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Report of the Joint Task Force of
the Pacific Council on International Policy
and the Federation of Indian Chambers of Commerce & Industry
CHARTING NEW FRONTIERS:
Enhancing India-U.S. Cooperation
in the Global Innovation Economy
June 2009
CHARTING NEW FRONTIERS:
ENHANCING INDIA-U.S. COOPERATION
IN THE GLOBAL INNOVATION ECONOMY

Pacific Council on International Policy
The Pacific Council on International Policy is a non-partisan organization headquartered in Los Angeles with
members and activities throughout the West Coast of the United States and internationally. Founded in 1995, the
Pacific Council is a 501c(3) not-profit organization whose work is made possible by financial contributions and
in-kind support from individuals, corporations, foundations and other organizations.
The Pacific Council takes no institutional position on policy issues and has no affiliations with the U.S.
Government. All statements of fact and expressions of opinion contained in its publications are the sole
responsibility of the author or authors.
For further information about the Pacific Council or this Task Force Report, please write to the Pacific Council on
International Policy, 801 S. Figueroa Street, Suite 1130, Los Angeles, CA 90017, or call the Director of Studies at
213-221-2000. Visit the Council’s website at www.pacificcouncil.org.
Federation of Indian Chambers of Commerce and Industry
FICCI is the rallying point for free enterprises in India. It has empowered Indian businesses, in the changing
times, to shore up their competitiveness and enhance their global reach. With a nationwide membership of over
1500 corporates and over 500 chambers of commerce and business associations, FICCI espouses the shared vision
of Indian businesses and speaks directly and indirectly for over 2,50,000 business units. It has an expanding direct
membership of enterprises drawn from large, medium, small and tiny segments of manufacturing, distributive
trade and services. FICCI maintains the lead as the proactive business solution provider through research,
interactions at the highest political level and global networking.
Set up in 1927, on the advice of Mahatma Gandhi, FICCI is the largest and oldest apex business organization of
Indian business. Its history is very closely interwoven with the freedom movement. FICCI inspired economic
nationalism as a political tool to fight against discriminatory economic policies. That commitment, drive and
mission continue in the ever-changing economic landscape of India, chasing always newer agenda. In the
knowledge-driven globalized economy, FICCI stands for quality, competitiveness, transparency, accountability
and business-government-civil society partnership to spread ethics-based business practices and to enhance the
quality of life of the common people.
Copyright © 2009 by the Pacific Council on International Policy and the Federation of Indian Chambers of Commerce and
Industry. All rights reserved.
This Task Force Report may not be reproduced in whole or in part, in any form (beyond that copying permitted by Sections
107 and 108 of the U.S. Copyright Law and excerpts by reviewers for the public press), without written permission from the
Pacific Council on International Policy. For information, write to the Director of Studies, Pacific Council on International
Policy, 801 S. Figueroa Street, Suite 1130, Los Angeles, CA 90017.
CHARTING NEW FRONTIERS:
ENHANCING INDIA-U.S. COOPERATION
IN THE GLOBAL INNOVATION ECONOMY

Report of a Joint Task Force
Task Force Chairs

Richard F. Celeste


Amit Mitra
Project Directors

David J. Karl


Vijay Topa
i
ii
Task Force Chairs
Richard F. Celeste
is president of Colorado College, a special advisor to the U.S.-India Business
Council and a senior director at Stonebridge International. He previously served as U.S. ambassador
to India (1997-2001), governor of Ohio (1982-1990), and director of the Peace Corps (1979-81).
Earlier, Ambassador Celeste served as lieutenant governor (1974-78) and state representative (1970-
74) in Ohio, and was a staff assistant to the U.S. ambassador to India from 1963-67. A member of
the Council on Foreign Relations and the Pacific Council on International Policy, he has chaired the
National Governors Association’s Committee on Science & Technology. In 2004-05, he served as
co-chair of the Pacific Council/Observer Research Foundation Task Force on India-U.S. Relations.
Amit Mitra
is Secretary General of the Federation of Indian Chambers of Commerce and Industry.
He is recipient of the country’s prestigious national civilian award
Padma Shree
, conferred by the
President of India in 2008. He serves as an independent board member for some of the largest
public-sector companies in India, including GAIL, SAIL, IFCI, India Fund of the UTI and many
more. He is a board member of IL&FS -CDI, a fully-owned subsidiary of Infrastructure Leasing
& Financial Services Limited (IL&FS), one of India’s leading infrastructure development and
finance company; a trustee of the India Brand Equity Foundation; and an advisory board member
of Microsoft Corporation (India) Pvt. Ltd. Dr. Mitra also serves on the National Manufacturing
Competitive Council and the Planning Commission, as well as on the Commerce Ministry’s WTO
advisory Committee. Earlier, he was chairman of the Ministry of Information & Broadcasting’s
Radio Broadcast Policy Committee. He received his doctorate degree in economics from Duke
University in 1978, taught at major universities in the United States for over a decade and received
the prestigious Sears-Roebuck Foundation Award for Distinguished Teaching in 1990.
Task Force Members
The following people endorse the general judgments and policy thrust contained in this report,
though not necessarily every finding and recommendation. They do so as individuals. Their
institutional affiliations are listed for identification purposes only and do not necessary represent
endorsement of the report by their place of affiliation or any of its sponsors.
Indian Members
Y. K. Alagh

Chairman, Institute of Rural Management
P. Anandan

Managing Director, Microsoft Research India
Ar. Rm. Arun

Vice Chairman, SPEL Semiconductor Limited

and Co-Chair, FICCI Science & Technology Committee
Ashank Desai

Founder and Chairman, Mastek Limited
Krishna M. Ella

Chairman & Managing Director, Bharat Biotech International Ltd.
Chandra Kintala

Director, Yahoo Labs, India
Amit Khanna

Chairman, Reliance Entertainment and Chairman, FICCI Convergence Committee
H. F. Khorakiwala

Chairman, Wockhardt Ltd. and former President, FICCI
Rajan Bharti Mittal

Joint Managing Director, Bharti Enterprises and Senior Vice President, FICCI
Yogendra Kr. Modi

Chairman & CEO, Great Eastern Energy Corporation Ltd. and former President, FICCI
Rajiv Narang

Chairman & Managing Director, Erehwon Innovation Consulting Pvt. Ltd.

and Co-Chair, FICCI Innovation Committee
Saroj Kumar Poddar

Chairman, Gillette India Ltd. and former President, FICCI
V. S. Ramamurthy

Chairman, Board of Governors, Indian Institute of Technology Delhi

and Chairman, FICCI Science & Technology Committee
iii
T. C. A. Rangachari

Former Indian Ambassador to Germany
P. M. Sinha

Former Chairman, Pepsico India, and Chairman, FICCI Agriculture Committee
Saurabh Srivastava

Chairman, Indian Venture Capital Association
U.S. Members
Sam Balaji

Principal, Deloitte Consulting and Vice Chairman, Deloitte Consulting India
Somshankar Das

President & CEO, e4e, Inc.
Vinod K. Dham

Founder & Executive Managing Partner, New Enterprise Associates – IndoUS Ventures
William H. Draper, III

Managing Director, Draper Richards and former Chairman, U.S. Export-Import Bank
James G. Ellis

Dean, Marshall School of Business, University of Southern California
L. Brooks Entwistle

Managing Director & CEO, Goldman Sachs India
Promod Haque

Managing Partner, Norwest Venture Partners
Jeffrey J. Hardee

Vice President for Asia, Business Software Alliance
Kamil H. Hasan

General Partner, Hitek Venture Partners
Kenneth I. Juster

Executive Vice President, Salesforce.com and former U.S. Under Secretary of Commerce
Andrew J. Kaplan

President, International Networks, Sony Pictures Television International
Sanjay Kucheria

President & Co-Founder, Trinus Corporation
Howard H. Leach

CEO, Leach Capital Corporation and former U.S. ambassador to France
iv
Jeffrey S. Lehman

Former President, Cornell University, and Board Member, Infosys Technologies
Rebecca A. Lenaburg

Associate General Counsel, Microsoft Corporation
William R. Loomis, Jr.

CEO, Loomis & Company, and Board Member, Pacific Council on International Policy
Phiroze J. Nagarvala

Former Managing Director, Bechtel Enterprises India and Principal Vice President & Country
Manager for India, Bechtel Group
Robert L. Nelson, Jr.

