Technology and Economic Development in India

Minister Mahajan and distinguished business leaders from India: Let me begin by wishing you a warm welcome to New York City.

I am proud to be in New York, the center of financial life in the United States. I salute the resilience of New Yorkers and the Exchange in the aftermath of the September 11 attacks.

Before getting to the heart of my remarks, I would like to congratulate you, Mr. Minister, for your success in launching SuperCom Asia earlier this year.

I also congratulate the government of India for eliminating export quotas as part of its effort to double Indian exports to more than $80 billion by 2007.

We also have noted with interest the government’s plans to create special economic zones.

These steps offer promise in contrast to currently low U.S. trade and investment in India. We’re here today to recognize greatly increased business cooperation as a powerful force for developing India’s economy and creating mutually beneficial investment opportunities.

USIBC and the Federation of Indian Chambers of Commerce and Industry have rightly focused our attention on the promise of knowledge-based trade.

Last year, the Economist magazine ran an interesting feature on the potential of harnessing modern technology to accelerate development and poverty alleviation.

The magazine’s analysis highlighted three sectors that are directly relevant to the U.S.-India business relationship: information technology; agriculture biotechnology; and medical technology and pharmaceuticals.

I contend that these three areas can become the force driving the U.S.-India business relationship, and are critical to India’s achieving economic dynamism.

To achieve these goals, however, it will be important to take high tech mainstream. This means using technology in ways that increase the productivity and improve the lives of ordinary Indians.

Consider first IT.

We encourage you to shepherd the Convergence Bill now moving through Parliament, to keep the good points -- such as transparent licensing criteria -- and fix potential problems such as an autonomous Communications Commission.

We welcome India’s steps to open its telecommunications market to private investment and competition. The successful de-monopolization of India’s international long distance services provider, VSNL, and lifting the ban on Internet telephony are important first steps. Accelerating competition will facilitate the flow of private investment to support the network’s expansion for the benefit of both urban and rural consumers.

Until very recently, we spoke admiringly about IT’s ability to spur commerce. In light of September 11, and this, the "year of development," it’s time for a new focus on IT’s ability to promote social development.

I am utterly convinced that telecommunications and IT create the strongest multiplier in an economy. These technologies impact our ability to move and use power, transport goods and services, increase mobility, access medical care, learn, govern. In short, these are the engine of the New Economy, and we need to harness the power of that engine to deliver social goods in a way that will lift the lives of all the people, and, in so doing, dramatically improve the lives of the poorest.

In this context, I’d like to highlight the work of some members of TiE’s New Delhi chapter, who have launched The India Sponsor Foundation. The India Sponsor Foundation works with organizations committed to social needs including children, gender, old age, health, environment, disability, education, income generation, rural issues, and disaster preparedness and relief. These individuals have proven it’s possible to do well by doing good.

Now let’s consider agriculture biotechnology.

We welcome the government’s recent decision to approve commercial use of Bt cotton. It’s not hype that biotech cotton has the potential to make India the world's dominant cotton grower.

Although India has more land under cotton cultivation than any other country in the world, it yields only 655 pounds per hectare, less than half the global average. Despite spending $250 million a year, 30 percent of India’s cotton crop is lost to pests and disease.

Bt cotton will boost yields – profitably – without the attendant adverse environmental and health effects associated with prolonged pesticide use.

Given the costs to bring a new biotech product to market, estimated between $30 and $50 million, biotech R&D rests largely in private sector hands. This leads us to ask whether the benefits of the technology can be widely shared. I believe they can.

Corporations, governments, development agencies, NGOs and research institutions must find innovative ways to encourage public-private research and partnerships focused on developing country agricultural needs. The private sector, in particular, will need to find innovative ways both to fund this very expensive research and to share the technology with developing countries. Nowhere can these possibilities be better brought together than in India. I am pleased that Bt cotton is being commercialized in India by a partnership that includes Indian and U.S. companies.

Biotechnology has equal promise in pharmaceuticals R&D. Along with medical technologies, this is the third sector the Economist noted for its potential to accelerate development. There's no question that the exciting research that makes use of the body’s own natural tools, to develop more and better drugs to fight age-old diseases, has the potential to improve the health and quality of life of every person on the planet.

India, with its vast reservoir of scientific talent, established pharmaceutical industry, diversity of population and unique natural resources, is poised at the threshold of success.

Key to India's development of biotechnology is the need for a science-based, rules-based regulatory approach, which is the best way to attract private sector investment.

The U.S. Government is committed to helping India establish the right legal framework to encourage R&D partnerships and joint ventures with U.S. pharmaceutical firms, many of whom have already made investment commitments.

For example, Eli Lilly plans to establish a $20 million global clinical research center, Pfizer is conducting biometric analysis in India, and Novartis plans to establish a global clinical research center in Mumbai.

