May 23, 2010
Politically and economically, India and the United States (US) play a significant role in the global arena. The US is India's largest export destination and also one of the leading foreign investors in India. Further, according to a PricewaterhouseCoopers study released in 2008, the Indian economy is estimated to grow to 90 per cent of the US economy by 2050.
In November 2009, as part of the India-US Green partnership, the US agreed to help India set up the National Environment Protection Authority (NEPA). The move is part of efforts to strengthen cooperation and partnership between the two countries on environment and climate-related issues.
Moreover, US fund houses are showing great confidence in the Indian economy. In August 2009, they launched five more India-specific exchange-traded funds (ETFs) to tap India's growth potential.
On other fronts too, India and the US continue to enter into agreements. In July 2009, they concluded three agreements including the creation of a science and technology endowment fund and a technical safeguard agreement for the launch of civilian satellites incorporating US components.
On Prime Minister Dr Manmohan Singh's US visit in November 2009, the Obama-Singh 21st Century Knowledge Initiative was set up to strengthen linkages between American and Indian universities.
Other key outcomes as a result of the visit include partnership for global peace and security and cooperation in energy security, food security and climate change.
India and the US signed the India-US Trade Policy Forum Framework for Cooperation on Trade and Investment in March 2010, which seeks to facilitate trade and investment flows between the two countries. An initiative "Integrating US and Indian small businesses into the global supply chain", which aims to expand trade and job-creating opportunities for US and Indian small and medium-sized companies, was also announced.
According to the Ministry of Commerce, bilateral trade between India and US amounted to US$ 39.71 billion in 2008-09.
Imports from US form 6.11 per cent of India's total imports. India imports fertilisers, nuclear reactors, gems and jewellery, aircraft, electrical machinery and equipment from the US. Indian imports from the US dropped by 11.89 per cent to US$ 18.56 billion in 2008-09 as against US$ 21.02 billion in 2007-08.
Exports to the US form 11.41 per cent of India's total exports. India mostly exports gems and jewellery, articles of iron or steel, electrical machinery and equipment, apparel and clothing accessories to the US.
During 2008-09, merchandise exports from India to the US went up by 2.02 per cent to reach US$ 21.14 billion against US$ 20.73 billion in 2007-08.
Between April and September 2009-10, India has exported goods worth US$ 8.94 billion to the US, while it has imported goods worth US$ 7.43 billion during the same period.
According to a study released by the Confederation of Indian Industry (CII) in November 2009 titled 'India and the United States: Trade and Investment Analysis' the Indo-US services trade is likely to grow to US$ 150 billion by 2015.
US Investments in India
India's rapidly expanding economy along with a booming consumer market and easy availability of skilled personnel has been instrumental in attracting several American companies to invest in India. The US is the third largest contributor of foreign direct investment (FDI) in India. The overall FDI flow into India from the US during April 2000-February 2010, according to the Department of Industrial Policy and Promotion was US$ 8.21 billion. During 2008-09, FDI inflow from the US was US$ 1.80 billion. FDI inflow between April to February 2009-10 was US$ 1.88 billion.
After companies like Microsoft, Intel, IBM, Dell, Citigroup, J P Morgan and Morgan Stanley, many other US companies are also planning to enter the Indian market with big investments.
Indian Investments in the US
India has emerged as the second fastest growing investor in the United States after the UAE between 2004 and 2008, according to Under Secretary of State for Economic, Energy and Agricultural Affairs Robert D Hormats. Between 2004 and 2008, India accounted for 64 per cent of the foreign direct investment in the US.
According to data released by the US Treasury Department, India's holdings amounted to US$ 29.6 billion in December 2009. The holdings were higher than in the corresponding period of the previous year by US$ 400 million.
Besides the Reserve Bank of India (RBI), institutions that invest in US Treasuries include the General Insurance Corporation of India, foreign branches/subsidiaries of domestic banks and domestic mutual funds that are permitted to invest in foreign securities.
Some recent investments include:
There are several areas where there is abundant scope to further improve economic cooperation between India and the US. Opportunities for progress exists especially in areas like communication infrastructure, IT, telecom, IT-enabled services, data centres, software development, and other knowledge industries such as pharmaceuticals and biotechnology.
According to a CII report titled 'India-US Economic Relations: The Next Decade' released in June 2009, bilateral trade between India and the US could increase eight fold to US$ 320 billion in 2018 from US$ 42 billion in 2007-08.
Exchange rate used:
1 USD = 45.51 INR (as on March 2010)
1 USD = 46.88 INR (as on May 2010)