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Robert D. Atkinson, Ph.D. Headshot

Charting a Better Path Forward for Indian Economic Growth

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India has achieved remarkable economic success over the last 30 years. Once wed to closed-market, "small is beautiful" policies that severely curtailed growth, by the 1990s India had embraced the core tenets of economic liberalization and open trade. As a result, its once-meandering economy began to grow rapidly, showing liberalization's unrivaled power as a growth catalyst for the world's second most populous nation.

Unfortunately, India has taken a wrong turn in recent years, the effects of which are quickly reaching critical mass. In a range of industries from information and communications technology (ICT) to life sciences, clean energy, and biopharmaceuticals India has vigorously embraced a range of "innovation mercantilist" policies such as forced intellectual property transfer and mandated local production as a condition of market access.

For example, India's Supreme Court Court garnered headlines last month when it denied a patent to Novartis for the cancer drug Glivec. The decision will allow Indian pharmaceutical companies to expropriate Novartis' intellectual property and produce a drug that has been patented in nearly 40 countries. In addition, India's new Preferential Market Access (PMA) rules for electronics procurement seek to ensure that by 2020 80 percent of the computers and electronics sold in India are manufactured domestically. One glaring example of this is India's exclusion of foreign ICT companies from participating in the country's $4 billion national fiber optic network project, even if the companies produce the equipment in India. Collectively these policies constitute a concerted mercantilist policy that seeks to block foreign competition and boost domestic-owned manufacturing. As such, India's actions violate global trade rules, damage the international economy, and cut the nation off from much-needed foreign direct investment.

India has taken this turn in part as a response to China's robust embrace of similar tactics. They see the rapid growth in manufacturing in China and want it for India, and rather than take the hard steps through reducing corruption, building a viable infrastructure, and ensuring a trained workforce, it's easier for them to take the mercantilist short-cut to growth.

But these practices fundamentally will not lead to sustainable and broad-based growth for India. They will however shut out U.S. companies from one of the world's largest consumer markets and hurt American innovation and jobs. As such, the United States, a long-time strategic ally of India in a volatile geopolitical region, needs to wake up to the reality that these Indian policies are now threatening our economic well-being here at home.

While we should continue negotiations, our long history with China shows that negotiation can only get us so far. Mercantilists respond to action, not talk. To that end, Congress should begin the process of withdrawing India from receiving benefits under the Generalized System of Preferences (GSP), the development assistance program that eliminates import duties on thousands of products from developing countries. India was the largest recipient of GSP benefits in 2012, at $4.5 billion, nearly a quarter of the entire program. If it continues to close its doors to U.S. firms or steal U.S. intellectual property with impunity, there is no rationale for extending India this kind of preferential treatment.

To be clear, a strong, growing, and collaborative trade relationship between the United States and India is in both parties' best interests. But India's recent trade policies are placing that relationship in jeopardy. The United States should not sit idly by as the Indian government enacts regulations that harm American industry and jobs. Strong leadership will be needed to achieve these goals and establish a fair, constructive and robust trade relationship between the two countries.