Page last updated at 12:24 GMT, Monday, 23 November 2009

Indian PM Manmohan Singh meets Obama for trade talks

By Shilpa Kannan
Business reporter, BBC News, Delhi

Indian Prime Minister Manmohan Singh
Indian Prime Minister Manmohan Singh

Indian Prime Minister Manmohan Singh is in Washington for talks that many people see will shape foreign policy in the coming years.

So what can companies hope for, and what will better ties between the two countries mean as the US becomes evermore a key ally and trading partner for India?

In one Indian factory there's a buzz in the air as several rows of workers sit behind tall wooden tables cutting yards of fabric.

They are working frantically to finish thousands of white cotton blouses which have to hit American stores in time for spring.

Shrinking orders

The Jyoti Apparels Factory in Delhi is managing to keep afloat but the global slowdown has meant that orders from the US have gone down drastically.

Women in Dehli making t-shirts
Women in the Jyoti Apparels Factory in Dehli making t-shirts for the US market

And garment export houses have taken a huge blow. It is one of the largest employers in the country but already half a million workers in this sector have lost their jobs.

With over 4000 employees to pay, the managing director of Jyoti Apparels, H K L Magu says he has now shifted the focus to finding markets other than the US.

"We have started sending high level trade delegations to explore the markets in Aruba, Chile and Panama. At the Indian government level, they want to hold mega road shows in Japan, Australia and South Africa," he says.

But American companies are keen to ensure that India continues to do business with them. And it is more than just clothes that are on their mind.

Outsourcing

In the past decade Delhi and Washington have enjoyed close relations and India has been looked at as a rising economic power.

The United States was India's largest trading partner and largest source of investment. The signing of the historic nuclear deal was the biggest victory for both sides.

Any perception that you might have that Barack Obama is not warm towards India, I think you should just forget it
Indra K Nooyi, US India Business Council

But when Barack Obama took office many in India were more cautious.

During his presidential campaign the 44th President took a tough stance on outsourcing and talked about taxing American companies who took their business abroad.

This issue is crucial for many companies in India.

In the business process outsourcing (BPO) sector, Indian companies have been hoping that more work will come to India as recession-hit American companies look to cut costs.

US investment

The purchasing of arms and defence equipment is high on the agenda for India.

But for trade in this industry to increase further, American companies are demanding that India open up its foreign investment cap in sectors such as education, technology and defence from 29% to 49%.

Last year, an estimated $10.5bn (£6.3bn) was invested by Indian companies in the US which helped to create an additional 65,000 jobs.

A worker in Dehli making t-shirts destined for US shops
Textiles is one of the largest employers in India

Indra K Nooyi, chairperson of the US India Business Council spoke on the need for two-way flow of investment.

"The focus of both countries in the coming years must remain closely tied to three broad areas - job creation, infrastructure development and inclusive growth where collaboration is very much needed," she said.

"Although we have made some great progress in recent years, a great deal more remains to be done. But with the vibrancy of our newly elected governments, we are tremendously optimistic that our nations' two leaders will use the state visit to set a new course to fully capture the growth potential of our two economies."

She dismissed fears within Indian industry that the Indian prime minister's trip to Washington will not be successful, pointing out that the first state visit Barack Obama is hosting after becoming president is with the Indian premier.

That, she says, shows "his [Barack Obama's] tremendous warmth towards India."

Anything that brings these two nations together, that allows a better perspective and sharing, will do well
Rajesh Sud, Max New York Life

"I think it shows his interest in India and I think this is a historic moment. So any perception that you might have that he is not as warm towards India, I think you should just forget it," she insisted.

In the last couple of years, American companies have been increasingly interested in setting up shop in India.

The biggest hook is the rapidly growing middle classes who have deep pockets and are ready to spend.

And as the economy grows, Indian consumers are demanding more and more of the same kinds of goods and services that are available in the West.

'Underpenetrated market'

Take life insurance for example. The country will soon have more than half of its population under the age of 25.

This is a lucrative market for companies like Max New York Life - a joint venture between Max India and New York Life Insurance Company.

They, like many others, are trying to capture one of the largest uninsured populations in the world.

Rajesh Sud, the company's chief executive, says collaboration is a good way to enter the market.

US President Barack Obama
US President Barack Obama has come down hard on outsourcing

"It requires people to come in and learn this market first hand. So anything that brings these two nations together, that allows a better perspective and sharing, will do well," he said.

"Particularly for American companies, [this is a] very large underpenetrated market which has the right kind of attitude, the right kind of income profile and the right kind of demographic profile. The ability to also use management talent which is local and which understands this profile will also grow the business."

The 2009 World Trade Report suggests that global trade may shrink by an unprecedented 10% this year. With this kind of bleak outlook, it is all the more important that India and US engage in stronger trade ties.

Back in the factory the white tops are being packed off ready to be shipped.

And when the American consumers are ready to pay top dollar for these goods again, Indian manufacturers will be ready to deliver.



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