Partner, Winston & Strawn
Kanwal Rekhi

Managing Partner, Inventus Capital Partners and former Chairman, TiE
Shezad Rokerya

Chairman, The Interlink Companies
George M. Scalise

President, Semiconductor Industry Association

and former Chairman, Federal Reserve Bank of
San Francisco
Nandini Tandon

Managing Director, Lumira Capital Company
Ashley J. Tellis

Senior Associate, Carnegie Endowment for International Peace
v
vi
Table of Contents
Acknowledgments vii
Executive Summary 1
Introduction 8
Economic Opportunities and Challenges 11
Cross-Cutting Policy Initiatives 19
Sectoral Initiatives 37
Task Force Sponsors 52
Acknowledgments
The Joint Task Force, organized by the Pacific Council on International Policy and the Federation
of Indian Chambers of Commerce and Industry, has benefited immeasurably from the significant
experience and knowledge of Richard F. Celeste and Amit Mitra, who skillfully guided a bi-
national and diverse group of business leaders and policy experts toward consensus on a broad
and complex range of issues. We are also deeply indebted to the individual Task Force members
whose input and judgment contributed so much to this report.
We are especially thankful to the U.S. and Indian government leaders who were generous in
sharing their time and insights with Task Force members: Montek Singh Ahluwalia, M.K. Bhan,
Palaniappan Chidambaram, Prodipto Ghosh, Krishnaswamy Kasturirangan, Mario Mancuso,
Shiv Shankar Menon, David C. Mulford, Ronen Sen and Kapil Sibal.
K. Ravi Kumar and Rafiq K. Dossani served as senior advisors to the Task Force and their
guidance strengthened this report’s analysis and recommendations. The report also benefited
from the review and feedback of a number of experts: Bruce Alberts, Andy Bird, Michael J.
Cheetham, Madeleine F. Green, Douglas A. Hartwick, Michael F. Martin, Schuyler M. Moore,
Norman P. Neureiter, Sonia Nikore, David G. Victor, Mohinder Walia and Kurt Waltzer.
The Task Force’s meetings in New Delhi and Silicon Valley were enhanced by the perspectives
offered by outside participants who made presentations and joined the discussion on a wide array
of issues: Richard C. Adams, Bruce Alberts, Sabeer Bhatia, K.G. Duleep, Todd G. Glass, Uday
Kumar, Len J. Lauer, Ajay Madhok, Sanjay Marathe, Nishith Mathur, Vinod Mattoo, Arabinda
Mitra, Paul Murphy, Vidya Natampally, Sonia Nikore, M.K. Padmanabhan, N.C. Patnaik, Brian
K. Peck, Shalendra Porwal, Prabhakar Raghavan, Ron Somers, Sandeep Sood and Kurt Waltzer.
The Task Force is grateful to Geoffrey Garrett, the Pacific Council’s immediate past president,
who provided important organizational and intellectual support in launching this initiative. This
project was made possible by the generous financial support of American and Indian enterprises
and individuals interested in advancing bilateral relations. A full roster of these sponsors appears
at the report’s end.
David J. Karl

Project Director

Pacific Council on International Policy

Vijay Topa

Project Director

Federation of Indian Chambers of Commerce and Industry
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ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Executive Summary
This report, the product of a focused and sustained exchange among American and Indian
business leaders and policy experts, takes stock of the challenges and opportunities in U.S.-
India economic relations, an important dimension of the bilateral relationship that has been
overshadowed by the recent focus in Washington and New Delhi on nuclear cooperation,
deepening military ties and convergent geopolitical interests.
The economic relationship has expanded rapidly in recent years, bringing significant mutual
gains, though it is far from achieving critical mass. The potential for broader and deeper
interaction is thus great. Yet even as significant economic sectors in both countries are becoming
intertwined, the political climate in the United States and India is turning increasingly against
such globalizing forces. Meeting this challenge will require sustained leadership at the highest
levels in government and the private sector in both nations.
Rather than presenting an exhaustive study of all possibilities for deeper engagement, this report
spells out concrete policy recommendations for the overall strengthening of bilateral economic
relations, with a sharp focus on the innovation economy sectors that are so important to the
prospects of each country. Striking a balance between pragmatism and ambition, and mindful
that much of India’s growth path will depend on continuing internal reforms, this report sets out
a course for capitalizing on looming opportunities for mutual benefit while seeking to mitigate
possible tensions as India assumes a larger role in the global economy.
Key policy recommendations are divided into two broad categories: 1.) Initiatives that will have
an impact across a range of economic sectors; and 2.) Proposals focused on several technological
fields important to both countries. These recommendations include:
Reinvigorate the Economic Dialogue
Top-level leadership will be key in driving the U.S.-India economic relationship forward.
Despite an elaborate array of institutions managing bilateral economic relations, they have lost
the important momentum that was evident in the early part of the Bush administration. President
Barack Obama should assign ownership of the bilateral dialogue to a high-profile aide and this
person should promptly meet with Prime Minister Manmohan Singh’s newly-formed government
to define a mutual vision for economic interaction in the years ahead. The meeting should also
prepare the ground for a productive visit to India by Mr. Obama, ideally during his expected trip
to Asia later this year.
Additionally, both governments, either through the High Technology Cooperation Group or a
similarly-focused body, should undertake a comprehensive review of the export controls that still
inhibit bilateral trade in high-technology goods and services and develop a joint plan for their
maximum-possible reduction.

