there is a stake. 

On Make in India, I think your question, it is a very important 

question because there is a philosophical difference and there is a 

difference between a Make in India which says we are going to 

make India a more attractive place to do business and a Make in 

India that says we are going to make it hard to do business unless 

you make in India. 

Mr. SALMON. Right. 

37

Mr. DHUME. I think that is what the question is driving at. I 

would say that, so far, the emphasis of the government has been 

on the former, but it is certainly something that we should continue to watch and continue to pay attention to. But, if you look 

at FDI over the last 20 months, the first 20 months of the Modi 

government, FDI in India has risen by 33 percent. 

Mr. SALMON. Right. 

Mr. DHUME. So, it has definitely been very foreign-investmentfriendly. 

Mr. SALMON. Thanks, Mr. Dhume. 

Mr. Sherman? 

Mr. SHERMAN. Thank you. 

In evaluating trade relationships, we all too often focus on revenue for American corporations or profits for American corporations, and all too little emphasis is put on jobs for American workers. 

I would point out that Japan runs a $5-billion surplus or a $4-

billion to $5-billion surplus with India. Germany runs a $5-billion 

surplus with India. There are two possible explanations of why we 

are running a deficit. One is that our workers are not as good. The 

other is that our Government is not as good at representing the interests of American workers. I think that the elites in Washington 

should plead guilty because it is the second and not the first. 

Mr. Rossow, what changes in U.S. law, policy, or regulation is 

India seeking? 

Mr. ROSSOW. Changes on this side, that is a great question, rarely asked, I think, in our bilateral relationship. They want more 

visas. They want lower visa fees. They would like a Social Security 

agreement that allows Social Security payments made by H-1Bholders to be exempted from payment or reimbursed at the other 

end. So, they do have, I think, a short number of issues. 

Mr. SHERMAN. So, all of those things relate to how immigrants 

and/or diaspora workers are treated. Anything on trade? 

Mr. ROSSOW. On trade, there are still some technology——

Mr. SHERMAN. Investment? Any of the things that we usually negotiate? Anything that our Trade Representative’s Office would actually deal with? 

Mr. ROSSOW. Right now, we are looking at an investment treaty 

as probably the biggest thing that is on the agenda. 

Mr. SHERMAN. Yes, it is on the agenda, but is there anything 

that India is seeking in that investment treaty or are they just 

kind of talking to us because it is one of the things we like to talk 

about? 

Mr. ROSSOW. Yes, every meeting I have with Indian Government 

officials, they have a difficult time articulating what is kind of in 

it for them, because they have got access to our market. So, it is 

really is, will that be attractive enough to bring new investors to 

India in the sectors they desire, rather than it being a market access opportunity for Indian firms on our side. 

Mr. SHERMAN. And that investment may deprive Americans of 

work. Indians watch a lot of movies. A lot of movies are made in 

India. What are the restrictions on American firms, Hollywood, 

having their movies exhibited on screens and TV sets in India? Mr. 

Rossow? 

38

Mr. ROSSOW. I am not aware of any restrictions based on American movies being there. There are some restrictions on TV channels, foreign ownership of TV channels and things like that, which 

could be a pipeline for more American contents coming into India, 

but, otherwise, unrestricted. 

Mr. SHERMAN. Is any of the other witnesses aware? 

Mr. DHUME. I was just in India last week and I watched The 

Revenant with my parents, and they absolutely loved that bear 

scene. So, a lot of Hollywood movies in India. 

Mr. SHERMAN. Yes, there are a lot of Hollywood movies in China, 

but they restrict us to 30 or 40 movies. There are no similar restrictions in India? 

Mr. DHUME. Netflix has just come to India also, and I expect it 

to do quite well. It is a large market. 

Mr. SHERMAN. What are the primary barriers to U.S. companies 

exporting goods and services to India? Mr. Rossow? 

Mr. ROSSOW. Well, there still are a number of sectors where they 

have put up restrictions on foreign companies selling in the market. So, for instance, let’s talk about defense trade. There is a 30-

percent direct offset requirement for defense sales. You have to 

produce some portion of that locally. 

