Sunday, June 27, 2010

Indo-US economic engagement

This letter appeared in my mailbox.

In a first of its kind, the India-US World Affairs Institute of Washington partnered with the Robert H. Smith School of Business, University of Maryland and the Federation of Indian Chambers of Commerce & Industry to prepare a comprehensive report on "How America Benefits from Economic Engagement with India." The authors of the report are Professor Vinod Jain of the University of Maryland and Kamlesh Jain, Director of Research & Education at the India-US World Affairs Institute.

The study, released on June 15 by Congressman Jim McDermott, Co-Chair of the Congressional Caucus on India and Indian Americans, provides, for the first time, a comprehensive analysis of America’s economic engagement with India for the period 2004 to 2009. The analysis covers India’s foreign direct investments into the United States and U.S. exports to India, as well as an assessment of their impacts on the American economy. Also included in the study are the economic impacts Indian Americans are having in the United States.


**While popular perception has it that the companies of India Inc. are taking jobs away from Americans and adding little value to the U.S. economy, nothing could be further from the truth. Actually, Indian companies have been investing steadily in the U.S. for decades, and with the rise of India Inc. the magnitude and impact of such investments have increased.

**Major multinationals from India are now making significant acquisitions and greenfield investments, and creating jobs, in the United States. Some of the Indian companies to which work was being outsourced in the earlier era are now insourcing such jobs within the United States itself, using American workers to perform value-added work.

**Indian companies have been investing abroad for decades, though the pace of foreign investments has accelerated significantly since 1991, and especially in the 2000s. This development is a result of several factors, including Indian companies’ ability to arbitrage their cost advantages, access to a large talent pool, success at home – in a huge domestic market with cut-throat competition, reasonably well-developed institutions (compared to many other emerging markets), business acumen arising from an entrepreneurial tradition, business sophistication, financial market sophistication, production efficiency, a long exposure to Western and Japanese multinationals and their management practices, and Government of India’s progressive relaxation of foreign investment rules.

**During 2004-2009, 90 Indian companies made 127 greenfield investments worth $5.5 billion, and created 16,576 jobs in the United States. The top three destination states for greenfield investments were Minnesota, Virginia, and Texas, in that order. However, the top three states in terms of jobs created were Ohio, Texas, and California.

**The five U.S. industrial sectors that received the most greenfield investment were metals; software & information technology services; leisure & entertainment; industrial machinery, equipment & tools; and financial services, accounting for almost 80% of total greenfield investment in the United States. The software and IT services sector received less than 15% of total investment, and the bulk of investments went into mining, manufacturing, and other industries.

**Ten Indian companies made more than 70% of the total $5.5 billion dollars of greenfield investments in the United States: Essar Steel (Minnesota), JSW Steel (N/A), Tata Consultancy Services (California, Michigan, New York, Ohio), Welspun Group (Arkansas; Texas), Reliance Adlabs (Illinois), Indage Group (Virginia): $160.5 million, HCL Group (New Jersey), Flag Telecom, Reliance (N/A), Tata Communications (Virginia), PSL (Mississippi).

**During 2004-2009, 239 Indian companies made 372 acquisitions in the United States. The total value of 267 (of the 372) acquisitions was $21 billion, or $78.7 million per acquisition.

**Of these 267 acquisitions, the authors were able to obtain the numbers of jobs created/saved for only 85 transactions, which came to over 40,000 jobs. (The total number of jobs created or saved by all 372 transactions must be much higher).

**Five states that attracted the most M&A investments from Indian companies accounted for 75% of total deal value: Georgia, New Jersey, Michigan, California, and Texas.

**The five leading U.S. sectors receiving M&A investments from India were: manufacturing ; IT & IT enabled services; biotech, chemicals & pharmaceuticals; automotive; and telecom – for a total of 83% of total deal value. The bulk of M&A investments by India Inc. in the United States were in manufacturing and other industrial sectors, rather than in services for which India is well known.

**The value of U.S. acquisitions by Indian companies fell in 2008 and then again in 2009 even more steeply, a result of the worldwide recession. However, greenfield investments rose through 2008, achieving their highest level that year, and then registered a decline in 2009, though the decline was not as steep as for acquisitions. This is possibly because making a greenfield investment is a longer-term decision, while acquisitions are often opportunistic and accomplished relatively more quickly.