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ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Fully Implement the Nuclear Agreement
Complete implementation of the U.S.-India nuclear accord is vital if New Delhi is to realize its
plans for expanding nuclear energy production. Specifically, the central government will need
to open its state-owned nuclear energy establishment to private-sector participation and commit
to definite policies regarding foreign involvement and investment, including the enactment of a
civil nuclear liability law that would enable the full participation of American firms. The United
States should also continue championing India’s participation in international research efforts
pertaining to the development of advanced nuclear reactor technologies.
Sign a Free Trade Agreement focused on the Innovation Economy
Contrary to suggestions being floated, the prospects for a broad-based U.S.-India free trade
agreement are not strong in the foreseeable future. Policymakers in Washington and New Delhi
should focus instead on two more attainable objectives: 1.) a trade arrangement sharply focused
on strengthening the global innovation economy; and 2.) an accord facilitating and fostering the
growing bilateral investment relationship.
To be sure, the reciprocal economic gains accruing from a far-reaching multidimensional
U.S.-India FTA make it a worthy long-term goal and both governments should announce a
commitment to signing such an accord by 2015, even if it is one whose provisions take effect
over an extended period. But the immediate energies of senior officials in Washington and New
Delhi would be more profitably focused on crafting a bilateral free trade mechanism relevant to
the advanced technology sectors. Unlike a more comprehensive arrangement – which would
entail prolonged negotiations, unwieldy bargaining tradeoffs and protracted coalition-building
at home – an initiative with a limited but sharp focus on the innovation economy could likely be
formulated quickly, with its self-evident “win-win” features overriding domestic opposition.
A model for such an initiative exists in the 1997 Information Technology Agreement (ITA),
which has spurred world trade in the information and communications technology (ICT) sector
and remains the only industry-specific comprehensive free trade agreement ever signed. The
ITA remains in effect but its value has been significantly diluted by a series of technological
developments in the decade since its creation and multi-party negotiations to update it have been
stalled for years.
In light of the ITA’s problems, the United States and India on should launch a bilateral initiative
to further liberalize trade and deepen engagement in the ICT field or, even more, one that covers
the entire innovation economy. This agreement could then be opened to the participation of
other like-minded countries. Given the critical role the high-tech sector plays in the American
and Indian economies, not to mention the broader world economy, such an initiative would pay
robust commercial dividends. Additionally, with Washington and New Delhi at odds in the Doha
Round talks, the initiative would have great political value, further solidifying the U.S.-India
partnership and providing an important example of joint leadership in the global economy. It
might also have the effect of renewing momentum for multilateral trade negotiations or, in the
absence of that, offer a concrete roadmap for promoting mutual gains applicable for interested
nations in a vital segment of the global economy.
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ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Conclude an Investment Treaty
Despite the rapid expansion of the bilateral economic partnership in recent years, Washington
and New Delhi have yet to sign an accord governing their expanding investment relationship.
During the Bush administration, the United States and India launched exploratory discussions
on an investment treaty; President Obama and Prime Minister Singh should commence formal
negotiations at an early date.
Both governments have strong interests in the rapid conclusion of a global standard-setting
investment regime, especially India, whose economic future hinges, in large part, on attracting
greater infusions of foreign capital. An accord would also rationalize U.S. investment flows into
India by eliminating the need to route funds surreptitiously through tax-haven countries. Given
American concerns about the Indian regime for protecting intellectual property, an agreement
would afford additional safeguards for U.S. companies wanting to expand operations in India, as
well as provide further protections to Indian investors in the United States.
Positive-Sum Action to Expand the Global Talent Pool
With India a major source of high-skill professionals and the U.S. science and engineering
workforce dependent upon the influx of foreign talent, both countries have a keen mutual interest
in cooperating in the area of human capital, the most critical resource in the global innovation
economy.
With educational deficiencies threatening to undermine its prospects in the global innovation
economy, India must deregulate its heavily-bureaucratic higher educational system in the same
way it dismantled government constraints on other parts of the economy in the 1990s. In
particular, Prime Minister Singh’s new government should immediately revisit the far-reaching
reform proposals advanced by the high-level National Knowledge Commission. It is also in
India’s interest to promote greater involvement by foreign educational institutions in addressing
its human capital challenges. Besides allowing foreign universities to operate on their own,
New Delhi ought to create a handful of experimental Special Education Zones in which U.S. and
Indian institutions could establish jointly-administered colleges and universities. Washington
and New Delhi also should devise ways to allow U.S. and Indian schools to offer joint degree
(including doctorate) programs that are recognized in both countries.
To push forward greater linkages in the higher education field, Washington and New Delhi
should launch a high-level annual dialogue between the U.S. Secretary of Education and the
Indian Minister of Human Resource Development. Such a forum could begin with a joint review
of practices on both sides that presently hinder deeper college and university partnerships.
The two countries recently established a Higher Educational Council that will bring together
university officials and business leaders from both countries to assist India in capacity building
and training. Since the United States is the global leader in the area of strong connections
between academia and the private sector, the Council might take on as its first project a joint
assessment of U.S. best practices and their applicability to the Indian context.
Beyond working to promote the formation of human capital in India, both countries must devise
far-sighted, cooperative policies to facilitate the movement of high-skill professionals between
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ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
them. Given the current political climate in Washington, efforts by U.S. technology companies
to raise the annual cap on H-1B temporary visas for skilled workers may well have to wait for
more economically-propitious times. At a minimum, however, Washington policymakers should
push ahead with a proposal, advanced by Mr. Obama during the presidential campaign, to create
a “fast track” mechanism allowing foreign students with advanced technical degrees from U.S.
universities to receive an employment-based visa. A sizeable increase in the annual quota for
such students should also be enacted. By giving these individuals the legal right to work in the
country for a substantial period of time, the ranks of America’s high-skill workforce would be
fortified and talented foreign students would have an even stronger incentive to pursue advanced
studies in the United States.
When more prosperous times return, Washington should raise the present low numerical limits
for granting permanent residency to foreign nationals based on employment skills, as well as
adjust the rigid country cap that impedes full U.S. access to the global talent pool and adversely
impacts nations like India that are major suppliers of highly-skilled labor. U.S. policymakers
should also create an entirely new visa program geared explicitly to foreign workers in advanced
technology fields, and strike a bilateral agreement with New Delhi guaranteeing a set number of
temporary work visas for high-skill Indian professionals.
Enhance Science and Technology Cooperation
The past decade has seen a flurry of activity aimed at enhancing bilateral research and scientific
linkages, but these efforts have failed to reach critical mass. The Indo-U.S. Science and
Technology Forum is severely under-resourced, lacks dollar-denominated funds and makes
do without a full-fledged U.S. secretariat. In 2006, a high-level Science and Technology
Joint Commission was announced with great fanfare, along with a $30-million Bi-national
Science and Technology Endowment Fund to spur joint undertakings in industrial research and
development. Three years later, the Joint Commission has yet to convene and the Endowment
Fund has not been operationalized.
The United States needs to redouble its commitment to science and technology cooperation with
India, including expansion of the Science and Technology Forum. President Obama should
assign the White House science adviser to work out with senior Indian officials a roadmap for
deeper bilateral engagement in the coming years. It is important that this commitment then
be backed up with a sufficient level of resources specifically earmarked for bilateral projects.
As part of this roadmap, Washington and New Delhi will need to come to quick agreement on
activating the Endowment Fund and on providing it with appropriate funding. In particular,
officials should consider modeling the Endowment along the lines of the very successful, but so
far
sui generis
, Israel-U.S. Bi-national Industrial Research and Development Foundation.
New Delhi has announced plans to establish a quasi-independent National Science and
Engineering Research Board along the lines of the U.S. National Science Foundation. Both
organizations should be encouraged to develop a detailed program of collaboration, together
with strong commitments to provide the requisite funding. Washington and New Delhi also
should revive the U.S.-India Science and Technology Fellowship that operated for a three-year
span in the early 1990s. Finally, both governments need to improve the bilateral visa process
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ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
for scientific researchers and, to help expedite review of visa applications from India’s scientific
community, Washington should consider opening a consulate in Bangalore, a key node in the
global innovation economy that is without a formal U.S. diplomatic presence.
Incorporate India into Global Governance Structures
In view of India’s growing economic capacity and the important role it will play in addressing
global challenges, it deserves a permanent seat at the G-8 table. In concert with New Delhi, the
United States should begin preparing the diplomatic groundwork for India’s full membership.
New Delhi’s absence from the Asia Pacific Economic Cooperation (APEC) process is equally
anomalous. Washington should actively campaign for New Delhi’s admission when the current
moratorium on new APEC members expires in late 2010, so that New Delhi is able to participate
in the November 2011 APEC Summit that will take place in the United States.
Strengthen Energy and Environmental Cooperation
Both countries would benefit from stronger partnership in the development of more efficient
and cleaner energy technologies, one that harnesses their respective scientific talents,
entrepreneurial skills and private-sector experiences. Both countries are leading users of coal
for power generation and responsible for a large and growing portion of worldwide greenhouse
gas emissions. The energy infrastructure deficit India confronts is immense and a significant
constraint on economic growth, and yet the vastness and dynamism of the Indian energy market,
unencumbered by legacy infrastructure, also furnishes an excellent test bed for scaling-up
cutting-edge renewable energy technologies that can be sequentially deployed in the United
States. Both are world leaders in wind and solar power and both can play an important role in
commercial-scale demonstration of advanced coal technologies.
Although Washington and New Delhi in 2005 launched a high-level dialogue aimed at creating
new avenues of collaboration on energy, it has become a forum lacking real resources for action.
A model for revitalizing the dialogue might be taken from the U.S.-China Ten-Year Energy and
Environment Cooperation Framework that was signed in June 2008. Among many other things,
the Framework seeks to foster joint research on clean fossil fuels as well as alternative and
renewable fuels. The Obama administration has expressed readiness to intensify these efforts
with Beijing and Washington should launch a similar initiative with India. As an immediate
step, a special task force should be established, comprised of energy policy experts from both
governments and representatives from key U.S. and Indian companies, to explore how expertise,
resources and efforts could be pooled. New Delhi has signaled its receptivity to such an effort,
and as the U.S.-China and U.S.-India initiatives take flight a trilateral coordinating mechanism
might also be established.
A renewed ministerial dialogue should give priority attention to the diffusion of clean energy
technology – including cleaner coal, renewable power and those aimed at improving energy
efficiency – that will be important in enabling India and other emerging economies to participate
in a global climate change regime. For instance, Washington could markedly increase Export-
Import Bank funding for the export of advanced power plant technology to India as well as
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ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
continue supporting New Delhi’s efforts to finance the construction of cleaner coal-fired plants
through international financial institutions. In addition, both governments should explore how to
better utilize other multilateral initiatives to promote cooperative technology development in this
sector. For example, the G-8 countries recently pledged $6 billion to the World Bank’s Climate
Investment Funds. Such funding could used to strategically complement bi-national efforts.
Washington and New Delhi should also craft a bilateral agreement on eliminating tariffs and
other trade barriers on clean-energy technologies and services, promoting investment flows in
this sector, and clarifying intellectual property protections and technology-transfer rights. It
would be ideal to include this accord within the innovation-economy free trade agreement that
was outlined above, but if that accord is delayed for some reason, the two countries should
move ahead on the clean energy agreement. Washington should also work with New Delhi on
deepening its interaction with the International Energy Agency, with the aim of eventual Indian
membership.
Launch the Second Green Revolution
Partnership in the area of agricultural technology is one of the most significant items on the
bilateral agenda. Despite the rhetoric in Washington attached to the 2005 Agriculture Knowledge
Initiative, the U.S. funding commitment expired in late 2008. The Obama administration should
move quickly to renew this commitment, at a higher level of financial support and for a longer
period, contingent upon a joint review of AKI activities to date and consideration of necessary
policy changes in both capitals. This is a review that deserves to be carried out deliberatively but
expeditiously. As part of a re-launched AKI, the two countries should explore how to increase
the linkages between American land-grant institutions, which have valuable experience in
agricultural research, training and extension, and their counterparts in India. Washington and
New Delhi also ought to increase their collaboration in the area of crop biotechnology.
Washington should reverse its long neglect of the Consultative Group on International
Agricultural Research, whose worldwide network of research centers was critical in developing
the original Green Revolution. U.S. funding for the CGIAR should be increased, with a portion
earmarked specifically to the Hyderabad-based International Crops Research Center for the
Semi-Arid Tropics.
Exploit Synergies in the Pharmaceutical Sector
India’s movement up the value-added chain extends beyond the widely-touted IT services
sector. The highly-entrepreneurial pharmaceutical sector is the country’s most innovation
intensive and one of the fastest growing segments of the national economy. It is also one of the
emerging world’s largest and most sophisticated. American and Indian firms are increasingly
teaming up to discover and develop new chemical entities while sharing costs and risks. These
growing collaborations call for Washington and New Delhi to accelerate their harmonization of
pharmaceutical testing protocols and product standards. Yet capitalizing on the full potential of
these synergies depends upon New Delhi’s implementation of a strong regime for intellectual
property protection.
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ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Foster Hollywood-Bollywood Connections
The United States and India possess the world’s largest entertainment and media industries,
both in terms of sheer output and global popularity. Given this, the two countries have a shared
interest in keeping world markets open for their entertainment and media products. Washington
and New Delhi should craft a common approach on cultural market access and use their strategic
positions to advance it in international trade negotiations. Like the proposal above for a free
trade mechanism relevant to the innovation economy, a joint proposal on cultural access would
focus U.S. and Indian energies on discrete, easily-managed global trade issues in which the
mutuality of economic benefit is self evident. Such partnership would also help heal the wounds
in the bilateral relationship caused by the Doha Round’s breakdown and provide an example of
global cooperation between a developed and an emerging economy.
With broadband penetration continuing to accelerate worldwide, the private sectors and
governments in both countries have a common interest in advancing the digital transformation of
the global media industry. Washington and New Delhi should convene a summit of all relevant
parties in both countries to consider how to implement this objective on a joint basis. Real-time
creative and production partnerships could also be enhanced by the development of advanced
fiber-optic networks capable of transmitting data at a rate of one gigabyte per second between
the two countries. Efforts now underway by U.S. and Indian universities to create collaborative
network tools need to be encouraged by adequate government funding on both sides. Such
networks would not only spur interactions in the entertainment and media field but in other
innovation economy sectors as well.
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ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Introduction
U.S.-India relations have undergone a stunning transformation in the last decade.
Following the May 1998 nuclear tests, much of the world looked upon India as a
proliferation pariah and Washington levied an array of economic sanctions. More than
a decade later, India is widely viewed as an information technology powerhouse, and
the U.S. agenda is focused on economic engagement, nuclear energy cooperation and
strategic partnership. The sustained series of exchanges between then-Deputy Secretary
of State Strobe Talbott and then-Indian Foreign Secretary Jaswant Singh that began in
the immediate wake of the nuclear tests was the first institutionalized dialogue between
the two countries despite five decades of formal relations. Nowadays, the diplomatic
framework on a multitude of issues is so dense and senior officials engage each other so
frequently that their respective bureaucracies struggle to keep pace.
The U.S.-India partnership that has taken shape in the last 10 years has altered the global
diplomatic and economic landscape. Once estranged democracies, often working at
cross purposes and lining up on opposite sides in world politics, the two countries have
become fast friends and incipient strategic partners. Enhanced trade and commercial
interaction has brought mutual gains, helping to reinforce Indian efforts to reform and
modernize its economy, providing millions of Indians with new employment prospects,
and offering new business opportunities for the private sectors in both countries.
Deepening habits of cooperation and exchange in the foreign policy and defense spheres,
inconceivable in the previous era of relations, are now an important factor in the
evolving geopolitical equation in Asia.
Yet for all of its present benefits and future promise, the U.S.-India relationship
confronts a number of major challenges. The first is sustaining critical momentum amid
changes in political leadership in the United States. President Bill Clinton and Prime
Minister Atal Bihari Vajpayee presided over a significant turning point in relations,
evident in Washington’s handling of the Kargil crisis in mid-1999 and then in Clinton’s
momentous visit to India in early 2000 – the first presidential trip in 22 years. The real
breakthrough, however, was conducted by President George W. Bush and Prime Minister
Manmohan Singh, both of whom assigned especially strong priority to U.S.-India
partnership, epitomized by the 2004 Next Steps in Strategic Partnership initiative and by
the landmark March 2006 agreement on civilian nuclear cooperation.
Mr. Singh’s decisive victory in the just-concluded Indian parliamentary elections and
the emergence in New Delhi of a government unencumbered by fragile coalitions bode
well for the future of U.S.-India relations. Given the deep domestic and foreign policy
challenges confronting President Barack Obama, Washington policymakers, however,
may prove reluctant to take on bold new bilateral projects. Although his administration
is still in its early days, Mr. Obama has not yet displayed much interest in continuing
the Bush administration’s high-profile engagement with India. As one former U.S.
ambassador to India warns, “Neither the U.S. nor the Indian bureaucracies at present are
yet prepared instinctively to facilitate a deeper and more intimate degree of cooperation
8
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
between the two countries….It is going to take leadership and direction from the top to
change old habits and attitudes.”
1
Moreover, last year’s unexpectedly arduous debate in India over the civilian nuclear
agreement, intended to be a cornerstone of the new era of relations, is likely to sap the
readiness of officials in Washington and New Delhi to invest political capital in ambitious
bilateral undertakings. The collapse of the Doha Round of multilateral trade talks –
and the prominent role that U.S.-India impasse played in its breakdown – will further
sharpen this reluctance. In December 2006, just as the U.S. Congress was approving
the nuclear agreement, frustrations with New Delhi’s position in the Doha negotiations
caused legislators to cut some of India’s trade privileges under the Generalized System of
Preferences. The GSP, which provides preferential duty-free entry for designated goods
from developing countries, was reauthorized in October 2008 for one year following a
Congressional debate that once again featured concerns about the role New Delhi played in
Doha’s failure.
2
The structural dynamics of the expanding U.S.-India partnership will also prove
challenging to manage in the future. The basic framework of U.S. security and economic
relations with a number of key countries in Europe and Asia was laid down in another era
of world politics, when the national power of these states was in decline. The resulting
alliances were, and in many ways still remain, unequal partnerships. In contrast, India’s
power trajectory is upward. Even as they warm to the idea of cooperation with America,
foreign policy elites in New Delhi continue to insist on the prerogative of strategic
autonomy and, hence, are unlikely to accommodate Washington’s priorities as readily as
other U.S. allies. With continuing divergences over foreign policy objectives, frictions will
inevitably develop on a range of issues – from global trade negotiations, climate change
and nonproliferation policy, to differential approaches on Afghanistan and Pakistan, as
well as India’s bid for a higher profile at the United Nations. One well-placed observer
of the bilateral relationship recently cautioned that “the United States must adjust to a
friendship with India that will feature a wider margin of disagreement than [Washington is]
accustomed to.”
3