The solar policy, which demands local content to qualify for certain tax benefits, there were policies developed during the last government, which this government hasn’t removed, which look at 

local content as well for government contracts on electronics, on 

communications, things like that. 

So, there are a wide range of sectors where there are, I think, 

more explicit rules that limit American trade or force some of it 

under local content to be able to qualify for certain deals. Those are 

the main ones that I am aware of. 

Mr. SHERMAN. India will be building nuclear power plants. We 

in Congress stepped forward and approved the Nuclear Cooperation 

Agreement. The thinking in India is that there will be some plants 

built by the United States. But, as a practical matter, Russian and 

French firms are government-owned and, therefore, they have sovereign immunity and could never be sued; whereas, a U.S. firm 

could be. We have turned to other countries to have liability protection, which really just puts our companies in the same position as 

the French and Russian companies. Obviously, Bhopal is still remembered in India. 

We voted for the U.S.-India Energy Cooperation Agreement. Are 

we going to get any jobs out of it? Mr. Rossow? 

Mr. ROSSOW. I think we will. I mean, talks about actually creating a liability regime in India that will accommodate American 

interests for developing are ongoing. American companies aren’t allowed to actually invest in the plants there. So, it is going to be 

contracts as suppliers. Will the material be built in India? Probably 

not anytime soon for American companies. So, I think so, but it depends upon whether or not they get this workaround for the liability issue done in a way that accommodates American trading concerns. So, it looks like it is headed in the right direction, but nothing is done. 

Mr. SHERMAN. I will ask one other question. 

Mr. DHUME. Can I just add? 

39

Mr. SHERMAN. Yes. 

Mr. DHUME. I will just add to that very briefly. I think that it 

is a completely valid concern. I think that there is reason to be concerned that this has taken so long and that, despite many years 

after the agreement, there hasn’t been concrete——

Mr. SHERMAN. Is it well understood in India that they are, in effect, providing liability insulation for the French and Russian companies? 

Mr. DHUME. I think it is viewed, as you alluded to in your question, mostly through the prism of Bhopal, which is why you had 

that liability law passed in 2010 which was very tough. 

But I think there is something that we sometimes lose sight of 

when we are discussing the nuclear issue, which is that, though 

there may not have been sufficient progress on that particular 

issue, the nuclear deal really has unlocked the relationship in 

many other ways. 

Mr. SHERMAN. Thank you for that. I am going to try to sneak in 

one more question with a two-word answer from each witness. 

Pick two states in India where you think it is easiest for Americans to do business. 

Mr. DHUME. Gujarat and Andhra Pradesh, I would say. 

Mr. ROSSOW. Yes, Andhra Pradesh. I will say Maharashtra, just 

to be a little bit different. 

Mr. SHERMAN. Is Gujarat one of your two or——

Mr. ROSSOW. I probably would pick that. If you would give me 

three, I would say those three, Maharashtra, Gujarat, and Andhra. 

Mr. SHERMAN. And Dr. Ayres? 

Ms. AYRES. I agree. I would say either of those three. 

Mr. SHERMAN. Okay. We have got three instead of two. 

I yield back. 

Mr. SALMON. I turn to Mr. Chabot. But, before you get to ask the 

witnesses questions, we are all kind of wanting to know from you 

who is going to win in Ohio tonight. [Laughter.] 

Mr. CHABOT. I have no idea. 

Mr. SALMON. Mr. Chabot? 

Mr. CHABOT. Thank you. Thank you, Mr. Chairman, for holding 

this important hearing. 

Many consider the U.S.-India relationship an indispensable one, 

and I tend to believe that myself. India is already a regional economic powerhouse and could potentially become one of the most 

important powers in the world. I think the U.S. has, for the most 

part, succeeded in fostering this relationship over the years. 

For more than a decade, the U.S. has committed to working with 

India to ensure a lasting strategic relationship. Both countries 

identify our bilateral trade ties as an integral component to our relationship moving forward. 

