3Center or American Progress | What to Expect rom Indian Prime Minister Manmohan Singh’s U.S. Visit
Te recen economic downurn in India, however, has revealed no only India’s vulner-abiliies o exernal global dynamics, bu also he serious weaknesses wihin he Indianeconomy ha have given pause o oreign businesses and caused companies o cu heirinvesmens in India, such as in he seel indusry.
Fundamenal inernal problemsinclude India’s large curren accoun deci, narrow ax base (only 3 percen o Indianspay income ax), run-down inrasrucure, oudaed labor laws and weak rule o law, cor-rupion, and burdensome bureaucracy.
Te rupee, now markedly he wors-perormingcurrency in Asia ,coninues o umble, having allen 16 percen agains he U.S. dollarsince May.
While a weak currency has he poenial o make India a lucraive expormarke, acors such as high prices on oil impors, poorly buil and crowded pors, andirregular axes in expor zones impede upward growh aer an economic slump suchas he one India is acing.
Moreover, annual Indian GDP growh—which averaged 7.7percen rom 2002 o 2011—has slowed o 4.4 percen, and inaion has hi 6 percen.
While bilaeral rade and invesmen beween he Unied Saes and India has qua-drupled since 2006—now a approximaely $100 billion, wih U.S. invesmen in Indiaa $28 billion—he Obama adminisraion and U.S. businesses argue ha he radeparnership has no reached is poenial and ha India’s rade policies are, in ac, some-imes discriminaory o U.S. companies.
Channeling he complains o some American businesses, he Obama adminisraion has urged he Indian governmen o break down business barriers by changing is inellecual propery laws, especially as hey relae opharmaceuicals. Te adminisraion has also urged he Indian governmen o addressinconsisen ax reamen; requiremens ha companies buy local conen, such asin he elecommunicaions indusry and renewable energy secor; and limiaions onoreign direc invesmens.
Te Indian governmen has already underaken a number o policy changes o beginaddressing he economic slowdown and is rade and invesmen parnerships, includingeasing invesmen rules or he reail secor and a number o oher indusries—a direcatemp o woo oreign direc invesmen ow ino he counry’s plummeing econ-omy.
While India has lessened many o hese invesmen resricions, however, myriadsae rules and regulaions have emerged, creaing addiional invesmen barriers.India has also aken oher seps, such as:•Increasing impor axes on gold and silver, which analyss credi as a key conribuoro he sae o he curren accoun deci
•Haling he implemenaion o is preerenial marke access policy unil urherreview, which included local conen requiremens in echnology
•Requiring cenral bank approval or overseas invesmens ha are more han 100 per-cen o a company’s value, as a measure o keep dollar ouows in check