A final challenge is that the evolving global system of production and commerce is
progressively intertwining the U.S. and Indian economies just as the political climate in
both countries is turning increasingly against such globalizing forces. This challenge will
be examined in greater detail in the following section, but suffice to say that it will require
sustained leadership at the highest political levels and within the business communities in
both countries to navigate through these strains and build a robust bi-national consensus
for enhanced economic partnership.
1 Robert D. Blackwill, “A Friend Indeed,”
The National Interest
(May/June 2007), p.16. Ronen Sen, India’s recent ambas
-
sador to the United States, has made a similar point: “We have not reached the point where the relationship can be placed on
auto-pilot. It still needs to be nurtured.” Quoted in Karl F. Inderfurth and Bruce Riedel, “Breaking More Naan with Delhi,”
The National Interest
(November/December 2007), p.57.
2 The recriminations that followed the round’s collapse were exhibited in the unusual public criticism by a high-ranking
Bush administration official, in which he accused New Delhi of stymieing negotiations and “working behind the scenes for
Doha’s demise.” See “India Rising: Responsibility and Partnership in the Twenty-First Century,” remarks by Christopher A.
Padilla, Under Secretary of Commerce for International Trade, on June 9, 2008.
3 R. Nicholas Burns, “America’s Strategic Opportunity with India,”
Foreign Affairs
, November/December 2007.
9
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
As policymakers in the two countries turn to these challenges and seek to advance the new
era in bilateral relations, it is important to bear in mind that the foundation for the gathering
partnership was actually forged outside the realm of government
policy and far beyond the confi nes of Washington and New Delhi.
Headlines about the nuclear cooperation accord, expanding military
ties and convergent geopolitical interests have overshadowed the
important role that their societies and private sectors have played
in building the relationship. The Indian-American community,
relatively small but highly successful, helped led the way in
building new ties between its native and adoptive countries. Indian
students at American universities, currently numbering 94,000 and
constituting the largest foreign student contingent in the United
States, further solidifi ed these links and helped Indians shed Cold
War-era shibboleths about America.
4
The private sectors on
both sides, especially enterprises based on the U.S. West Coast,
5
were the fi rst to actualize
opportunities for economic cooperation, beginning in the area of outsourcing but increasingly
in creative and technological collaboration.
Strengthening these private sector and societal linkages will be one key in securing the growth
of bilateral relations over the long term.
6
In particular, adding greater economic ballast would
create an important stake in enduring ties, and would limit the risk that momentary political
and diplomatic frictions could escalate and disrupt the overall U.S.-India partnership. Given
the key positions both countries occupy in the global innovation economy, deeper cooperation
in this area should be a particular priority on the bilateral agenda.
This Task Force report lays out a robust plan for consolidating and bolstering the economic
dimension of the U.S.-India relationship, particularly in the innovation economy sectors
that are so important to the prospects of each country. Striking a careful balance between
pragmatism and ambition, and mindful that much of India’s growth path will depend on
continuing internal reforms, this agenda charts out a course for capitalizing on looming
opportunities for mutual gains while seeking to mitigate possible tensions as India assumes a
larger role in the global economy.
This report is organized as follows: The next section provides an overview of the bilateral
economic relationship, examines issues that will be increasingly problematic, and makes the
case for proactive leadership in fostering a deeper economic partnership. A following section
presents substantive policy recommendations for U.S. and Indian action that will have an
impact across a range of economic sectors, while a fi nal section outlines proposals focused
sharply on several key areas of the global innovation economy.
4 According to a recent survey, two-thirds of Indians hold positive views of the United States, a level that is much higher
than in America’s traditional allies in Western Europe. Moreover, unlike most other countries, a majority of Indians have
benign views of America’s economic infl uence. Pew Research Center, “Global Economic Gloom – China and India Notable
Exceptions,” (Washington DC: Pew Global Attitudes Project, June 12, 2008).
5 According to U.S. Census Bureau data, Washington State and California together accounted for a quarter of total U.S. mer-
chandise exports to India in 2008. Firms in Silicon Valley and Seattle also have led the way in service outsourcing to India.
6 For earlier Pacifi c Council work on this topic, see India-U.S. Relations: A Vision for the Future (2005) and Engaging
China and India: An Economic Agenda for Japan and the United States (2006), both available at http://www.pacifi ccouncil.
org.
10
It will require sustained
leadership in the United
States and India to build
a robust bi-national
consensus for enhanced
economic partnership
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Economic Opportunities and Challenges