I would stress, as I have in past hearings on this topic—I chaired 

this committee in the previous Session of Congress, not Session of 

Congress, but previous Congress—that it is essential for the administration to continue proactive engagement with India. Many of 

us in Congress and in the administration welcomed Prime Minister 

Modi’s ascension to power with pretty significant enthusiasm. 

Now, however, I am beginning to hear skepticism about the Modi 

government’s follow-through in some areas; for example, its comVerDate 0ct 09 2002 14:43 May 26, 2016 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 F:\WORK\_AP\031516\99469 SHIRL
40

mitment to promoting stronger economic relations. I am particularly concerned with India’s commitment to respect intellectual 

property rights, and the administration should take the necessary 

steps to ensure that American innovations are afforded the safeguards that they deserve, and that our American businesses, particularly our small businesses—I happen to the chairman of the 

House Small Business Committee now—that our small businesses 

can rely upon this administration and the Federal Government to 

do everything it can to protect their interests. After all, if we want 

to continue to be the world leader in international trade, we must 

continue to prioritize these kinds of issues. 

Now for a couple of questions. Last fall the International Trade 

Commission found that the Modi government had made no changes 

to its laws to address longstanding intellectual-property-related 

trade barriers. Moreover, India’s long-awaited IPR policy is rumored to be far less of an improvement than hoped. Is India backsliding on these issues? What can we do to get India to create a 

level playing field for our exporters and our investors? I would be 

happy to hear from any of the panel members on this. Dr. Ayres? 

Ms. AYRES. I will offer some initial thoughts on that. 

First, I think in the IPR conversation we should probably split 

the discussion to talk first about copyright issues and, then, secondly, IPR concerns in other industries. The pharmaceutical industry in the United States has some deep concerns about India’s IPR 

regime. 

On the copyright side, there has actually been a lot of good news. 

That has been an arena where you have seen Indian industry, particularly India’s media and entertainment industry, step up and request its state-level governments and its government at the Federal level to put in place stronger protections for copyright. So, that 

has actually happened, and I think you now have seen over the 

course of the last decade a real convergence of views in the entertainment space. So, whether it is songwriting or a script or a film, 

we have now, I think, got agreement with the regime in India on 

copyright. 

IPR, as you referred to, is much more difficult. I don’t believe 

that India is backsliding, but I don’t believe that their patent law 

has moved in any way in a direction that would be satisfactory to 

what people in the United States are looking for. 

I know that the Indian Government recently received an opinion 

from the World Trade Organization that supported India’s patent 

law. So, I do not anticipate that that positive opinion they received 

from the WTO would suggest to Indian lawmakers a necessity for 

them changing their own law. What that tells me is I think we are 

going to continue to see a lot of fireworks over the IPR issues, particularly in the pharmaceutical industry, for the next several years. 

I don’t see this as an issue that is going to be easily remedied. 

Mr. CHABOT. Okay. Thank you. 

Mr. Dhume? 

Mr. DHUME. I would just add very quickly that I would share the 

characterization that there has been neither concrete forward 

movement nor visible backsliding. I think that on the positive side, 

some of the fears that people had 2 or 3 years ago about, for instance, compulsory licensing have not come to pass. Things have 

41

sort of been frozen in place. But it certainly does seem that the 

area of concern would probably be things like drug pricing where 

it is a very live political issue in terms of how much companies 

should charge. And that is the area that I would be paying the 

most attention to. 

Mr. CHABOT. Thank you. 

Mr. Chairman, my time has expired. Do we have time to hear 

from Mr. Rossow? 

Mr. SALMON. Yes. 

Mr. CHABOT. Thank you. 

Yes, sir? 

Mr. ROSSOW. I agree with, actually, what both said. Areas like 

development of film and content and things like that where India 

has an offensive interest, we have got a lot of alignment. But, on 

pharmaceutical, our industries are based on different models. And 

so, it is very difficult for us to kind of bridge that gap. It is absolutely night and day. So, to find common ground in that scenario 

is extremely difficult. 

