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Restarting the Post-Pandemic Indian Economy
A pedestrian walks past the Bombay Stock Exchange (BSE) building in Mumbai on November 26, 2021. (Photo by PUNIT PARANJPE/AFP via Getty Images)

Restarting the Post-Pandemic Indian Economy

Aparna Pande, Eric B. Brown & Thomas J. Duesterberg

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This report is a result of a Takshashila-Hudson Roundtable Series that brought together experts, policymakers, and academics from India and the United States in November and December 2021 to discuss opportunities for the two nation-states to collaborate in a fast-changing global order.

Executive Summary

This section summarizes key recommendations for policymakers based on deliberations at the Takshashila-Hudson roundtable series Restarting the Post-Pandemic Indian Economy. The recommendations are divided into four themes for India-US Collaboration: Trade, Investments, Technology, and Human Capital Movement.

1. Trade

The ongoing COVID-19 pandemic has adversely affected economies worldwide, necessitating the recovery of the trade economy. Economic nationalism has pushed many countries toward protectionism and restricted trade. The systemic deficiencies in the World Trade Organization (WTO) have hindered its role in facilitating trade. China benefited from the existing global trading system but is now trying to create its own order.

With the WTO’s future uncertain, geopolitically adjusted global trade, characterized by a combination of regional trade blocs and smaller bilateral trade agreements, becomes the most likely route forward. The US would benefit if, instead of turning protectionist, it strengthened and participated in regional agreements. An increase in trade and openness would positively affect the Indian and US economies, and an openness to skilled laborers from India would benefit the US.

India needs to continue with trade reforms and refrain from having retroactive policies. The focus should be on diversifying supply chains and not simply on shifting the supply chain hub to the US. India must focus on improving infrastructure, developing an open and trustworthy framework, and rationalizing its tariffs. The country also needs to urgently address unfriendly policies that target foreign investors and must continue with reforms at both state and national levels. States in India should play a larger role in attracting foreign direct investment (FDI). Protectionist policies should be removed from the menu of options.

2. Investments

India’s growth rate had been faltering. Investments as a share of GDP were falling even before the pandemic outbreak in 2020. There was a further decline in investments during the pandemic. Since domestic savings and investment are not enough, higher FDI is vital for India to accelerate growth, reduce poverty, and increase employment.

Though US investors perceive India as an appealing market, they are wary of India’s laborious regulatory framework, protectionist norms, and tax policies. Tariff hikes and protectionist measures make it difficult for foreign firms to operate out of India. Domestic content requirements disincentivize investors. Though India has raised FDI caps in several sectors, policies continue to require management and control to be in Indian hands. While the complicated labor laws increase transaction costs, retroactive tax policies erode trust. Foreign-funded investors are subject to a separate set of rules from those imposed on domestic investors. Policy unpredictability and inconsistency deter investment. There is a mismatch of sectoral understanding when it comes to US investment in India.

Investor-friendly policies and adequate responses to investors’ issues with the bureaucracy would help India’s economy. Another important issue for the country is its retroactive taxation, which harms the economy, and there are opportunities to simplify rules and regulations. Foreign and domestic investors also need a level playing field in the country. Greater autonomy for Indian states would allow them to attract investments. In particular, India needs more FDI in labor-intensive sectors. Greater engagement between policymakers and investors would help India achieve this goal, and more conversations between the US and India could address the sectoral mismatch.

3. Technological Cooperation

India and the US need to attempt to build defensive and offensive tools to restrict and attack the digital Sinosphere. India must build on its present strengths of being a software power. The US would benefit from supporting India in developing and distributing its “billion scale” platforms.
India and the US would benefit from recognizing how they can harmonize their capabilities to use services and create products for the end-users of space and defense technologies at both the civil and military levels. India’s overreliance on Russia for military hardware can be an opportunity for the US to help India diversify its sources. India needs to reform its procurement policies.

A kind of cyber-NATO arrangement could help to align Indian and US data policy. Data extradition laws could allow US security agencies to investigate and act when India’s cybersecurity is compromised. A regional data regulation approach could facilitate the growth of tech commerce.

The Quadrilateral Security Dialogue (or Quad) should set up a fund for semiconductor supply chain resilience. The focus should be on enabling the growth of centers for excellence that focus on comparative advantages. The historical lack of trust between India and the US over patent laws has a spillover effect on the life sciences technology sector. There is a need to build trust between Indian and American entities to access technologies such as gene editing, mRNA, and biosensors. India needs to undertake structural reforms regulating how intellectual property is created and generated.

4. Human capital movement

Indian immigrants in the US, as a group, are more educated than the local US population. The median household income of immigrants of Indian origin is twice the US average. The contribution of Indian immigrants to the US is immense. However, India has not successfully communicated its corporate contribution to the US. There is a failure to recognize the number of direct and indirect jobs created by Indian firms in the United States. Historically, India has benefited from emigration because, over time, many Indians returned to their country of origin and invested there. The COVID-19 pandemic is likely to affect labor flows even after the pandemic is over, leading to reduced cross-border migration.

India needs to create 20 million1 jobs every year. For this to happen, India needs to move up the value chain. Indian educational institutions have huge vacancies. While a huge section of the population lacks access to skill development, some younger talented individuals prefer to migrate out for a more open political and social life.
India would gain by creating its own immigration policy that attracts talent from around the world. India urgently needs to address its lack of skilled workers and can explore mechanisms like career finance bonds. India needs to competitively market itself in the field of higher technological skills. Solutions such as a labor corridor for the Quad or the creation of a separate category of US visas for skilled workers from the Quad need to be explored. India and the US can also formulate a “twinning” arrangement in sectors like healthcare wherein US institutions can train Indian workers. Though India is one of the largest producers of scientific knowledge, Indian science is largely isolated as there is little collaborative cross-border research. US universities can benefit by having more Indian students.

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1 India needs to create 20 million jobs each year to account for the 12-13 million young adults who enter the workforce each year and the 6-7 million people who have to be shifted from unproductive agricultural work. See Anupam Manur, “But What About the Jobs Crisis?,” Pragati, February 2, 2018, https://www.thinkpragati.com/opinion/6244/where-are-the-jobs-2/

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