India is now the third largest economy in Asia and its integration with the global economy
has advanced rapidly in recent years. Since economic reforms began in 1991, the ratio of
trade to GDP has increased from 15 percent to over 40 percent in 2007. Between 2004 and
2007, Indian exports have more than doubled, from $65 billion to $159 billion.
7
The country
has also emerged as one of the fastest-growing destinations for global capital and in 2006
surpassed South Korea as the fourth largest recipient of foreign direct investment (FDI) in
Asia. Inward FDI has quintupled over the last few years, totaling $17 billion in 2006 and
$21 billion in 2007.
8
According to a new survey, India is likely to see the highest growth in
global FDI flows of any country over the next five years, in the process overtaking the United
Kingdom, Germany and France as investment destinations.
9
The
2008 World Investment
Report
ranks India as the world’s second most preferred destination for FDI, behind only
China. Powered by a dynamic corporate sector that is rapidly acquiring foreign assets, India
is becoming an important source of capital in its own right. In 2006-08, Indian outbound
merger-and-acquisition activity totaled some $20 billion per year and, as illustrated most
recently by the bidding war between Infosys and HCL Technologies (India’s second-largest
and fifth-largest software company, respectively) over British-based technology consultancy
Axon Group, India is now among the very top investors in the United Kingdom.
10
The U.S.-India bilateral economic relationship has expanded rapidly in recent years, bringing
significant mutual gains. The United States is India’s single largest trading partner. In
2008, the United States was India’s largest export market, absorbing 12 percent of all Indian
exports. It also was India’s third-largest supplier, accounting for six percent of the country’s
total imports. In turn, India is one of the fastest-growing export destinations for the United
States. U.S. goods exports in 2008 were $18.7 billion, up 6.1 percent from the previous
year, while U.S. goods imports from India were $25.8 billion, up 7 percent. U.S. exports of
private commercial services (excluding military and government) to India totaled $9.4 billion
in 2007 and U.S. imports were $9.6 billion – about a 40-percent increase on both counts from
the 2006 numbers. Sales of services in India by majority U.S.-owned affiliates were $4.2
billion in 2006, while sales of services in the United States by majority India-owned firms
were $3.1 billion
.
11

The United States is also a key source of capital, providing about one-seventh of all FDI in
India since 1991. The stock of U.S. FDI in the country was $13.6 billion in 2007, up from
$9.2 billion in 2006, with the software service sector and, more recently, the pharmaceutical,
7 “India will achieve export target this fiscal: Pillai,”
Economic Times,
September 19, 2008.
8 2006 figures in
World Investment Report
(United Nations Conference on Trade and Development, 2007), p.41. 2007 data
contained in World Bank,
Global Development Finance 2008: The Role of International Banking
(June 10, 2008). FDI
inflows reached $24.5 billion in the Indian fiscal year 2007-08 (April 2007 to March 2008) and totaled $27.5 billion in 2008-
09.
9 KPMG,
Global Corporate Capital Flows, 2008/9 to 2013/14
(June 2008).
10 According to a new report by Ernst & Young, India was the second largest in the United Kingdom in 2008, after the
United States. The report also sees Mumbai and Bangalore as among the emerging top centers of global investment.
11
2009 National Trade Estimates Report on Foreign Trade Barriers
(Washington DC: Office of the U.S. Trade Representa
-
tive, March 2009). Overall, bilateral trade in merchandise goods grew from $14.4 billion in 2000 to $44.5 billion in 2008,
an impressive three-fold increase in eight years.
11
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
telecommunications and fi nancial industries being major benefi ciaries.
12
The United States is
also the favorite investment destination for Indian companies, receiving about a third of the
country’s FDI outfl ows. The stock of Indian FDI in the United States, once negligible in size,
has also surged in the last few years and currently totals some $10 billion, a level nearly on
par with U.S. investment fl ows into India.
The prominent U.S. factor in the spectacular development of the Indian information
technology sector deserves particular note, given the major role this sector has played in
catalyzing the rest of the country’s economy. The IT sector, which accounts for a signifi cant
share of India’s foreign exchange earnings, grew tenfold from 1997-2006, increasing in
the process from 1.2 to 5.5 percent of Indian gross domestic product (GDP). Much of this
growth is attributable to sales in the United States, which absorbs the large bulk of Indian IT
services exports.
Yet for all of India’s growing economic engagement, the level of interaction remains modest
by global standards. India’s share of world merchandise trade is one-fi fth that of China’s,
and India accounts for only about 1.5 percent of total global trade. Even in the export of
services, an area where India has made a name for itself, its
share in the world market is only about 1.3 percent.
13
Noting
that “unlike most other countries, tariff barriers [in India
represent] a more serious impediment than non-tariff barriers,”
a new World Economic Forum survey places India 105
th

among 118 countries in terms of market access.
14
India ranks
106
th
in the world in terms of FDI as a percentage of GDP.
15

Among the four so-called BRIC countries, India was last in
inward-FDI fl ows in 2007: China received 400 percent more
foreign capital than India, Russia 250 percent more and Brazil
50 percent more.
16
Indeed, this situation is likely to remain
in place for some time. According to a recent forecast by the
Economist Intelligence Unit, India will receive 1.36 percent of
global FDI fl ows in the 2007-11 period (compared to China’s 5.8 percent), placing it in the
18
th
position among countries – slightly ahead of Ireland but still behind Mexico.
17

The U.S.-India economic relationship is similarly far from achieving critical mass and will
require careful nurturing to reach its full potential. Trade and investments fl ows between the
two countries remain a small fraction of the U.S.-China level.
18
In 2008, India was the 17
th

largest export market for U.S. goods and 18
th
among countries exporting to the United States.
12 Ibid.
13 Rachid Benmessaudad and Dipak Dasgupta, “Stick to Basics,” Outlook, August 11, 2008.
14 World Economic Forum, Global Enabling Trade Report 2008 (June 18, 2008).
15 “Attractive, regardless,” Business Standard, September 29, 2008.
16 World Bank, Global Development Finance 2008, Table 2-15. On the other hand, the amount of portfolio investment
received by India in 2007 ($34 billion) nearly equaled top recipient China’s $35 billion (Table 2-17).
17 Economist Intelligence Unit, World Investment Prospects to 2011: Foreign direct investment and the challenge of politi-
cal risk (2007). In 2006, the stock of inbound FDI accounted for a quarter of gross domestic product in China but only 1.9
percent in India.
18 The United States and China, for example, conducted some $400 billion worth of trade in 2008.
12
Despite rapid growth in
recent years, the U.S.-India
economic relationship is
far from achieving critical
mass and will require
careful nurturing to reach
its full potential
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Despite the sharp rise in U.S.-India trade, the relative importance of each country to the
other’s merchandise trade volume still is well below the levels achieved in the 1960s.
19
From
1990-2005, the total volume of U.S. foreign direct investment in India increased 22 times.
Yet India remains a comparatively minor destination for U.S. investment flows. In 2007, the
United States invested $3.7 billion in India, or 1.2 percent of total U.S. FDI. Overall, India
ranked 21
st
in 2007 for locations for overseas U.S. direct investment.
20