But Sadanand had mentioned on pharmaceutical pricing, it is 

kind of a new issue that we see, I think, new attempts to regulate 

pricing. Also, medical devices is another issue that is kind of like 

related to that that we are seeing. So, nothing further than what 

my colleagues had said on that. 

Mr. CHABOT. Thank you. 

I yield back. 

Mr. SALMON. Thank you. 

Mr. Lowenthal? 

Mr. LOWENTHAL. Thank you, Mr. Chair. 

I am going to follow up some of the questions I thought in terms 

of India’s relationships to its neighbors per se. Can you tell us how 

it is improving trade or what its trade relationships are with Pakistan, with China, with Sri Lanka? Where is that moving? And 

maybe explain to us how India is dealing with its regional partners. 

Ms. AYRES. Perhaps I will take a stab at that and, then, my colleagues might have some additional thoughts. 

China is India’s largest trading partner in goods. We have heard 

earlier the United States is India’s largest trading partner in goods 

and services, but China is India’s number one in goods. So, it has 

a very robust economic relationship with China. 

India is not happy with the balance of its trade with China. India 

feels that it is sending out raw materials and importing finished 

goods. So, it is unhappy about the trade balance and the composition of trade. 

Mr. LOWENTHAL. Yes. 

Ms. AYRES. With Pakistan, India is in an extremely-limited trade 

relationship. In 1994 or 1996—I would have to check my notes—

India granted Pakistan most favored nation recognition. Pakistan 

has never reciprocated that. So, they don’t have free and open 

trade. 

There have been some studies done that suggest that they have 

got trade diversion that goes through the Gulf, through the United 

Arab Emirates, instead of going across the border by land, where 

it could be carried out quite easily. 

42

Previous Indian Governments and the Indian and Pakistani private sector have tried to use trade initiatives to try to be a kind 

of leading edge to improve ties. But, without that most favored nation recognition and some sort of larger push on trade, it is hard 

to see larger improvement on the trade ties. 

With the smaller countries around India, there is an open border 

with Nepal. So, they have free and open trade and movement of 

persons anyway. India has a free trade agreement with Sri Lanka 

that has expanded their trading relationship significantly. And 

India recently completed a boundary reorganization with Bangladesh, and they have significantly expanded the trade with Bangladesh. So, economic ties with Bangladesh have been a big focus 

for the Indian Government. 

Mr. DHUME. I agree with all of that. I would just say that, if you 

were to look at India and you look around, basically, with all the 

smaller countries, trade relations have been improving, deepening. 

Barriers have been lowered. 

The two problems are China and Pakistan, for different reasons. 

The India-China relationship in some ways is like the U.S.-China 

relationship in terms of trade. It is lopsided. India has market access issues. Nonetheless, it is a very large economic partners. 

With Pakistan, it is really a question of access. The key over 

there is that India would like to see trade dealt with as a separate 

issue and trade to be pursued; whereas, Pakistan would like trade 

to be linked to other issues, such as security, and that has been 

a sticking point. 

Mr. ROSSOW. I will just tie in a loop your question and the chairman’s question, actually. The sectors that I mentioned where India 

has restrictions on foreign trade, whether it is solar, electronics, IT, 

telecom equipment, this is pretty much China’s top exports to 

India. 

So, when these issues came up, it wasn’t reaction because, of 

course, we have a trade deficit. It is exactly not explicitly, but going 

after the areas where China has major exports to India. 

India’s trade balance overall is declining in the last couple of 

years, as a lot of countries are, but their trade deficit with China 

continues to go up. So, that has even been augmented while they 

have been reducing oil imports and other things as prices come 

down. 

Mr. LOWENTHAL. Thank you. 

I just have one other question. You have all touched on it. I 

think, Dr. Ayres, you talked about it also, about some of the legal 

protections, or lack thereof, in India. I am just wondering, is the 

legal system or the rule of law attractive enough for foreign investment into India now? Do companies believe that they have the 

kinds of legal protections that they need? Anyone? 

