Sunday, November 21, 2010

Why is Indian economy so important for Obama?

From 3 hours when Eisenhower visited India to 3 days of Obama visit, India has come a long way and so is the recognition of India's rise by the sole great power - United States.

If one followed the print or electronic media last week, one would be flooded with emails, videos and articles of Obama's visit to India. On one hand, some have exaggerated to the core saying it was extra-ordinary, wonderful and path breaking while on the other some have said it was too much hype. One of the most interesting facts was that every speech of Obama talked about American jobs. There is nothing unusual about the President talking about his own countrymen amidst the mid-term election defeats back in his country. One of the things he knew was that the slow pace of recovery has made people impatient. If the US cannot pump money into the market to simulate the economy, the easiest way is to export its own goods and get the trade money into the market. This is simple economics that Obama and his 200 member CEO team had in mind and came to India.

Can India be of this great help to the US? Does the world's sole super power need India's help to bring life back into its economy? Is this a reality we live in where Asian countries - India and China have become indispensable not just to the US, but also to the world?


The answer is "yes". India first showed its military power by a single invasion of East Pakistan in 1971 shocking the world (thanks to Smt. Indira Gandhi) and the second instance when we conducted Pokhran -II (under Vajpayee). The latter incident made the world realize that India cannot be taken easily. It is a matter of great prestige that since then US and Indian armed forces (air force, navy and army) have conducted several joint operations (almost 50 such exercises that has been an excellent training for both) learning from each other. India today has the 4th largest army in the world and is a rising military power (It is another matter that our indigenous defence development is not strong). Last week when Obama came, he signed several billion dollar deals of defence equipment, machinery and fighter planes. The US just from military sales to India made more then 10 billion dollars money. This is beneficial to India as India gets the best technology and the latest weaponry. Our defense forces can't expect more than this.  Could any Indian imagine this 10 years ago? No way because despite our poverty, unemployment and corruption plaguing us then and now, we have shown that as a democracy we can grow despite the government. Indians are sharp enough that given a chance they can take over the world. In his visit to India, Obama so categorically said he is removing DRDO, ISRO and other defence organizations from the "restricted entities list". This means that all these establishments can now trade and have technology transfer with the US - something India badly needs. It is an achievement for India.!!!

Once this happens, expect outsourcing even in this field as India will continue to develop on its own and export. 

Let us not forget that for India, Russia has been a very reliable source of ammunition while US may be reliable now, but may become unreliable a decade later.


This might surprise everyone, but the fact is Indian exports to US has exceeded US imports to India. US wants to reverse this. Hence, they came with such a big CEO team to have deals with Indian business counterparts. The following chart shows trade surplus which India has because India's exports to US has exceeded than US imports to us.

Note: Our trade surplus has been rising and is 7 billion dollars because of exports of jewelry, spices, software and garments. Of the total trade with the world, US trade with India is around 2% ,which Obama did mention in his speech in Mumbai. He wants this to increase and it is beneficial for Americans because they tend to get jobs. Look at this - US finalizes deals with SpiceJet, Air India and Jet to buy $28 billion dollars worth of aircraft. In turn, this will create 280,00 jobs in the US.

India withstood the global recession because of in-house demand that continues to drive the economy to 9%. Unlike China, India is growing on the basis of domestic demand and not on exports.

US companies also want to invest in roads and highways - something which India needs as there is an expansion boom going on. 
Obama and his economic team believes that trade with India can multiply if India opens up its retail market allowing access to the middle class population, thereby benefiting both India and US. However, opening the retail market to US is a step that needs to be taken with utmost smartness and being cognizant of the huge middle class which controls the retail market. This is a lengthy discussion that is beyond the discussion of this topic.

India has invested heavily in wind and solar and it requires further research impetus from the US. Hence, Obama announced a joint research center for this and also for nuclear energy and shale gas. In the long term India gets to benefit from this.


There is no elaboration needed and this is no joke at all. Just to give the numbers. There are currently almost 10,000 Indian American owners of hotels/motels in the U.S., owning over 40 per cent of all hotels in the country and 39 per cent of all guest rooms; the study says they own more than 21,000 hotels with 1.8 million guest rooms and property valued at $129 billion. These Indian-owned facilities employ 578,600 workers.

The U.S. Census Bureau adds that there were 231,000 businesses owned by Indian Americans in 2002, which employed 615,000 workers and had revenues of over $89 billion. (The Census Bureau conducts the survey every five years, and the results of the 2007 survey will be available in a few days). A study led by Vivek Wadhwa for Duke University and the University of California, Berkeley, found that Indian immigrant entrepreneurs had founded more engineering and technology companies during 1995-2005 than immigrants from Britain, China, Japan, and Taiwan combined. Of all immigrant-founded companies, 26 per cent had Indian founders.  SOURCE:


If one is aware, it is a sad reality that 40% of fruits, vegetables and other agricultural produce goes wasted because of improper storage and processing facilities. India has to rely on retail expertise on the American ones to ensure this wastage does not happen by letting the retail market organize itself. The farmers and the end customer both lose here. The farmers don't get the right price, the consumer ends up paying abnormal price and the middlemen gets all the cake. The creation of a healthy supply chain involving farmers is a must. However, what India should resist is the dumping of American goods without strengthening the Indian supply chain. No longer India can depend on the Govt or govt's policies in organizing the retail chain. The US will stand to greatly benefit because the Indian retail market is so immense that any role they plan in making this happen will benefit them monetarily. We have seen how Reliance (in-house) has failed despite opening retail stores simply because they lack management and business practices which the US best follows.

In short, the point is we are at a point where the US and India can not only generate jobs for each other, but also India stands to benefit greater if it allows controlled market access to the US. This way the PM will talk  about  the role of India in creating the jobs in the US.


Reshmi said...

very well written- keep up the good work!!

Aritra Nath (Romel Coba) said...

So in the bigger scheme of things the two nations stand to benefit and their citizens are assured of massive employment generation but for people like us who have come to this nation to find a better life. Case in point the Border Security Bill that "poses" to not be more than a populist measure.

Anonymous said...

Good post - som

Shubha Rahul said...

Short and Neat... well said. I'm a fan of your blogs.

Javier Arau said...

India has got strong Army and man power. We possess the potential of changing the world, we almost serving to more than 100 countries as doctors, engineers.

Client Associates said...

So in the bigger scheme of things the two nations stand to benefit and their citizens are assured of massive employment generation but for people like us who have come to this nation to find a better life