President Barack Obama landed in India on Sunday, and the Taj Mahal is not on his list of priorities. Instead, India watchers woke up to news that a bilateral investment treaty with India is now part of the agenda.
A bilateral investment deal could, in theory, increase the flow of investment capital between the two countries.
Obama and Indian prime minister Narendra Modi decided to resume talks on the treaty within hours of the president's arrival, his second visit to India in the last five years.
The U.S. has numerous bilateral treaties in the works, which usually provide for reductions on trade duties. The U.S. is also trying to get one signed with China and is much further along in the process.
“The trip is not about some grand strategic alliance that you hear from the guys in Washington,” says Gunjan Bagla, managing director at Amritt Inc., a Los Angeles based management consulting firm. “None of that is going to matter in the future. What’s matters is that these are two very entrepreneurial countries that want to do business together,” he says.
Both Modi and Obama held a joint press conference after their initial get-together today with Obama lauding India's growing role in U.S. trade and the even the local job market. "In the last few years, trade between our two countries increased by some 60%, total record of $100 billion. We want to trade even more."
Last year, trade between the two countries totaled around $64 billion, according to the Foreign Trade Division of the U.S. Census Bureau. Numbers were updated as of November. In 2013, U.S.-India trade was $63 billion. The figure counts for both imports and exports.
Bagla, who advises U.S. companies in India, says those numbers can expand five-fold over the next seven years, especially if an investment treaty is signed.
Business leaders in India are banking on Modi to reform its byzantine economy. Changes to tax laws and a reduction in government bureaucracy remain key targets for Modi. The hope is for a decline in corruption, and transparency at the highest levels. Modi "is pursuing (political reforms) to make it easier to do business here in India," Obama said.
“Love India. Love Modi,” says Vladimir Signorelli, co-founder of Bretton Woods Research, an investment research firm in New Jersey. "Modi is on the right side of the market,” Signorelli says. The pro-Modi mantra has become market consensus at this point.
Modi said he plans to meet with Obama annually, with another meeting to take place this summer. The former British colony's ties to the United States are relatively new. This is nothing like the United States-China relationship, which goes back 40 years. Delhi and Washington have a defense pact that helped Lockheed Martin partner with Tata Advanced Systems on the C-130 Hercules. Tata makes the wings in the city of Hyderabad. India's government recently changed a law allowing for foreign ownership of around 40% of local defense contractors. The move signals India's slow and steady opening to foreign business.
Reforms allowing for foreign direct investment (FDI) into India will ultimately lead to greater capital flows. This is good for the government's balance sheet, and good for investors looking for new markets. For many American companies, India is the newest of the BRICs.
See: Modi's Welcome Speech to Obama -- The Economic Times
Modi's polices like 'Make in India' -- which is a series of incentives for the manufacturing sector -- will also increase U.S. FDI in India, rhe Minister of State for Finance Jayant Sinha told the Economic Times today.
"Discussions that I am having with American business people, I can tell you those business plans, those investments are being worked out and soon we will see a surge of FDI," Sinha told the ET.
Last year, around $40 billion in portfolio flow found its way into Indian stocks and bonds as investors go long Modi and try to get one step ahead of corporate investment into India. Greater corporate investment can lead to higher earnings, which keeps shareholders happy.
Obama began his three-day visit to India today. On Monday, Obama will be the guest of honor at the Republic Day celebrations in New Delhi. Republic Day celebrates the creation of India's constitution on Jan. 26, 1950. India become independent from Britian in 1947. Its long and violent history with Western colonialism led India to turn towards Russia in the decades after independence. India and Russia maintain strong political ties to this day, with Russia's president Vladimir Putin meeting annually with India's Prime Minister. But thanks to market size here, commercial ties are much stronger with the U.S.
For instance, in 2012, bilateral trade between Russia and India was approximately $8 billion.
