India or US? Whose interests will the Chief Economic Advisor Subramanian serve?

Arvind Subramanian. Image: Flickr/kris krüg

“US business faces three major challenges in India. Two challenges common to all foreign business are: first, the weak and uncertain regulatory and tax environment that affects the civil nuclear industry, infrastructure, pharmaceuticals, and more broadly the operations of foreign multinationals in India. Second, although the broad macroeconomic picture is one of opening and surging trade and investment, protectionism in selected sectors has re-surfaced. India is seeking increasing recourse to localization—in banking, telecommunications, retail, and solar panels among others—which favors domestic providers of inputs and equipment over foreign providers. Thus, broad trade and macroeconomic policies toward foreigners are moving in the right direction but sectoral policies have experienced setbacks.”

Who could have said this?

A trade specialist working for the US interests? An advisor to some US trade body or an advisor to the US government? Or an overseas critic of prime minister Narendra Modi’s plans to localise manufacturing?

The answer is none of the above, but the current Chief Economic Advisor (CEA) Arvind Subramanian.

This is not a random statement that he could have made long ago, but has been taken from his testimony before the “Ways and Means Committee of the United States Congress”, which was hearing on “US-India trade relations.” in March 2013.

As a senior fellow at the Peterson Institute for International Economics and Center for Global Development, he was obviously advising the US on how to do business with India. The tone and tenor is that of an American trade specialist who is quite keen on protecting his country’s interests.

Some of the points that he mentions in the paragraph above as India’s weaknesses from the US point of view are in fact its strengths which protect its people’s interests – the regulatory and tax environment of the nuclear industry and pharmaceuticals and the operations of foreign MNCs. Additionally, he refers to “protectionism” and “recourse to localisation” which favour domestic providers over foreign providers as challenges to the US.

His voice on pharmaceuticals resembles that of the pharma MNCs and the US trade bodies that constantly find fault with India’s pharma policies which are compliant with its domestic laws and conditions (pricing and patents) and WTO (TRIPS flexibilities). In the recent past, particularly ahead of prime minister Modi’s visit to the US, there had been an onslaught on India’s intellectual property regime as it relates to the pharma industry. Attempts had been made to portray India as a renegade. By calling the regulatory and tax environment related to pharmaceuticals, “weak and uncertain”, Arvind Subramanian had indeed refused to side with the interests of Indians. There have been reports that the prices of drugs have been increasing after the government
recently removed the price controlling powers of the National Pharmaceutical Pricing Authority (NPPA). Possibly under pressure, so far it has refused to intervene.

Now read what Rod Hunter, senior vice-president, Pharmaceutical Research and Manufacturers of America, wrote in an article in the Hindustan Times, : “One of the obstacles to investment in knowledge-intensive industries in India is intellectual property (IP) rights. India has been hostile to IP protection, especially for biopharmaceuticals. In recent years, India has invalidated or otherwise attacked patents on a significant portion of innovative drugs available in India in order to make way for local champions.”

In the same congressional testimony, Arvind Subramanian goes on to add:

“American firms are increasingly facing implicit but substantial discrimination in India’s large and growing market because of India signing (or on the verge of signing) free trade and economic partnership agreements with its largest trading partners that are all major competitors to the US: Europe, Japan, Singapore, ASEAN, and possibly ASEAN-plus 6. Soon, if not already, this discrimination may be the bigger challenge for US business than some recent sectoral measures. These RTAs are neither as comprehensive in their coverage across and within sectors as the FTAs negotiated by the United States, nor as expeditious in the time frame for implementation. But they provide more favorable access to non-American suppliers and because India’s tariffs and barriers can be high, the discrimination can be substantial. Combined with the fact of India’s large and growing market, US suppliers can really be disadvantaged.”

Here again, he picks on India’s trade ties with countries other than the US and focusses on the FTAs with the US. FTAs, particularly with the US and the EU, are viewed with a lot of suspicion by development economists and activists in India and elsewhere because they are inherently harmful to the larger interests of people. The latest trade and development report (2014) of the UNCTAD said that the FTAs affect the policy space of developing countries. The large-scale protest in Thailand against the FTA with the US a few years ago is a case in point.

The most telling in the present CEA’s advice to the US in his previous avatar is the following:

“The US should adopt the following multi-pronged strategy for solving trade conflicts and maximizing the underlying potential. First, the US should address frictions especially where Indian policies are demonstrably protectionist (as in the case of many local content requirement policies) through multilateral (WTO) dispute settlement procedures. The US should not be reticent in this regard.”

Now the question is whose interests will the CEA serve? India’s or that of the US? The fault is not with him, but with India. He is one of the many professional faces of transnational capital that’s highly mobile. IMF and World Bank pedigree doesn’t necessarily serve the interests of the majority of Indians who are desperately poor. It’s time we applied the “make in India” principle to our home grown experts too.