Raymond E Vickery, former US assistant secretary of commerce and now an advisor on US-India ties, said the government should do away with retrospective taxation. In an interview with Nayanima Basu , he said US and India should explore ways to establish a free trade agreement (FTA). Edited excerpts:
The government has announced a number of initiatives to attract foreign investments. However, US investors still seem to be unhappy with India?
If you are not going forward, you are going backwards. I believe economic reforms, while it has enabled the engagement, is not a static process. The US and India need to do more. On our side, we need to take another look at H1B and L1 visas. We have in place restrictions on export of crude oil and a different process with India than with countries that have a free trade agreement with the US on liquefied natural gas (LNG). So these are what we need to do. India has done a lot in easing the foreign direct investment (FDI) norms, but I think it does send a mixed message. For example, in insurance you are allowing 49 per cent FDI from 26 per cent, but you will not allow a majority interest. Why is that? It sends a wrong signal. I think a lot needs to be done there.
Do you think the Narendra Modi-led government has adequate measures to address taxation woes of US firms?
The Vodafone tax case has sent a very negative signal to international markets, particularly in US. Here was a retroactive case in which there was extra territorial reach that even the Supreme Court said was illegal. Now this government has said that it wants to do away with tax terrorism. But there are a thousand of cases lined up behind that in which the foreign investor might eventually win the tax case but it will have to go through so much time and effort that it makes an investor wonder if it was worthwhile at all. Repeal the law which sends negative signal.
What are your expectations from Modi’s visit to the US in September and the bilateral meeting between him and President Barack Obama?
There might be announcements of tie-ups between Silicon Valley companies and Indian firms. Announcements might also come in the field of venture capital (VC).
India is expected to take up the issue of lowering the cost of professional visas.
With regard to H1B and L1 visas and totalisation agreement, we are making real progress there. There have been abuses from time to time and they will have to be addressed. But this is not a big issue anymore.
The US had been also pushing for the bilateral investment treaty (BIT) with India for long. Do you think it has become imperative now?
This will send a positive signal. It is hung up on whether or not you can have an arbitration kind of proceeding. It is no answer to American investors to say that they can always go to court; the backlog in courts is about 10 years. They may win the case but business moves at the speed of light. So getting justice in decades is no solution.
Coming to bilateral trade, both sides have set a target of $500 billion. What is required to go to the next level?
Well, we ought to think about a free trade agreement between the US and India. India now has some of the highest tariff rates in the world. They are about six times higher than the US; there are many non-tariff barriers. And these are the difficult issues. But we have to think anew. This should come up for discussion between Modi and Obama.
India is also trying to improve the business environment. Are the American companies feeling the improvement?
In the ease of doing business, whether it is enforcement of contracts, getting building permits, getting electricity, all of those are still works in progress. And as progress is made, investors feel encouraged. India is taking a lot of important steps. But it needs a vast amount of capital, around $1.7 trillion according to World Bank, to improve infrastructure. Structural reforms need to go forward.
What about civil nuclear partnership? When will companies sign the commercial contracts?
Next year onward, American companies will be gravitating towards Gujarat and Madhya Pradesh to set up these projects for nuclear ties. Liability is still a concern but what has changed is being able to lessen the liability exposure. Now we have the involvement of the government along with the companies.
So is economic engagement going to be smooth from here on?
Economic engagements have been a driver in moving the US and India from estrangement to being natural allies. I believe economic engagement will take the US and India to a status of being best partners. I think India’s opening to the world has offered a wealth of opportunity for economic reforms. We are at an all-time high but the best is yet to come.
