Millennium Post

Relax FDI norms to save `, US warns India

The US government has put major pressure on India to relax certain crucial norms for FDI in retail to diffuse the crisis of the rupee, which is fast depreciating against the dollar, the world’s only accepted reserve currency. The Indian government too has given an affirmative reply to this American pressure. According to top level government sources, senior US officials who met finance minister P Chidambaram and commerce minister Anand Sharma, both of whom are now in the USA, categorically asked them to cut down local procurement norms for FDI in retail and insisted that India must raise the ceiling on FDI in defence to 74 per cent.

This suggestion was recently strongly opposed by defence minister A K Anthony but the American pressure groups have renewed their demand once again. In fact, this is the clear message given by top US officials ahead of the US-India Business Council (UIBC) meeting, which will formally start in Chicago. Chidambaram and Sharma, on their part, have asked US officials to continue their stimulus dollar policy so that the fast weakening rupee can salvage some strength. The two senior ministers’ high-profile visit comes at a time when more than 250 US senators and representatives have written to either US Secretary of State John Kerry or President Barack Obama expressing their concern’ over India’s policies which they dub ‘discriminatory’.

India is in a tight situation because the rupee has reached a record low – that too largely because overseas investors (mostly from the USA) pulled out a net sum of Rs 33,135 crore ($5.6 billion) from debt securities in June, the first time in 13 months that foreign institutional investors (FIIs) turned net sellers of debt securities. In their latest assault on the Indian currency, they pulled out more that Rs 4,500 crore ($754 million) from the Indian debt market in the first week of July.
This latest outflow came after the bloodbath of the rupee was triggered by US Federal Reserve Board Chairman Ben Bernanke, who indicated that the USA might not continue with the stimulus policy of dollar. This resulted in the rupee plunging to a record low.  

However, Bernanke said in a recent announcement at an event hosted by the US National Bureau of Economic Research, ‘So you put that all together, and I think you can only conclude that a highly accommodative monetary policy for the foreseeable future is what’s needed in the US economy.’ He also reiterated that the Fed may continue to maintain its policy of super-low interest rates even after the unemployment rate falls below 6.5 per cent. The ‘overall message is accommodation,’ he said, seemingly to emphasise the point.

The US Federal Reserve Board chairman also said that investors have no cause to panic. Stocks plunged in late May after Bernanke told a US Congressional panel that the Fed might begin scaling back its massive monthly purchases of Treasury and mortgage-backed bonds over the next few months if the US job market continued to improve.

The programme, which the Fed launched in 2008 to bolster economic activity by, among other things, lowering longer term interest rates, has propelled stocks into record terrain this year.
Speculation that the Fed was set to dial back on quantitative easing (QE) – as the bond purchases are called – increased last week after the US Labor Department released stronger-than-expected job growth. But financial markets took the dovish tone in Bernanke’s latest remarks as a signal that the Fed may not start tapering its $85-billion-per-month bond purchases in September, as many analysts have predicted.

Meanwhile, Chidambaram met several US Senators and Representatives on Thursday and Friday. He also had talks with US House India Caucus Co-Chair Congressman Joe Crowley of New York, Congressmen Sandy Levin of Michigan, Erik Paulsen of Minnesota, John Larson of Connecticut and Ami Bera of California. Indian Ambassador to the USA Nirupama Rao and Secretary (Economic Affairs) Arvind Mayaram were present during the hour-long meeting.
There wide-ranging discussions covered the gamut of Indo-US relations. More specifically, issues such as compulsory licensing, patent protection, preferential market access, the immigration bill in the US Congress and increase in FDI in areas such as defence and financial services were taken up. The finance minister reiterated that there is close cooperation between the two countries in areas such as security and defence and the civil nuclear agreement between the two countries was a path breaking landmark.

He also explained that India’s law affirms intellectual property rights (IPRs) and the process of granting compulsory licences and patent registration are WTO-compliant and subject to judicial review.  Chidambaram also emphasised the importance of India becoming a manufacturing hub for meeting its own domestic needs and rebalancing the global economy.
On immigration, he expressed India’s discomfort especially because the issue of temporary relocation of knowledge workers has been linked to the larger issue of immigration. The restrictions sought to be placed on knowledge workers amount to non-tariff barriers, he pointed out.

The US Congressmen spoke of their deep interest in promoting Indo-US relations and advancing mutually beneficial cooperation. They appreciated the opportunity to exchange views with the finance minister and stressed the value of continuing such dialogue to accelerate deepening of ‘India-US strategic partnership’.  Chidambaram also had useful discussions with Senators Mark Warner of Virginia and John Cornyn of Texas, Co-Chairs of the Senate India Caucus. The Wal-Mart representatives also called on him.
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