The complexities of Indian taxation system has become a sore point with American firms, says US Ambassador to India Nancy J Powell. In an interview with Nayanima Basu, she said US is looking forward to FDI relaxation in the insurance & pension sector. Excerpts:
US Secretary of State John Kerry in his recent visit to India pointed towards some ‘impediments’ that continue to hamper bilateral trade relations. What are those, because bilateral trade is on track to achieve $100 billion target?
First, let me note that the US-India relationship is on an unprecedented upward trajectory. I first worked in India 20 years ago and it was a different and not very positive story. Now, the challenge is to take the vision our two countries have for an extraordinary future together and make it a reality on the ground. Trade is one of the key areas where we are doing that.
To paraphrase Vice President (Joe) Biden, there’s no reason why our trade could not be fivefold of that number. For us, the protection and enforcement of intellectual property rights (IPR), the removal of preferences given to domestic over imported goods and services, and the increased predictability of India’s tax regime are priorities.
How is the US industry viewing the recent FDI norms relaxation?
India’s recent decision to raise FDI caps in sectors such as energy, telecom, and defense, and to streamline certain approval procedures, is seen as a positive step by US business community. It is also important that implementing regulations for these decisions be transparent and not impose conditions that serve as obstacles to the very investment the lifting of FDI caps is intended to encourage.
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In addition, as US firms continue to look for ways to be able to increase investment in these sectors, they also look forward to greater openings in insurance and pensions, and to the removal of recent restrictions in electronic commerce and the pharmaceutical sector.
On the taxation front, apart from the proposed application of GAAR, US companies are also concerned regarding Transfer Pricing, which, they claim, are imposing enormous tax burden on them. But measures have now been taken to address concerns on Transfer Pricing. Are they satisfied now?
Fair, transparent, and predictable tax policy and administration are key foundations of a strong investment climate. Many US companies want to invest in India, in many different sectors. We regularly have trade missions from states and cities who are eager to partner and invest. But how Indian tax rules are applied to companies operating in India is a source of frustration for US companies and a factor that they consider seriously in connection with any decision to invest in India.
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We appreciate the government’s actions in late June when it revised regulations on transfer pricing related to research and development (R&D) activities. This revision was a first step, but only a first step, in the right direction to help reduce investor anxiety. US remains hopeful India will continue to take more positive steps like this to engender investor confidence and boost FDI inflows.
Recently USTR Michael Froman highlighted India’s "deteriorating innovation climate" as an obstacle to do business here. The voices against Indian IPR laws seemed to have gone louder after the Bayer-Onyx and Novartis cases. But India is well within the WTO rules?
As leading economies with a strong tradition of innovation, India and US can and should ensure supportive environments for innovators to achieve success. Such environments, which provide strong and reliable intellectual property rights protection, are critical for developing globally competitive industries and supplying the goods and services that meet the diverse needs of our populations.
During USTR’s meeting with commerce and industry minister Anand Sharma in Washington, he said US will "use enforcement mechanisms to press India" on IPR issues. Can you elaborate?
Unfortunately, recent actions have raised serious doubts about the innovation environment in India. This includes the decision in the Novartis case which limits the patentability of certain pharmaceutical products and India’s decision to grant a compulsory license over an innovator’s objections based, in part, on the innovator’s decision to import its products, rather than manufacture them in India.
Some have sought to explain these actions on the basis of other domestic policy objectives. We believe, however, that the right policy mix exists to maximize both innovation and those domestic policy objectives, and remain interested in working with India towards this win-win solution.
Will the US go ahead with the new restrictive measures on skilled non-immigrant visas that are being discussed as part of broader immigration reform proposals?
Comprehensive immigration reform is a priority for President Obama. We hope the legislation will move forward in a timely manner, and I do not want to get ahead of that important debate.
India has also raised strong concerns over the US attempting to restrict movement of Indian professionals. What are you doing in that regard?
Indian nationals and businesses benefit from the US’ H-1B and L-1 temporary worker categories more than nationals of any other country in the world. Last year, Indian nationals received more than 59 percent of all H-1B visas and more than 35 percent of all L-1 visas worldwide. In fact, our embassy and consulates in India issued more H-1B visas last year than at any other time in history.
Our transparent visa system benefits Indian nationals and businesses. India is our fourth-largest visa operation in the world behind Mexico, China, and Brazil. Over the last six years we increased consular staffing by more than 60 percent and invested more than $100 million in updating and expanding consular facilities, opening a new consulate in Hyderabad (in 2009) and a new consulate facility in Mumbai (in 2011).
US Senate recently raised sharp criticisms on some of the “localization measures” India is adopting under which it is asking US companies to transfer technology to domestic firms or produce locally to get more access in the markets here. Your take.
India has an incredible resource, its youth, which some call its demographic dividend. That is why it is critical for India to develop its manufacturing sector to create jobs for the more than 300 million youth entering your labor force.
But localization measures create preferences for domestic goods and services over imports, which discourage outside investment in manufacturing and hold back the globally competitive industry that India seeks. That is why you generally do not see localization measures in countries with strengthening economies.
Instead, manufacturing policies that are predictable and transparent will bring the investment that will accelerate India’s growth. This can be achieved by addressing many tough issues that the Indian government has already identified as being key obstacles, including land acquisition, infrastructure development, labor restrictions, corruption, and the need for a larger skilled labor force. While this is a challenging task, it can be done.
US stands ready to partner in many of these areas. For example, our Higher Education Dialogue in June focused on the development of community colleges which can train Indians to have the skills that are needed by today’s workforce. That is what they do in America, and we hope to see some variant of this model in India. I should also note that four cooperative agreements were signed to share educational excellence between US and Indian universities. There will be more of these to come.
What is the US government doing in terms of extending GSP (Generalised System of Preferences) benefits for India? The industry here is concerned that US is linking this issue with the concerns of American companies.
The GSP program expired on July 31, 2013. India was the largest beneficiary of the GSP program in 2012. As the US government consults with Congress on the future of GSP, it will examine options that take into account both the needs of the world’s poorest countries and the growing competitiveness of many emerging market GSP beneficiaries. For the record, the Obama administration supports Congressional action to extend the GSP program and is working with Congress towards that end.
Why is the U.S. not considering India’s persistent requests to finalize the Totalization Agreement?
US cannot enter into a Totalization Agreement with India at this time because India’s public retirement scheme does not meet the specific, objective requirements under US law. We encourage India to keep us informed of reforms to the Indian public retirement scheme that will allow us to pursue consultations.
India is also interested in sourcing LNG from US. Are you keen in helping India?
We understand that India has significant domestic energy needs and those needs are a topic of very frequent discussion in our Energy Dialogue. We remain committed to working with India to identify alternate sources of supply to fuel its growing economy.
We are supportive of India’s efforts to seek stable supplies of natural gas. We have a robust program on unconventional gas cooperation, including shale gas resource assessment and technical exchanges. GAIL was one of the first to sign a deal to exploit this new supply for Indian markets.
The Department of Energy continues to review on a case-by-case basis all applications from private companies to export LNG to non-free trade agreement (FTA) countries, which includes India.