**The United States-India goods trade tripled during 2004-2008. American merchandise exports to India during the same period grew at a compounded annual growth rate of over 30 percent. As a result of the global recession, U.S. exports to India declined slightly in 2009. (In the 1700s, America traded more with India than with all of Europe combined. In 2009, India was United States’ 17th largest goods export market, and 15th largest supplier of goods imported into the United States).

**For the period 2004-2009, U.S. exports to India grew by a total of 269 percent, while India’s exports to the United States grew by 136 percent. U.S. exports to India have grown faster than exports to practically all other countries in the world.

**The United States exports to India high-technology products such as aircraft, electrical machinery, optic and surgical instruments, chemicals, plastics, pharmaceuticals, vehicles, and railway stock and traffic signal equipment, as well as natural pearls and precious stones, fertilizers, and iron and steel, most of which pay much above-average employee wages.

**With India’s penchant for all things American, and with the U.S.-India civilian nuclear agreement in hand, U.S. exports to India are likely to grow even faster in the coming years – creating even more jobs in the United States.

**U.S. manufactured exports to India were linked to 96,000 manufacturing and non-manufacturing jobs in the U.S. in 2009. Ten states (California, Washington, Texas, Illinois, New York, Utah, Pennsylvania, South Carolina, Florida, and Georgia) accounted for only 62 percent of all U.S. jobs linked to exports to India in 2009, indicating that the benefits of exporting to India are wide spread throughout the nation.

**These numbers do not include agricultural, mining, and services exports, which will have their own implications for jobs in the United States. For instance, in 2007 the United States exported services worth $9.4 billion to India, compared to the goods worth $15 billion that are the focus of this study.

**The top 10 products the United States imports from India are: natural pearls and precious stones, pharmaceuticals, organic chemicals, apparel and accessories, needlecraft sets, electrical machinery, articles of iron and steel, machinery, and carpets. This is because of the comparative advantages India has in producing such, often low value-added, products, which go to lower the cost of living in the United States.

**In an op-ed article in the Hindustan Times dated October 23, 2009, Dr. Amit Mitra, Secretary-General of the Federation of Indian Chambers of Commerce & Industry, recommended an "ideal swap", whereby India should offer its huge market in exchange for technology and knowledge from the United States.

**The 2.57 million Indian Americans in the United States contribute to the U.S. economy and society in numerous ways.

**According to the Survey of Business Owners by the U.S. Census Bureau, there were 231,000 businesses owned by Indian Americans in 2002, which employed 615,000 workers and had revenues of over $89 billion. (The Census Bureau conducts the survey every five years, and the results of the 2007 survey are to become available starting in mid-2010).

**A 2007 joint Duke University-UC Berkeley study by Vivek Wadhwa and others found that Indian immigrant entrepreneurs had founded more engineering and technology companies during 1995-2005 than immigrants from Britain, China, Japan, and Taiwan combined. Of all immigrant-founded companies, 26 percent had Indian founders.

**A 2007 study by the National Venture Capital Association (NVCA) found that India was the most common place of birth for foreign-born founders of venture capital-backed public companies, followed by Britain, China, Iran, and France.

**The list of major companies whose founders or co-founders are of Indian heritage include Akamai (1,750 employees), Bose Corporation (8,000 employees), iGate (6,910 employees), Kanbay International (6,900 employees), Sun Microsystems (29,000 employees), and Syntel (13,600 employees). Dozens of such companies in the United States have created tens of thousands of jobs.

**There are currently almost 10,000 Indian American owners of hotels/motels in the United States, owning over 40 percent of all hotels in the United States and 39 percent of all guest rooms -- in all they own over 21,000 hotels with 1.8 million guest rooms and property valued at $129 billion. They employ 578,600 workers.

**There are about 50,000 physicians (and 15,000 medical students) of Indian heritage in the United States, serving in cities, rural, and peripheral areas throughout the country. They continue to make major contributions to their communities, to healthcare, and to the medical profession in the United States. (Although Indian Americans represent less than one percent of the U.S. population, students of Indian origin constitute 10-12 percent of medical students entering U.S. schools).

**Education is one of America’s finest exports. The foreign students who come for higher studies to the United States not only bring talent, but also contribute to the U.S. economy via tuition and living and other expenses. The expenses incurred by foreign students in the United States are treated as "deemed exports," with implications for thousands of jobs linked to such exports.

**India has had the largest number of foreign students in the U.S. among all countries of origin for eight years in a row. In 2008, there were 94,563 students from India whose net contribution to the U.S. economy was $2.39 billion.