Mr. DHUME. I think large companies do. Large companies that 

have the resources when cases come up to prosecute it effectively, 

hire the best law firms, get it through the appeals process to higher 

courts, where you know you are going to get a very good hearing, 

they have managed to do fairly well. Some major cases involving 

some of the biggest investors in the country, recently Vodafone, a 

few years before that Morgan Stanley with a big tax case, they 

43

managed to get those all the way to the Supreme Court of India 

in just a couple of years. 

But the small and medium businesses I think, for them, where 

maybe they don’t have the kind of resources to put toward the case, 

they would have to churn it out, just like Indian companies would. 

That sometimes can take several years to get through. 

So, I think it moves fast enough and it is fair for large companies 

with the resources to spend the time and energy to do it. Small and 

medium companies, I think they continue to be concerned about 

this. So, I will leave it at that. 

Mr. DHUME. I mean, I think you could divide that into a bird’s 

eye view and a worm’s eye view. From a bird’s eye view, it looks 

great, the British legal system, rule of law, and all of that. From 

the worm’s eye view, for firms it often depends from case to case 

and it can be messy and time-consuming. 

But, by and large, if you sort of look at India and compare it to 

most of the developing world in Asia, I would say that rule of law 

is generally seen as one of the positive attributes of India. 

Mr. LOWENTHAL. Thank you. 

And I yield back. 

Mr. SALMON. Thank you. 

Ms. Gabbard? 

Ms. GABBARD. Thank you, Mr. Chairman. 

Aloha. Welcome. 

Since 2008, the U.S. and India have signed more than $10 billion 

in defense contracts, and the Defense Trade and Technology Initiative has been a priority in these bilateral security relations. Especially now with Secretary Carter as our Secretary of Defense, I 

think this has continued to be a priority. 

Can you speak to your assessment of how the DTTI is working 

and, if there are impediments, what are they and how can they be 

overcome? 

Ms. AYRES. So, I will offer a couple of thoughts. I know my fellow 

panelists have been thinking about this one as well. 

The DTTI seems to be going very well. As with almost everything 

involving negotiating some sort of agreement with India, it is not 

happening overnight, and I don’t think that should surprise us. But 

the fact that we have seen an increase, first, in the defense procurements, which is good for our economy as well as good for India’s developing its defense and security capacity; the fact that we 

now have these pathfinder projects that are moving ahead; the fact 

that we have seen a change in India’s FDI policy when it comes 

to the defense sector, moving that FDI cap from 26 to 49 percent, 

with the possibility of up to 100 percent on a case-by-case basis, 

these are all positive movements that have been helpful to the defense industry. I would anticipate that as discussion of the projects, 

the pathfinder projects, continues, we will come together and be 

able to produce something and develop something with India. So, 

I consider that moving quite positively. 

Ms. GABBARD. Okay. Before you respond, I will just add to the 

question about these three foundational agreements that I hear 

from Admiral Harry Harris and others frequently about being so 

critical to enhancing U.S.-India partnerships and their hope that 

India will sign those foundational agreements. If you could add 

44

that to your response of where you think that is at and if they will 

sign? 

Mr. DHUME. On DTTI, I would add one other sort of broader reason for optimism is the Make in India policy that was mentioned 

earlier and, also, raising foreign investment caps in India in the defense sector. So, there is genuine optimism that there will be more 

U.S. investment and genuine partnership over there, including in 

defense manufacturing, and there is certainly a lot of interest in 

that in India. 

On the logistical agreements, I don’t know what the latest on 

that is, but my understanding is that, with the new Defense Minister Parrikar, there is greater interest in India going ahead and 

signing those agreements than we had in the previous administration. 

Ms. GABBARD. Thank you. 

Mr. ROSSOW. I think the previous administration and the fact 

that they had such strong support from the communist parties in 

India, they managed to tilt the discussions over the foundation 

agreements, so that it sounded like India was giving away the 

store, that a logistical sharing agreement meant that we had open 

basing with India, that we had backdoor channels where we can 

steal communications from the equipment we sold. 

