Monthly Updates on U.S.-India bilateral ties, November 2016
Working with the Presidential Transition Team
A seemingly endless and highly polarized U.S. campaign season has concluded, albeit not in the way that most pundits and prognosticators indicated. President-elect Donald Trump now carries the hopes and aspirations of millions of Americans who expect him to live up to his campaign promises of accelerating economic growth, creating jobs and expanding opportunities for all citizens. President-elect Trump’s plans for the first 100 days in office include a range of proposals such as renegotiating the Trans-Pacific Partnership (TPP), cancelling environmental restrictions, and investigating violation of federal worker visas, among others. While there is some uncertainty in implementing these policies, USIBC is now fully engaged in mapping out the key individuals who will play a significant role in shaping U.S.-India policies in the incoming Trump Administration.
The Council addressed a letter to President-elect Trump and his team, urging the new administration to reinforce the U.S.-India bilateral ties with some immediate measures such as inviting Prime Minister Modi to the U.S. in the first year of his tenure; continuing all of the bilateral dialogues at the highest levels, and further liberalizing trade in order to increase our two-way trade beyond the current $110 billion. More specifically, on U.S.-India Defense trade, the letter advised that the new administration conduct a review of the U.S. policies that put American companies at a competitive disadvantage in India.
As you may be aware, USIBC has been spearheading efforts to enhance U.S.-India defense and security cooperation under the fiscal 2017 National Defense Authorization Act (NDAA). While India is recognized as a “major defense partner” of the U.S., the NDAA mandates actions to institutionalize the U.S. national security bureaucracy’s focus of India. USIBC-initiated language will now be included by statute and will sustain the Pentagon’s one-of–a-kind “India Rapid Reaction Cell,” increase military officer exchanges, and require the Defense Department and the State Department to assess India’s capabilities to perform military missions that are in the mutual interest of both India and the United States. We expect the final version of the NDAA to be rolled out this week by the House and the Senate and further delineate the contours of India’s position as a “major defense partner”.
On the domestic front in India, there are a few noteworthy developments in India:
The U.S. Chamber of Commerce, the U.S. India Business Council (USIBC), and the Federation of Indian Chambers of Commerce and Industry (FICCI) recently hosted the India–United States Workshop on Trade Facilitation in New Delhi, India. Participants included over 65 representatives from the Governments of India and the United States and the Indian and U.S. business community. From the private sector’s perspective, the workshop was a welcome and positive development, reflecting the type of public-private communication and collaboration that the World Trade Organization Trade Facilitation Agreement (TFA) is intended to foster. Through these efforts, the private sector seeks the implementation of “TFA-plus” customs reforms in India, facilitating trade in legitimate goods, increasing the competitiveness of Indian business, and improving customs risk management and targeting. As a follow-up, USIBC applauds the Central Board of Excise and Customs (CBEC) for reducing, and in many instances, eliminating physical printouts for customs clearances effective December 1. The business community is buoyed by the coordination between all customs houses at ports, air cargo complexes, and other freight depots, to graduate to a paper-free environment, and push for data integration to enhance ease of doing business for importers and exporters. This move to reform documentation is an important step in the right direction for India’s ratification of the WTO TFA.
In a major development, the Government of India released its updated draft model of the GST Law. This weekend, the GST Council will hope to find consensus on the administration of this major reform. The Government of India aims to introduce legislation in Parliament based on the agreement that will be concluded by the GST Council. Specific rates for certain sectors will likely be announced by the end of January.
The draft GST Compensation law that was also released last week states that the Central government will compensate states every quarter for GST revenue loss, but the final annual number would be decided only after an audit is carried out by the Comptroller and Auditor General (CAG). The compensation would be met through a levy of a cess called 'GST Compensation Cess' on luxury items goods like tobacco, for the first five years.
Earlier this month, the Government of India demonetized INR 500 and INR 1000 notes in a bid to curb the circulation of black money in the Indian economy and de-risk national security challenges posed as a result of counterfeit currency. At present, black money accounts for nearly 25%-26% of India’s GDP, and by removing the impact there will be greater control on inflation while providing an impetus to the government’s Digital India initiative. However, the implementation of this system seems to have gone off-track –India is now faced with a cash crunch and the Indian rupee faces risk of serious devaluation.
In a positive win for our members, the Government of India has indicated they are going to make two changes to policies that have been long-standing requests from USIBC: First, the Government of India is likely to waive two-factor authentication for low value transactions, which speeds up use of app-based financial transactions like the use of Uber. Second, the Government of India has indicated they plan to release clarifying guidelines on FDI in cargo airlines permitting foreign investment— both of which will be big wins for industry. Other industries this week did not receive favorable news, however, including the insurance industry, which is not likely to receive their requested carve out for GST exemption or a “special status rate” for services.
The Department of Industrial Policy and Promotion (DIPP) has started preparing the next set of business reforms that will need to be implemented by all states. The states will be implementing business reforms of this new framework for next year’s assessment of implementation of business reforms.
The National Energy policy (NEP) announced four key objectives of the new energy policy: access at affordable prices, improved energy security and independence, greater sustainability, and economic growth. The policy is being discussed by NITI Aayog with different stake holders in an effort to provide a clear roadmap to long-term investors.