Looming political clouds in both countries also threaten the economic relationship. Within
India, as last year’s fractious debate over the nuclear agreement illustrated, calls for greater
interaction with the United States continue to run up against deep-rooted notions of self-
sufficiency and national autonomy. There is a building public backlash against further
integration with the global economy, including the enactment of stronger intellectual
property laws, the entry of foreign companies into certain sectors, and the creation of special
economic zones to attract foreign investment. Appealing to populist pressures, for example,
the state government of Goa recently announced plans to cancel all special economic zones
within its territory. And in response to pressure from the political left, the central government
has revoked labor law exemptions earlier granted to companies operating in SEZs. Although
anti-globalization sentiment is common in many countries, it is likely to remain particularly
resonant in India for the foreseeable future. Because of arcane labor regulations, foreign
firms have avoided the labor-intensive manufacturing sector, meaning that the country’s
immense (and electorally-important) reservoir of unskilled workers has yet to benefit fully
from global economic interaction.
21
With growing economic anxiety in the United States, public opinion is increasingly skeptical
about the benefits of globalization. In a spring 2008 poll conducted by the
New York Times

and CBS News, 68 percent of Americans favored trade restrictions to protect domestic
industries. Another survey found that two-thirds of the public believe the increasingly global
character of the U.S. economy is bad for job security.
22
While much of this anti-globalization
sentiment has found China as its target, India has not escaped attention. There was a notable
upsurge in opposition to the outsourcing of work to India during the 2004 presidential
campaign, reaching a high point with John Kerry’s calling business leaders engaged in
corporate outsourcing “Benedict Arnold CEOs.” Protectionist sentiment was on full display
in the 2006 Congressional mid-term elections and the 2008 presidential primaries, and within
the U.S. Congress opposition to trade agreements is hardening. Following up his rhetoric
during the presidential campaign, President Barack Obama has proposed tightening tax
penalties on corporate outsourcing and the recently-enacted economic stimulus package
19 California’s merchandise exports to India accounted for 1.6 percent of the state’s total merchandise exports – versus 9
percent to China – in 2008. India ranked as California’s 16
th
largest merchandise export market, while China was the fourth
largest.
20 In 2006, U.S. FDI flows to Singapore were seven times greater than to India.
21 The share of manufacturing to Indian GDP, which has stagnated in recent years, is relatively low given the country’s
stage of economic development. In 2007, India contributed 1.8 percent of global manufacturing output, compared to
China’s 12-percent share. Even in the area of high-technology manufacturing, India lags considerably behind China, South
Korea and Taiwan. See KPMG,
Manufacturing India@75
(October 17, 2008); and C.P. Chandrasekhar and Jayati Ghosh,
“India’s hi-tech lag,”
Hindu Business Line
, September 9, 2008. Similarly, the United Nations ranks India 41
st
out of 100
countries surveyed in terms of industrial competitiveness. India’s score was just below Brazil’s but far outpaced by China’s.
22 David Leonhardt and Marjorie Connelly, “81% in Poll Say Nation Is Headed on Wrong Track,”
New York Times,
April 4,
2008; and
American Attitudes on Economic Policy
(Chicago: Chicago Council on Global Affairs, October 14, 2008).
13
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
includes a provision restricting the H-1B temporary visa program for skilled foreign workers.
Both actions have stirred considerable anxiety in India.
It is even possible that a populist backlash against the perceived ill-effects of India’s
economic rise could become stronger and more broadly entrenched in the coming years.
According to a recent forecast, the size of the Indian middle class will swell over the next
two decades, from its current size of 50 million to 580 million people (from about 5 percent
to 40 percent of the population). In the process, overall consumer spending will undergo a
four-fold increase and India will become the world’s fifth-largest consumer market.
23
Such
economic expansion will create major opportunities for Indian and multinational businesses
alike. Yet competing successfully in the Indian market will require establishing more
American-owned research and manufacturing facilities in the country rather than relying
solely on exports from the United States. Cost reductions by U.S. corporations and the lure
of India’s inexpensive labor force will reinforce this process.
General Motors, the iconic but beleaguered U.S. automaker, is a good case in point. Hit hard
by declining sales and shedding workers in its home market, it recently invested $500 million
to expand production in India, one of the world’s fastest-expanding vehicle markets. Its
technical center in Bangalore houses 1,000 employees engaged in research and development
activities, and as the highly-competitive global auto industry restructures the company
could conceivably end up exporting Indian-built cars to the United States. The Ford Motor
Company has likewise poured $500 million in recent years into increasing production
capacity in the country and plans to add 1,000 more employees to its India operations in
2009.
24
Such a business model may well be a necessity for major American corporations
competing in a globalizing world, but explaining why it is good for workers in Michigan and
other Rust Belt states will be a great political challenge.
India’s climb up the technology ladder could also generate a political backlash in the United
States. India is steadily enhancing its comparative advantage in sectors characterized by
high-end technological development and skilled labor—areas that Americans reflexively
regard as U.S. core competencies.
25
An Economist Intelligence Unit 2007 survey of
senior executives identified India as the most attractive overseas location for research
and development, ahead of the United States and China. The number of research and
development centers operated by multinational corporations in India grew from 180 in 2000
to nearly 600 in 2008. As a result, Bangalore, with its community of 140,000 engineers, is
23
The “Bird of Gold”: The Rise of India’s Consumer Market
(San Francisco: McKinsey Global Institute, May 2007).
24 U.S. auto companies are not alone in viewing India as a research and production base. Hyundai, South Korea’s leading
auto firm, is making the country a global hub for its small-car development and production, perhaps even for export to the
United States, and recently invested $1 billion in a new manufacturing facility in the country. Honda, Suzuki, Mercedes
Benz and Volkswagen also plan to make India an R&D base. Indian car exports surged 57 percent from April 2008 to
March 2009, totaling some 330,000 vehicles, mainly to Europe. Industry analysts predict exports over the next three years
will climb to more than 500,000 vehicles a year. See Amy Yee, “Moving up the value chain,”
Financial Times
, January 24,
2008; Eric Bellman, “India Cranks Out Small Cars for Export,”
Wall Street Journal
, October 6, 2008; Eric Eder, “India’s
automakers rev up for run at U.S. car market,”
Toledo Blade
, November 30, 2008; Santanu Choudhury and Nitin Luthra,
“Indian Car Exports Outpace Growth in Sales at Home,”
Wall Street Journal
, April 9, 2009; and “GM bets on India for
turnaround,”
Times of India
, June 6, 2009.
25 For an assessment of India’s development as an “advanced technology superstate” and its implications for U.S. economic
competitiveness, see Ernest H. Preeg,
India and China: An Advanced Technology Race and How the United States Should
Respond
(Manufacturers Alliance/MAPI and Center for Strategic & International Studies, 2008).
14
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
second only to Silicon Valley as the world’s largest R&D talent pool. While labor cost
savings drove the fi rst wave of R&D offshoring in the 1990s, foreign companies are now
increasingly seeking to leverage India’s growing reservoir of skilled talent. Until recently,
multinationals used offshore centers in the country primarily for testing products developed
in the United States or Europe. Now, these companies are increasingly seeing their Indian
R&D sites as part of their core innovation activities.
26
Signifi cant examples abound. Cisco Systems, the world’s largest
maker of networking equipment and routers, recently established
its eastern hemisphere headquarters in Bangalore. The company’s
technology facility there is its largest R&D center outside the United
States, and Cisco plans to spend some $750 million for research
efforts in India in the next few years. General Electric’s John F. Welch
Technology Center in Bangalore, employing about 3,500 scientists and
engineers, is the company’s largest R&D complex outside the United
States, and the company plans to base a quarter of its worldwide
technology professionals in India by 2010. Similarly, Intel’s R&D
facility in Bangalore is its largest non-manufacturing site outside the United States, with
some 2,500 employees. In what is a landmark event along India’s technological trajectory,
the company recently released its latest series of server chips, which were designed and
tested almost entirely in Bangalore. NVIDIA, a Silicon Valley producer of graphics-
processor technologies, has just unveiled the world’s most powerful graphics chip (delivering
54 billion computer operations per second) that was designed and developed almost entirely
by the fi rm’s Bangalore-based engineers. Texas Instruments has likewise started creating and
developing products in India. Yahoo! employs about 1,500 engineers in Bangalore and is
adding to its workforce there.
Indian companies themselves are also moving up the value chain, from IT services to
aerospace. Noting that the country has the single largest pool of requisite engineering talent
among emerging countries – more than Russia and China combined – a 2006 Booz Allen
Hamilton study concluded that India is well positioned along globalization’s next frontier:
the outsourcing of engineering services to emerging nations. According to the study, the
Indian portion of the engineering offshoring market could more than double from its current
12-percent share to 30 percent by 2020, potentially bringing the country’s companies an
additional $50 billion in annual revenue. And the Gartner research fi rm reports that India’s
top IT services exporters – Tata Consultancy Services, Infosys Technologies and Wipro
Technologies – are poised to become “megavendors” capable of challenging the global
dominance of such U.S. services providers as IBM, Accenture and EDS.
The country’s upward technological trajectory is also evident in the heavens – literally.
India has one of the world’s most advanced space programs. The October 2008 launch
of its fi rst unmanned lunar mission, designed to create a sophisticated atlas of the Moon’s
mineral resources, propelled India into the very exclusive fraternity of space-faring countries.
Both the National Aeronautics and Space Administration and the European Space Agency
approached India to collaborate on the mission, adding an important measure of foreign
26 Strategic Guide to Indian R&D Captives 2008 (Sunnyvale, CA: Zinnov Management Consulting, 2008).
15
Looming political
clouds in both
countries threaten to
adversely affect the
economic relationship
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
validation. To Prime Minister Manmohan Singh, the launch “demonstrated the nation’s
growing technological potential.” From Barack Obama’s perspective, the mission was a
wake-up call, reminding Americans “just how urgently the United States must revitalize its
space program, if we are to remain the undisputed leader in space, science and technology.”
The
Wall Street Journal
issued a similar note of alarm, calling on Congress to raise visa
quotas for highly-skilled immigrants lest America’s research and innovation capabilities
wane. Coming in the wake of the country’s successful delivery of 10 satellites into orbit on
a single rocket in April 2008, the lunar mission underscored India’s emergence as a major
competitor in the lucrative satellite-launch market and in the global satellite manufacturing
industry. On the heels of the lunar mission, a European satellite operator launched a state-
of-the-art satellite built by the Bangalore-based Indian Space Research Organization, the
first time that ISRO constructed a satellite for a foreign customer. ISRO, which operates the
world’s second largest fleet of remote sensing satellites (behind the United States) has also
launched an online satellite imagery service. Dubbed
Bhuvan
(Sanskrit for Earth), the project
is advertised as providing much sharper and more updated satellite images than offered by
Google Earth.
Beneath the skies, HCL Technologies developed the software for Boeing’s new 787
Dreamliner aircraft. The European Aeronautic Defence and Space Company, the parent
company of Airbus, has instructed its suppliers to significantly increase outsourcing from
India, and Airbus itself intends to invest $1 billion over the next decade in the country.
The Tata Group, India’s most venerable industrial house, is entering into the aircraft
manufacturing business and building a $2 billion production facility in Hyderabad. The
global aerospace industry also is increasingly looking to set up operations in India in order to
capitalize on the country’s skilled labor pool and technology base.
27
The combination of India’s cost advantages, growing skills base and gathering technological
prowess is coinciding in America with a deep economic downturn that is causing job
insecurities to move ever higher up the socio-economic ladder. IBM’s recent layoffs of some
5,000 American workers, with many of the jobs being transferred to India, demonstrate how