**The non-financial benefits of engaging with India are equally significant – cultural, social, regional security, and political advantages to name just a few.

**Nobel Laureates. Har Gobind Khurana (Medicine, 1968), Subramanyan Chandrasekhar (Physics, 1983), Amartya Sen (Economics, 1998), and Venkatraman Ramakrishnan (Chemistry, 2009).

**CEOs at major Corporations. Indira Nooyi (PepsiCo), Vikram Pandit (Citigroup), Shantanu Narayen (Adobe Systems), Francisco D’Souza (Cognizant Technology Solutions), Surya Mohaapaatra (Quest Diaagnostics), Dinesh Paliwal (Harman International), Jai P. Nagarkatti (Sigma-Aldrich), and Abhijit Talwalkar (LSI). There are thousands of other corporate executives Indian heritage who are senior and top-level executives of medium and large businesses throughout the United States.

**Educators. This is also an area where Indian Americans have made major contributions to the United States and to their disciplines. Just to name a few, here’s a select list of "college deans" in major business and engineering schools in the United States: G. Anandalingam (Dean, Robert H. Smith School of Business, University of Maryland), Vijay Dhir (Dean, Henry Samueli School of Engineering, UCLA), Pradeep Khosla (Dean of Engineering, Carnegie Mellon University), Nitin Nohria (Dean, Harvard Business School), Shankar Sastry (Dean of Engineering, University of California, Berkeley), and Subra Suresh (Dean of Engineering, MIT).

**Engineers, Scientists, and Technologists. Of the thousands of engineers, scientists, and technologists of Indian heritage in the United States, a special mention must be made of those who graduated from the famed Indian Institutes of Technology (IITs). Most Fortune 500 and other high-technology companies have one or more IITians in their senior executive cadres, so do Wall Street investment banks, federal government agencies like NASA, the World Bank, and so on. There are even management gurus who received their first degree at an IIT. It will be an impossible task to capture the contributions of the IITians to the American economy in a study like this. However, some of their achievements have been documented in publications like The IITians: The Story of a Remarkable Indian Institution and How Its Alumni Are Reshaping the World by Sandipan Deb (Penguin/Viking, 2004).

**Obama Administration Appointees. A select list of Indian Americans serving in the Obama Administration are: Rajen Anand (Executive Director, Policy, USDA Center for Nutrition and Promotion), Aneesh Chopra (Federal Chief Technology Officer), Ro Khanna (Deputy Assistant Secretary for Domestic Operations, US and Foreign Commercial Service, International Trade Administration), Vivek Kundra (Federal Chief Information Officer), Arun Majumdar (Director, Advanced Research Projects Agency, Department of Energy), Farah Pandith (US Special Representative to Muslim communities), Rajiv Shah (Administrator, U.S. Agency for International Development), Rajiv Shah (Undersecretary for Research, Education & Economics and Chief Scientist, Department of Agriculture), Islam A. Siddiqui (Chief Agricultural Negotiator, Office of the US Trade Representative), Vinai Thummalapally (US envoy to Belize), and Richard Verma (Assistant Secretary for Legislative Affairs, State Department).

**Politicians. Bobby Jindal, the Governor of Lousiana, is the highest-profile Indian American in the political sphere in the United States. There are also many state Senators and Assembly men and women as well as city mayors, Council members, and other elected officials of Indian heritage that serve their respective constituencies.

**Journalists. They are often the most visible group of Indian Americans in the United States. Some of them are: Falguni Lakhani (Producer, Dateline NBC), Vinita Nair (Anchor, World News Now and America This Morning, ABC), Raju Narisetti (Managing Editor, The Washington Post), Uma Pemmaraju (Senior News Anchor, Fox News Channel), Gopal Raju (Editor, India Abroad, and pioneer of American Indian media in the United States), Shihab Rattansi (CNN International Anchor), Ali Velshi (CNN Business News Anchor), Zain Verjee (CNN Anchor), and Fareed Zakaria (Editor, Newsweek, and host of Fareed Zakaria GPS on CNN)

A special feature of the report: the excellent case studies of select Indian companies operating in the US including the Tata conglomerate, Essar Steel, Jain Irrigation Systems, HCL Technologies, Ranbaxy Laboratories, First Source Solutions, Rolta, Polaris Software, Indegene Life Systems and Infotech Enterprises.

For the full report, please click: 


Ram Narayanan
US-India Friendship