The fact that the communists are no longer a force, the BJP is 

not reliant upon them, that voice I think that managed to sink it 

last time around, when those talks began 8 years ago, is gone. So, 

that leaves an open door. 

I mean, it is in the press right now that these talks are happening. You don’t feel that kind of blowback against it. So, I think 

the stage is set for progress on the foundation agreements. 

On the Defense Technology and Trade Initiative, I think that exactly exhibits why long-term vision is critical, because we have put 

forward more than a dozen projects to the Indian side and got no 

response. But, as soon as we started talking about aircraft carrier 

technology, jet engines, the things that hit exactly on where India 

saw its future and strategic interests, as soon as we put those on 

the table as longer-term working groups, they came back and we 

got four project agreements, well, we got four agreements and, 

then, two which will result in project agreements. So, we have only 

got four. Two of those don’t look like they are moving very fast. 

Hopefully, we can get some new ones added to the list now. 

But I see tremendous progress. Even if there frustration occasionally that two of them aren’t moving that quickly, it is talked 

about as one of the most tangible, cogent examples about where 

partnership goes. So, in terms of a guiding star, I think it has also 

provided a great opportunity for us. 

Ms. GABBARD. Yes. Great. Thank you very much. 

Thank you, Mr. Chairman. 

Mr. SALMON. I would like to really thank the panelists for giving 

us the opportunity today to learn more about the bilateral opportunities that exist, predominantly in the trade opportunities, but others as well. 

It is clear that India is moving in leaps and bounds and that, regardless of how these hearings turn out, they are going to continue 

to progress. We need to figure out how to better partner with them 

45

on different ideas because I think their success globally as well as 

success in the region can be enhanced by a strong U.S.-India relationship. I, for one, am really hopeful that we can move forward 

with a Bilateral Investment Treaty. I think that would be incredibly positive. 

There are other things that we have heard expressed, that the 

lawsuits tend to take a long, long time, on the average I think 4 

years, to get resolved. While big companies have the resources to 

stay the course, that becomes difficult. And with the pharmaceutical companies, the generic entry into the markets has been a 

concern. 

But, as we move forward, I think that most of the issues are very 

resolvable between our countries. I would echo what Mr. Bera said. 

When we were able to go to India, we were afforded great courtesies as far as opportunity to meet with Prime Minister Modi and 

virtually all of his Cabinet for several hours. It showed me that 

they are keenly interested in strengthening the relationships with 

us. And so, I think that is a real positive thing. 

I would like to really thank the panelists for coming today. 

I would like to thank the ranking member. 

Mr. SHERMAN. May I join you in those comments? 

Mr. SALMON. Yes, yes. 

Mr. SHERMAN. I want to thank the panel for coming here, and 

I look forward to the U.S.-India relationship not being our 10th 

largest trading partner in the future. 

Mr. SALMON. Absolutely, and let’s do a better job. I do echo what 

Mr. Sherman says. Let’s start doing a better job in getting our 

products over there. China has really taken great advantage of us 

when it comes to that lopsided agreement, and we don’t want to 

make the same mistakes with India. 

But thank you very much for being here today. 

This committee is now adjourned. 

[Whereupon, at 3:26 p.m., the subcommittee was adjourned.] 

(47)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE RECORD

48

f


99469n.eps
49

f


99469m.eps
50

MATERIAL SUBMITTED FOR THE RECORD BY ALYSSA AYRES, PH.D., SENIOR FELLOW FOR

INDIA, PAKISTAN, AND SOUTH ASIA, COUNCIL ON FOREIGN RELATIONS


99469d-1.eps
51


99469d-2.eps
52


99469d-3.eps
53


99469d-4.eps
54


99469d-5.eps
55


99469d-6.eps
56


99469d-7.eps
57

[NOTE: The above document is not reprinted here in its entirety but may be found 

at: http://docs.house.gov/Committee/Calendar/ByEvent.aspx?EventID=104671]

Æ


99469d-8.eps