outsourcing is becoming a hot-button issue even for technology professionals.
28
Accenture
now has more employees based in India than in the United States. Silicon Valley-based
Hewlett Packard, which over the past year announced job cuts for about 15,000 U.S.
workers, is establishing training programs for software testing professionals in eight Indian
cities, with plans to add more cities in the coming months. Unlike earlier backlashes against
globalization, college graduates and even the holders of advanced degrees are worried about
their futures and turning against economic engagement with other countries. India will
increasingly become a target of their fears. As the
Times of India
observes, Bangalore has
suddenly “become a catch-all term to hang U.S. economic woes on.”
29
27 On India’s potential as a global hub for the aerospace sector, see
Changing Dynamics: India’s Aerospace Industry
(Price
-
waterhouseCoopers, March 2009).
28 IBM’s operations in India are a good example of the many paradoxes of the global innovation economy. At the end of
2007, it had 73,000 employees in India, constituting about a fifth of its global workforce. While Indian IT services compa
-
nies have made a name for themselves by snapping up outsourcing contracts from U.S. firms, IBM holds the largest share of
the Indian domestic IT services market.
29 “Barack Obama torpedoes Bangalore – again,”
Times of India
editorial, May 5, 2009.
16
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Warding off the specter of widespread India-bashing in the United States will necessitate
better explanation of how globalization works and how the economic and technological
rise of India will favorably affect the lives of Americans. In turn, the manifold benefits of
India’s economic and innovation engagement with other nations, including the United States,
requires more forceful exposition. The entire story is surely a positive one, but it is not one
that is being well told in either country.
A central element in this story is the growing internationalization of scientific and innovation
activities and the key roles that the United States and India play in this process. Research
challenges are increasingly complex, requiring collaborations by scientists and technology
workers across numerous disciplines and various regions of the world. Corporate R&D
efforts are similarly modular and decentralized, spanning diverse countries across the globe.
These innovation networks have enabled companies, in the United States and elsewhere,
to tap into global talent pools, expand research and manufacturing capacity, and reduce
product development times. The dynamics of globalization have bound together the U.S. and
Indian innovation systems, strengthening in the process India’s technological potential while
enhancing America’s own innovation capacity.
Beyond the interdependent technology relationship, both countries have strong interests in
fostering a broader-based economic partnership. Given its sharp resource constraints and the
sheer magnitude of the challenges it confronts in modernizing its economy, India’s objective
of rapid economic development can only be achieved by expanding its connections to the
most dynamic sectors of the global economy. Despite the domestic political resistance sure
to be encountered, India has an urgent need to craft with its economic partners the most
conducive mechanisms possible for the movement of goods, capital, skilled professionals,
technology, and ideas and information. This is especially the case with the United States,
due to the large role it plays in India’s growth trajectory. Yet, as one observer comments,
the gradualist approach to trade liberalization pursued since the 1990s has allowed New
Delhi “to maximize domestic autonomy and control [but has] limited the utility of trade as a
mechanism for spurring economic growth.”
30
The United States, in turn, has a compelling set of commercial, technological and strategic
interests in contributing to the maturation of India’s vast economic potential. To be
sure, India’s future is largely in the hands of its own people and their elected leaders.
Nevertheless, there is a significant support role for the United States. Greater Indian
prosperity would translate into increased trade, investment and other business opportunities
for American companies. Actively helping Indians broaden their long-term economic
prospects would generate important reputational dividends, fortifying the reservoir of
goodwill the Indian people have toward the United States. Augmenting the material basis
of Indian national power also serves to hedge against possible adverse shifts in Asia’s
geopolitical balance. Indeed, this last factor decisively shaped the Bush administration’s
strong commitment to transforming U.S.-Indian relations, epitomized first in the 2004 Next
Steps in Strategic Partnership initiative – with its emphasis on strengthened cooperation in
30 Ashley J. Tellis,
India as a New Global Player: An Action Agenda for the United States
(Washington, DC: Carnegie
Endowment for International Peace, 2005), p.52.
17
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
the areas of nuclear energy, civilian space programs, high-technology commerce, and missile
defense – and then in the 2006 civilian nuclear accord.
31
An active U.S. effort to help India transform itself economically would build upon
noteworthy historical precedent. In the 1960s, the United States contributed in important
ways to the country’s nascent system of science and engineering education. Through the
U.S. Technology Cooperation Mission, about 1,000 Indians received scholarships to pursue
advanced study in the United States. Under the auspices of the Kanpur Indo-American
Program, a consortium of nine American universities provided critical assistance to the
newly-established Indian Institute of Technology (IIT) in Kanpur by training faculty, creating
research facilities, introducing curriculum innovations, and supporting exchange programs.
Bilateral partnership in the area of agricultural technology was also the basis for India’s
famed “Green Revolution” of the 1960s and 1970s, which lead to significant increases in
agricultural production, made the country self-sufficient in food grains and ended a perennial
cycle of famines. These programs had significant consequences and furnish a foundation for
renewed collaboration.
Yet unlike the assistance efforts of the past, the realities of today’s global innovation
economy require the United States and India to forge genuine, mutually-beneficial
partnerships. The rest of this report lays out a robust agenda for doing so. The next section
outlines a series of broad initiatives that will have an impact across a range of economic
sectors, while a following section presents specific proposals relating to several key
technological fields, all of which have special resonance on the U.S. West Coast.
31 As senior U.S. officials explained in March 2005, the administration’s initiatives vis-à-vis New Delhi were geared toward
helping “India become a major world power in the twenty-first century. We understand fully the implications, including
military implications, of that statement.”
18
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Cross-Cutting Policy Initiatives
Revitalize the Economic Dialogue
Recent high-profi le initiatives in the strategic realm, most notably the civilian nuclear accord,
inevitably have diverted senior policy attention from the economic dimension of the U.S.-
India relationship. At the earliest possible opportunity, President Obama and Prime Minister
Singh should meet to defi ne their mutual vision for economic interaction in the years ahead.
As part of this vision, the two governments should reach agreement on re-energizing the
institutions that manage bilateral economic relations. The U.S.-India Economic Dialogue
was established in 2000 to institutionalize bilateral economic cooperation and expanded
signifi cantly in 2005 to include a newly-created advisory group of senior U.S. and Indian
business leaders. The CEO Forum has proven to be a useful generator of ideas and political
mobilization – unlike a similar U.S.-Japanese private-sector commission established early in
the Bush administration – though it would benefi t from greater participation from technology
companies based on the U.S. West Coast. Overall, however, the Economic Dialogue has lost
momentum. In the Bush administration’s last years, the high-profi le U.S.-China Strategic
Economic Dialogue (SED) presented a stark contrast to the lethargic U.S.-India dialogue.
The Obama administration has agreed to broaden and deepen Cabinet-level consultations
with Beijing, including going beyond the SED’s twice-yearly meetings. A similar
strengthening of the dialogue with New Delhi is warranted.
During the Bush years, the less-prominent National Economic
Council was the lead U.S. agency for the dialogue with India,
while the SED was driven by a top-ranked Cabinet secretary.
(The Obama administration’s new U.S.-China dialogue
will be co-lead by the Secretary of State and the Treasury
Secretary.) With Washington policymakers consumed by
domestic economic woes, presidential leadership will be key
in pushing the U.S.-India economic relationship forward.
President Obama should promptly assign ownership of the
bilateral dialogue to a top-level aide, who in turn ought to
travel to New Delhi to engage Prime Minister Singh’s new
government. Given the administration’s understandable
emphasis on engaging Beijing on an array of global
governance issues, this meeting would send a clear signal – to
New Delhi and to the private sectors in both countries – about
the signifi cance Washington continues to place on advancing
bilateral economic relations. The meeting would also prepare
the ground for a productive visit to India by President Obama,
ideally during his expected trip to Asia later this year.
Another bilateral institution, the High Technology Cooperation Group, was formed in 2002 to
promote trade and investment in advanced technology products and played a leading role in
driving forward a number of initiatives, especially in the fi rst part of the Bush administration.
Action Items:
• A senior U.S. offi cial should
be designated to work with New
Delhi on defi ning a mutual vision
for economic interaction in the
years ahead
• Both governments should un-
dertake a comprehensive review
of the export controls that still
inhibit bilateral trade in high-
technology goods and services
and develop a joint plan for their
maximum-possible reduction
19
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
The fi rst such forum Washington established with any country, the HTCG lead to a dramatic
decline in the percentage of items that require a U.S. Commerce Department license to be
exported to India. In 1999, nearly a quarter of U.S. exports to India were subject to licensing
requirements. Today, that fi gure is just two-tenths of one percent, and of that fi gure over 90
percent of the export requests are approved within processing times comparable with those
of the U.S.’s closest trading partners.
32
In 2007, the Commerce Department included India
in its Validated End User program, a designation that allows certain trusted Indian buyers to
purchase high-technology goods without an individual license. But there are still a number
of items that the HTCG, or a similarly-focused body, could usefully address. One urgent task
should be to take note of the export controls that still inhibit trade in high-technology goods
and services and develop a joint plan for their maximum-possible reduction.
Fully Implement the Nuclear Agreement
The civilian nuclear accord, which lifts a decades-long moratorium on the U.S. transfer
of sensitive technologies to India, represents a historic milestone in bilateral relations and
thus is an important political symbol. New Delhi’s exclusion from international nuclear
commerce has long been an irritant in bilateral relations. But the accord also promises
signifi cant economic benefi ts for both countries, as well as provides India greater access to
a range of critical technologies that it was previously barred from receiving. Now that the
high drama over the agreement’s ratifi cation is over, both governments need to place priority
attention on the prosaic details of implementation.
India’s ever-growing power shortages threaten to severely
blunt its growth potential. The opportunities for bilateral
cooperation in addressing the country’s acute energy
needs will be discussed more fully in a later section.
The important point here is that full implementation of
the nuclear accord is vital if Indian plans for expanding
nuclear energy production are to be realized. Specifi cally,
the central government will need to modify the 1962
Atomic Energy Act to open its state-owned nuclear energy
establishment to private-sector participation and commit
to defi nite policies regarding foreign involvement and
investment, including the enactment of a civil nuclear
liability law that would enable the full participation of
American fi rms.
Beyond implementing the nuclear agreement, the United
States should continue championing India’s participation
in international research efforts pertaining to the
development of advanced nuclear reactor technologies,
including the Generation IV International Forum and the
32 Remarks by then-Under Secretary of Commerce Mario Mancuso before the Joint Task Force, Menlo Park, CA., June 2,
2008.
20
Action Items:
• New Delhi should open its state-
owned nuclear energy establishment
to private-sector participation and
commit to defi nite policies regarding
foreign involvement and investment,
including the enactment of a civil
nuclear liability law that would
enable the full participation of
U.S. fi rms
• Washington should continue
championing India’s participation
in international research efforts
pertaining to the development of ad-
vanced nuclear reactor technologies
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
Radowsky Thorium Fuel research program that aims to develop breeder reactors utilizing
India’s abundant thorium reserves. With U.S. support, India recently joined the International
Thermonuclear Experimental Reactor program that explores thorium-fuel options in existing
reactors.