To achieve the potential promise of the vast developmental and social benefits biotechnology applications offer, India must develop a strong IPR regime. Such a regime can catapult India's pharmaceuticals sector into new product lines heretofore unimaginable that will pave the way ahead and demonstrate that the pursuit of generics may prove to be an economic and scientific dead end.

It’s instructive that Indian firms such as Dr. Reddy’s and Ranbaxy have joint ventures with companies like Novo-Nordisk and Bayer to market products overseas, but can’t risk distributing products at home.

The Knowledge Trade Initiative report offered several positive recommendations on medical biotechnology. I encourage the further exploration of win-win-win scenarios. A triple win not only marries U.S. financial resources and know-how to India’s medicinal and IT resources, but does so to address public health threats such as malaria and TB.

Win-win examples can be found in medical technologies as well, with the partnership between Wipro and GE Medical Systems among the most prominent examples. Wipro GE, India's largest exporter of medical systems, pioneered the manufacture of ultrasound and computed tomography systems in India.

GE's investment in ultrasound technologies especially has created a market driver for Indian R&D and specialized software development, and created impetus for leveraging India's technology resources housed in many development centers. A critical point is that the software developed for GE can be shared and adapted for other companies and applications, giving Wipro, and India, an independent stake in GE's medical innovations.

Unfortunately, technology alone is insufficient to accelerate development and alleviate poverty. This is one of the messages from the recently concluded Financing for Development Summit in Monterrey, Mexico. The President's Millennium Challenge Account will increase our assistance by $5 billion per year over current projected levels by fiscal year 2006, ramping up in 2004 and 2005. But its benefits will be firmly tied to good governance, anticorruption and the delivery of social goods to the beneficiary countries.

Our substantial new commitment, along with those of the EU and other countries are necessary, but not sufficient. Monterrey solidified our long-held view that traditional development assistance is only one part of a larger equation. Trade, domestic and foreign investment, and tapping financial markets are essential for funding poverty reduction and creating broad-based economic growth. Indeed, figures demonstrate that these flows swamp the combined worldwide total of official development assistance.

Here India's record is not so good. U.S. investment totaled a paltry $336 million in 2000; U.S. trade flows to India have stagnated since the mid-1990s, and the Dabhol power project has become a world-renowned investment dispute.

A comparison to countries in Asia with similar GDP – Korea and Taiwan – is particularly telling. Korea was our seventh largest trading partner in 2001, with total trade valued at more than $55 billion; Taiwan came in eighth, just under $50 billion. India was 25th, with trade of just over $13 billion, about the same as Indonesia which generates one-third of India’s GDP.

So what to do? The remedies are known, but hard to swallow.

India needs to reduce the overwhelming regulatory requirements that stifle trade and discourage investors and in reality act as a tax on Indian consumers.

India needs to streamline and rationalize the conflicting state requirements that bewilder both investors and those who would export into your markets. This is especially true concerning regulatory oversight of activities in the special economic zones.

And India needs to significantly reduce customs duties and the range of other taxes and fees that make imports so expensive in India. Just like regulatory burdens, these duties and fees are a huge drag on Indian consumer spending and saving.

But we all know that a spoonful of sugar can help the medicine go down. The incentive is positive examples of economic development in India.

I point you to Owens Corning India, which has turned its Mumbai glass fiber manufacturing plant into the largest single exporter in Maharashtra State and the company’s most successful venture in Asia.

I would look to Ford India, which has invested more than $400 million in its Tamil Nadu plant; the company's popular Ikon sedan makes up 66 percent of the total auto exports from India, with major markets in South Africa and Mexico. In keeping with Ford's record on corporate citizenship, the company relies on local workers for its operations, and it's the only car plant to have the ISO 14001 environmental management certification.

Tecumseh Products India Limited, employing 2,500 skilled and unskilled workers in Haryana and Andhra Pradesh, operates the only air-conditioning compressor manufacturing plant in India, in accordance with the highest internationally recognized technical standards.

And now, a word about how government might help to leverage these private sector efforts: The U.S.-India Economic Dialogue provides one avenue through which our governments, in partnership with the private sector, can boost trade and investment and share best practices.

We are seeking a structure for bilateral dialogue that is both flexible and substantive, one that does not fit into preconceived notions or bureaucratic stovepipes. Here we will care little for form and everything about substance. In our view it is essential that the private sector take the lead not only in changing the face of Indian business through new and innovative technologies but also informing our governments of unnecessary obstacles to business development.

To reiterate an earlier point, technology may be the centerpiece of the Economic Dialogue, but it’s the resulting social benefits that will cement our economic relationship.

Successes will be counted one at a time -- by every farmer who increases his output and his income, by every worker who improves the livelihood of his family, by every individual who leads a healthier, happier life.

Moving India’s economy forward will require more than a blueprint or a CAD drawing. It won’t become reality without brick and mortar, and lots of people involved in the building process.

But for the moment, I'd like to turn the mike over to one of our master-builders, Minister Mahajan. Perhaps we can talk more about the spread of technology benefits and contributions to economic development in the discussion before the next panel session.