Craft a Free Trade Agreement focused on the Innovation Economy
India has recently concluded free trade agreements with South Korea, Thailand and the ten-
country Association of Southeast Asian Nations, and has embarked on FTA negotiations with
Japan and the European Union, its largest aggregate trading partner. Suggestions have been
floated about crafting a similar U.S.-India arrangement. But with Washington and New Delhi
at loggerheads in the Doha Round negotiations, the sensitivities of the agricultural access
issues that will need to be included,
33
and the political climate in both countries running
against deeper integration with the global economy, the prospects for a broad-based bilateral
FTA are not strong in the foreseeable future.
To be sure, the reciprocal economic gains accruing from a far-reaching multi-dimensional
U.S.-India FTA make it a worthy long-term goal and both governments should announce a
commitment to signing such an accord by 2015, even if it is one whose provisions take effect
over an extended period. But the immediate energies of senior officials in Washington and
New Delhi would be more profitably focused on crafting a bilateral free trade mechanism
relevant to the advanced technology sectors. Unlike a more comprehensive arrangement –
which would entail prolonged negotiations, unwieldy bargaining tradeoffs and protracted
coalition-building at home – an initiative with a limited but sharp focus on the innovation
economy could likely be formulated quickly, with its self-evident “win-win” features
overriding domestic opposition.
A model for such an initiative exists in the 1997 Information Technology Agreement (ITA),
which eliminated tariffs on a range of capital goods, intermediate inputs and final products
in the information and communications technology (ICT) sector. The agreement was
negotiated in late 1996 by 14 original countries (then representing about 80 percent of the
global IT trade). Although conducted under the auspices of the World Trade Organization,
the agreement was formulated quickly outside of its normal (and cumbersome) negotiating
process. The final agreement was soon joined by other countries (including India) and
currently has some 70 participants (collectively representing 97 percent of the global IT
trade). The ITA is credited with spurring world trade in IT products and it remains the only
industry-specific comprehensive free trade agreement ever signed.
The ITA remains in effect but its value has been significantly diluted by a series of
technological developments in the decade since its creation. Specifically, disputes have
arisen among the signatories over how to apply the agreement to hundreds of new IT
products that were not foreseen 10 years ago and on addressing the issue of non-tariff
barriers. Moreover, multi-party negotiations to update the ITA have been stalled for years.
33 Since the EU is not a large exporter of farm products, agricultural issues have not been the major obstacle in the EU-India
FTA talks that they would be in an U.S.-India negotiation.
21
ENHANCING INDIA-U.S. COOPERATION IN THE GLOBAL INNOVATION ECONOMY
In light of the ITA’s recent problems, the United States and
India on should launch a bilateral initiative to further liberalize
trade and deepen engagement in the ICT fi eld or, even more,
one that covers the entire innovation economy. This agreement
could then be opened to the participation of other like-minded
countries. Given the critical role the high-tech sector plays in
the American and Indian economies, not to mention the broader
world economy, such an initiative would pay robust commercial
dividends. Additionally, with Washington and New Delhi at
odds in the Doha Round talks, the initiative would have great
political value, further solidifying the U.S.-India partnership and
providing an important example of joint leadership in the global
economy. It might also have the effect of renewing momentum
for multilateral trade negotiations or, in the absence of that, offer
a concrete roadmap for promoting mutual gains applicable for
interested nations in a vital segment of the global economy.
Conclude an Investment Treaty
Investment treaties are standard instruments for promoting capital fl ows between countries
and an estimated 2,500 bilateral agreements are in operation throughout the world. Such
accords establish a transparent and predictable legal regime for foreign investors by offering
protections against discriminatory government practices and unreasonable regulatory action,
guaranteeing the right to repatriate capital, safeguarding intellectual property rights, and
specifying procedures for the arbitration of disputes. India has agreements with 61 countries
(including key trading partners in Europe) and the United States has negotiated agreements